RITES will grow moderately in FY21; It has an order book of Rs 6,132 crore: Rajeev Mehrotra, CMD

Rajeev Mehrotra, Chairman and Managing Director (CMD), RITES, talks about the Q1FY21 results, the order book for the year, growth expectation for FY21, RITES participation in government plans, international business and margins during an exclusive interview with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: Q1FY21 numbers are down if compared on a year-on-year basis. Please take us through the highlights of the quarter and what led to such a performance? Also, talk about the outlook in the coming quarters?

A: It was such a disrupted quarter in which companies where a lot of fieldwork is involved and is also working outside India, where the corona effect was present. Using it as a benchmark to compare on the year-on-year basis or for future forecasts then I will terms it as a fractured judgement. So, we should understand this quarter by looking at a factor that movements were completely shut down for around one and a half month and minimum activity that was possible was done in the remaining one and a half month. But, we resumed our activities as soon as possibilities were visible and its result is visible in results, revenue and profitability. This is a hard-earned result, which is an outcome of the commitment of the employees and they must be appreciated for it. But this is not a reflective number for the coming quarters. 

Q: Let’s talk about the order book. Update us about the kind of activities you are seeing and expected orders in the near-term to medium-term? Also, let us know about the existing order book and what addition can be seen in FY21?

A: The best strength of the company is that it is present in five segments of businesses. We are mainly into consultation business. Along with this, we are also engaged in exporting the rolling stocks, leasing of locomotives in India and also have a big portfolio of management of railways. These four-five businesses have allowed us to do some good work amid the lockdown as few activities were carried on during the lockdown. It has an advantage that the future order book or a scenario is developing through the National Infrastructure Pipeline for which the company is getting ready to bring new businesses in every segment, like railways, highways, metros, ports and waterways, wherever opportunities are available. 

But we will also focus on executing the order book of Rs 6,132 crore that we have at present. This order book has helped us a lot in immediately start work as they were available. This order book is better if compared to last June order book. It is Rs 100-125 crore more than that. The disruption in activities was felt in India as well as other countries where we are working, like Mauritius, Sri Lanka and Bangladesh, as there was a phase of lockdown everywhere. After getting out of it, we are getting ready to execute the projects at a great speed. But, the COVID-related figures for the second quarter are not quite comfortable that’s why it seems that a speedy recovery can be seen in the market only after the second quarter. 

Q: In the recent past we came to know that the government is working on a plan to offer some big quantum offers to the PSUs and the first tranche will be of around Rs 3,000-5,000 crore, which will be carried on further. I think works of six categories are involved in it and some PSUs have been shortlisted for it, including RITES. Can you please confirm us about the kind of activities that is happening there?

A: You have rightly noticed it, RITES is also one of the eligible shortlisted companies from whom the offer has been sought to work, further. If we get a chance, then we would like to take projects worth between Rs 500-1000 crore from it. A good profile of projects is available in it. It must be noted that government has come out only with very high priority projects like electrification; safety, ROBs, construction of foot over bridges and signalling. The next big thing that should come soon will be related to doubling and third line projects, which is in pipeline at present but the current process is related to electrification, ROBs among others. So we will target to get projects worth Rs 500-1,000 crore from it. This year, we will also try to materialize some of those and earn some revenue against these orders by the fourth quarter, however, it is a bit difficult because it takes around 5-6 months to prepare a DPR and engineering design, take approval and issuing tenders related to it. But we expect that we will reap some benefits from it this year as well. 

Q: You also focus on international business through exports. What is the future outlook on it and do you think that it will remain muted or do you expect a pick up there?

A: The running stocks, which were exported from India till date, were quite different in terms of gauge from the one used in India. Broad-gauge and metre-gauge are used in India. Till date, we were focusing only on these two gauges. This is the first time when we have negotiated a very big order on Cape Gauge with an African nation and it was concluded in June. It is a Rs 705 crore order and was signed in June itself. It was concluded in the COVID period through video calls. Its perspective future is very important as we are entering into a segment of gauge which was never made and exported by any company in India. 16 countries follow cape gauge, till date. So, a new market is opening, if we can provide an acceptable price and acceptable quality that we are targeting then these markets will open widely for India. Besides, we are also trying different types of gauges and we never exported to the standard gauge market and are making prototypes for it. We are working on the gauge, which India was not seeking to export till date, and are also following the business orders related to it. So I would like to say that we are exploring the traditional market of broad-gauge and metre-gauge and are also entering into other gauges and are succeeding in it. This success is very encouraging and its results will be seen on the company in the coming future.

The 3-4 years that we invested in creating an export profile is providing productive results. We had an export target of Rs 550 crore last year and I feel that we are in a position to beat it this year s the order book is very strong. However, there is a slight disruption in sub-assemblies and suppliers in the outsourcing supply lines, like lockdown was enforced in Chennai; there were disruptions in Maharashtra and Bengal also. RITES export has kept a shipment target of around Rs 550-650 crore and its possibility gives me a sense that the company will be able to provide a moderate growth this year, despite all these challenges, working environment and other challenges. We are quite optimistic about growth.

Q: What is your future outlook on the margins that has contracted to 18% in the June quarter and where would you like to focus to increase the profitability of the company? Also, tell us that are you seeing forward to some M&A opportunities as we have learnt that you have plans to buy 24% stake in IRSDC?

A: First I would like to talk about the margin. The company’s business is spread in five key segments and we have provided a margin outlook in the market and have maintained it in this quarter as well. Wherever we felt that the year’s disruptions could challenge the margins then implemented a focused cost management programme in the company and its results are reported. We have controlled the employees' cost by 9-10% and it will be done across the year. I would like to say that there are a strong feel and scenario to maintain the margins and we will be able to do so because I can’t see any disruptions in the margins of the orders that we have in our hand, at present. The procedural correction has already been done at the company’s end. So, let's be optimistic. 

You also asked about the stakes then I would like to say that we RITES doesn’t have any plans to take over someone but there are two important developments. They are: 

Energy management: The government has a green-energy programme for the railways in which one of our subsidiary, namely Railway Energy Management Company is supposed to CapEx 400 MW, which is going to be a Rs 1,700-1,800 crore CapEx. RITES has 51% equity in it and 49% belongs to the Railways, so we will have to make an equity investment of around Rs 180-190 crore. So this is one commitment that we have.

Station Development: We have taken 24% stakes in the station development company. The combined real estate and residential development plan created by the government will be a successful one at the stations which are prominently located across India. Short term disruptions will be normalized. Besides, the station development outlook is very positive. We have already seen old airports, as well as the new ones and the same story, will be repeated at the stations, which are prominently located in the cities. I feel that it is a very important long term decision, which must not be looked just from the equity investment point of view. The company’s engineering skills are so strong that if that is provided to the Station Development Corporation than it will benefit the company in its revenue and profitability. 

So there are two important investments this year and they are (i) increasing equity in the energy management company and (ii) we have already approved an investment of Rs 48 crores in the Station Development Company.

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