Kernex Stands To Gain From Railways' Kavach Push | NDTV Profit
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00:00Hello and welcome. You are watching the Small and Mid-Cap show. I am Mahima Vatshajani with
00:12Meez Varsha today. Well, before we speak to the managements that we have on the show,
00:16let's take a quick check on how the markets are panning out at present. Well, in terms
00:21of the benchmark indices, the pressure is there. However, it is not as bad as it was
00:27yesterday. Nifty 50 is down around 0.09%. Let's also take a quick look at what Sensex
00:34is doing. Pretty much in line with what Nifty 50 is doing, it is also down around 0.1%.
00:40But let's take a quick look at what broader markets are doing. Well, the broader markets
00:44are clearly outperforming the benchmarks today. The Nifty Mid-Cap 150 is up around 0.9%, Small
00:50Cap 250 is up around 1.6%. Let's also take a quick look on the contributors on the Nifty
00:57today. Well, something like RIL, ITC, Tata Motors, NTPC is something that's pulling
01:06up the Nifty. But something that's weighing down the Nifty is a lot of banking names.
01:10In fact, all names, all heavyweight banking names are weighing down the Nifty. ICICI Bank,
01:15HDFC, Axis Bank, Bajaj Fintsev, Nifty Bank, all constituents of Nifty Bank in the red,
01:20Bandhan Bank, Axis Bank, ICICI, SBI. Well, let's also take a quick look at the breadth
01:27of the market. Despite yesterday's slowdown, the breadth of the market is skewed towards
01:33the buyers today. The ratio is almost 4 is to 1 now, you know, around 1600 odd advances
01:39and 400 odd declines. In terms of the sectoral performance today, well, the gainers in the
01:46sectors today are the Nifty media, the Nifty Realty and Nifty Energy. However, there is
01:52pressure seen in banks, finance and FMCG. FMCG, we are seeing a lot of profit booking
01:58today. So it's the pure profit booking play for FMCG. However, there are names like ITC
02:05and Titan, which are still gaining on the back of the budget news that we had yesterday.
02:10However, you know, today, we're going to speak to a very interesting management today. And
02:16we're going to talk to Mr. EB Rao, Chief Operating Officer of Kernex, who joins us
02:21on the show now. Mr. Rao, welcome to the show. You know, my first question to you is, you
02:28know, with the overall performance of Q1, of course, give us some color as to how Q1
02:33has been for you. And, you know, I also want to understand that, you know, you'd guided
02:38for a revenue target of 130 crores in FY24. However, you ended up doing 20 crores. So
02:44going forward in FY25, what is the kind of guidance for revenue that you'll give? Is
02:49there any change in the number that you'd guided for already?
02:54The initial stages in quarter four of last year, there was the limitations in TCAS design
03:08requirement and the product development stage. So that's what we could not achieve the
03:15projected figure in last quarter. I mean, that is final quarter of the last financial
03:22year. This financial year, those things are resolved. And we are hopeful of receiving the
03:32targets which we have planned for the TCA.
03:35So are you saying that in FY25, you'll be doing around 900 crores?
03:43That is expected, but it is depending on the project's upcoming. You see, railways is planning
03:55in big way. If it is happening that what they have assured, then we can achieve.
04:04If not, we may, right.
04:08So if not, you say they have railway board and railways are planning for issuing the
04:17tenders in the month of July, August, September. So if it is happened, then we can achieve
04:26this revenue, this financial year, that 700 to 800 crores revenue we can achieve.
04:36Right. So from what I understand is that FY24 ended with a 20 crore revenue, but if tenders
04:44are done properly and if you get those tenders, what you're expecting is 700 to 800 crores
04:49of revenue in FY25. Am I right?
04:52Yes.
04:53And apart from that, what other levers do you think will aid the revenue growth from
04:5820 crore to that 800 crore mark? And where do you see your margins and bottom line going
05:03then?
05:05You see, this 20 to 700 crores is the dependence on the projects tendered by the railways,
05:16right. Second is the implementation. Third is the clarity or design phrasing by the railways.
05:26So those things now result. So I have no doubt or the skeptical about the revenue generation.
05:35Now those issues like design implementations, design modifications, product fine-tuning
05:43is done. So I am hopeful and we are optimistic we will achieve those.
05:50Also…
05:51And 20 to 700, you see, last year the first initial stages of the project. Now railways
06:00is coming in big way. So we are one of the OEM. So we are hopeful and that is the reason
06:09we can achieve 200 to 700 CR.
06:14Also, I just wanted to touch upon your order book. So as on today, what is your order book
06:19standing at?
06:21You see, we have now six projects. In that, total order is 673 crores. In that, Kernex
06:31portion is 501. Remaining is our JV Partners.
06:36So I am assuming this would be executed in maybe, you know, in next one year?
06:42Yeah. Yes, this financial year, 80% of the things will be done.
06:52Right. So Mr. Rao, then, so if from what I understand is that from that 500 crore of
06:59order book which is completely of Kernex, 80% of it will be executed in FY25. So that
07:05is roughly 400 odd crores. So from that, so I still want to understand. So then 400 odd
07:12crores to that 800 crore mark, will that gap be filled by the tenders that you will receive
07:19from the railways this year?
07:22Yes, yes.
07:23Okay. And you know, in the budget, yesterday's budget came in and Ashwini Vaishnav has allocated
07:30roughly 2.62 lakh crores for railways overall. And for overall safety measures, 1.08 lakh
07:37crore has been allocated. So I want to understand that from this 1.08 lakh crores, if you can
07:43give us some understanding, how much of it will be allocated to Kavach and how much of
07:48a tender conversion are you expecting from that entire amount?
07:53You see, in railway safety system, there are many things. One is signaling system,
08:02electronic interlocking, train collusion avoiding system. So we are related to train collusion
08:10avoiding system. With reference to railways and the discussions, we are expecting around
08:1810,000 CR tenders in the month of July, August and September. In that, we three OEMs are
08:27there, which we can share it and bid and get it. So Kavach alone in this year, as per our
08:40expectation and as per things going on, total maybe around 10,000 to 11,000 crores, this
08:48financial, they may call for tenders. In that, we are one of the players, one of the players
08:57in Kavach system. That is one. Second is in safety system signal, we have entered recently
09:04with absolute block signaling system with one of our partners. So we are planning to
09:11explore those options also. Okay. Also, we are seeing this lot of accidents
09:20going around and where is it that we are lagging that the installation of this Kavach and safety
09:25measures, I mean we are lagging behind. So any reason for that?
09:30You see this SIL 4 system, this one, safety integrity level number 4 and railways and even
09:39the OEMs require a lot of time and repeated tests and the certifications. These are the
09:50things which is causing delay because here one product is not involved. Here multiple
09:57products, you say onboard equipments, station equipment, radio components and the traffic
10:04control room systems, all these to be developed and then integrated and the safety validation
10:12to be done. So hence, it is taken long time by all stakeholders, RDSO, railways, OEMs.
10:24These safety systems will take time. Even if you take the ETCS 2 or CTCS 3 earlier systems
10:31of European and Chinese also, they have taken this sort of time.
10:36Also, lastly on the competitive scenario, so we said that there are three players currently
10:43in the industry. Any chances or any possibility that more players will come into this industry?
10:49Yes, you see two more are expected in this financial year as per the developments happening.
11:01So there are two more OEMs are expected this year and the next year two more or three more
11:08may be added.
11:09Okay, Mr. Rao, so in total you are expecting that in next two years, five more companies
11:16will be competing with you for the entire railway safety equipment space. So then do
11:22you see yourself losing market share to all of these new companies that will come into
11:27picture?
11:28No, no, there are two things. TCAS is one of the safety systems, but TCAS alone is not
11:34a safety system. Yes, in TCAS two more will be added. We are planning to expand ourselves
11:43in ABS also, that is obsolete block signaling system. Second is centralized traffic control
11:51we are planning to enter. To compensate this, you see there is now three people coming here,
11:59five people, so we can't close the business, so we are expanding because the safety systems
12:06like the CTC and then obsolete block signaling system are similar. Not same but similar,
12:14so we can expand. So I have no doubts why we should.
12:19Understood. Well, Mr. Rao, thank you so much for breaking that down for us and all the
12:24best for the future. I hope that you reach that 800 crore mark of revenue. But with that,
12:30it's time to slip into a short break. Up next, we'll be joined by the management of Indian
12:35Overseas, so stay tuned.