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00:00Hello and welcome, you are watching Earnings Edge.
00:08This is Anushi Vakharia and we have some interesting management in focus today.
00:13The first one on the list is Rites Limited.
00:14Now the company has come out with its Q1 FY25 results, so just a bit on that.
00:19Well, if you look at the numbers, they were not on the brighter side, the numbers were
00:23down today.
00:24Let's take revenue for example, 11% of a downtick that we are looking at about 486
00:29crore.
00:30Now this was led by the weakness in their export business and the other side as consultancy
00:36business as well.
00:37EBITDA saw about a 34% decline at 106 crore, while the margins have seen a drastic shift
00:44to 21.8% as compared to 29.7%.
00:48Now if you look at the net profit as a result of these, they have seen about a 24.4% decline.
00:53If you look at the order book status, the order book stood at about 6,355 crore, while
00:57the projects secured during the quarter stood at about 1,301 crore.
01:02But to discuss more on the results and to get outlook on how we should watch out for
01:07the further quarters coming by, we are now joined in by Rahul Mittal, the Chairman and
01:12Managing Director.
01:13Hello and welcome to the show.
01:15So my first question is on the results, the revenues and margins were hit this quarter.
01:19I want to understand from you, how has Q1 panned out?
01:22You did mention that we saw some weakness in the quality assurance and export sides.
01:26So can you expand more on that space?
01:28What has happened over here?
01:30Yes, Manning, you see, the Q1 performance has been muted and you correctly said the
01:40hit has been due to two main challenges which took us, the full impact was felt in this
01:45quarter when you compare YOY.
01:48The inspection business took a hit of about 25 crores because of the full impact of the
01:55new regime of competitive order from IER when you compare it with the last Q1.
02:02And the export contribution, which was about 35 crores in the last Q1, where the last coaches
02:08of Mozambique were being shipped out and which was minimal or negligible in this Q1, there
02:13was hardly any revenue from export.
02:15So this total of about 60 crores from both these streams of my revenue, which are high
02:22margin revenues.
02:23And thus, as you see the impact on the top line and a consequential impact on the bottom
02:28line.
02:29Well, that's fair.
02:30But now going forward, can we expect a pickup in this export business?
02:34Will the margin pressure continue in Q2 as well, if we look forward?
02:41You see, the order book has grown substantially between, say, the last quarter itself by about
02:471300 plus crores and in the last three quarters by about 3000 crores.
02:52So the focus is now on execution, whether it is the new orders of export that we have
02:58got in, whether all the consultancy orders across the sectors, whether it is airport
03:04consultancy, highway, tunnels, rail, infra, and the new diversified portfolio in the inspection
03:11business where we have got now about 55% of our of our bouquet in the QA business is
03:19the non-IR clients.
03:21So the focus is on quicker and faster execution moving forward.
03:26Yes, definitely, we would aim that Q2, we see sequentially growth over Q1.
03:34Few geographies, few project sites may get affected because of the rains in this quarter.
03:42But definitely, we would aim that we try and go above Q1, but definitely in H2, we would
03:51definitely leverage at a much faster pace so that overall on FY, we are able to come
03:58as close to our level of the previous FY.
04:01Okay, well, that was insightful.
04:03But now looking forward, the overall FY25, where do we see the margin standing at and
04:09what's the kind of expected revenue growth for the whole FY25?
04:15You see, the whole trend of moving from nomination to the competition arena, whether it is the
04:23inspection business, which had a huge impact as you saw in this quarter itself and the
04:29last FY sequentially, all our streams of revenue, whether it is this export order, which we
04:34got on a global tender basis, to about two years back, the ratio of fresh orders from
04:43the nomination to competition is about two-third plus, about 70% on nomination and about 30
04:49odd percent on the competitive basis.
04:52And the last few quarters, in fact, this quarter itself, the ratio is about 80-20, 80 is on
04:59the competitive basis and about 20-25% is on the nomination basis.
05:04So with this, in all streams of revenue, obviously, there is an impact on the erstwhile margins
05:11and as well as on the blended margins.
05:14But I think the levels of margins across the various streams of revenue, as well as the
05:19overall blended EBITDA margins that you see in Q1, I think this is where the levels, it
05:25would average out and settle down over the coming quarters.
05:31Yes, in a particular quarter, due to a mix in the blended mix in revenue, there would
05:37be slight variation within a band.
05:40But overall, I think it will average out to these levels of margins.
05:46So Mr. Mittal, do we expect this mix to continue between the nomination and competitive side
05:51going forward as well as you mentioned?
05:55Yes, definitely.
05:56Every passing quarter, every passing month, more and more the work is on competition basis.
06:04And while it is a challenge, it is also an opportunity because since we have infrastructure,
06:11we have about 13 different verticals across various sectors of infrastructure, where we
06:17have been traditionally bidding both in the domestic and the international tenders.
06:23As this trend of competitive bidding is evolving, we are able to capitalise and find it easier
06:32and are more agile to adjust to this change.
06:36And while it's a challenge, it's an opportunity because many of our peers and other competitors
06:42who may not be so used to the competitive environment may find it a little more difficult
06:48to align to the change environment.
06:51And we are seeing this trend growing.
06:53It's about 75-25 or 80-20 now in this quarter, and it's definitely going to maybe remain
06:59or only increase in the coming quarters.
07:02Okay, so orders to continue to remain on the competitive side as you speak.
07:06But now coming to the order book of about 6,355 crore, what's the execution timeline
07:11of your order book?
07:12And where do we see your order book at the end of FY25 considering the kind of order
07:16inflow growth that we should be watching out for?
07:21So you see, out of 6,350 consultancy, which is our core business is about 2,500 crores.
07:28And as I said, our focus will be in the coming quarters.
07:33There are two types of consultancy orders.
07:35One is where you do the DPRs and the master plans, which we will try and execute at a
07:40much faster pace.
07:41And then there are certain consultancy projects, which are the project management consultancy
07:47orders, which are based on the execution at the field level of the infrastructure projects.
07:52So those also in collaboration with our client will try and see that they get executed at
07:58a faster pace so that the revenue milestones are achieved at a faster pace.
08:03Similarly, for the export orders, the 200 coaches of Bangladesh and the 10 locomotives
08:10of Mozambique, our aim is that at least by about Q1 of next FY, the certain shipment
08:17starts, maybe we try and slip in a few by the Q4 of this FY, but definitely by Q1 of
08:23next FY.
08:24So whether it is our consultancy orders or our export orders, we would definitely aim
08:31for faster execution.
08:33Maybe as I said, Q2 will be a little tough because of the certain rain affected geographies,
08:40where certain infrastructure projects of ours are happening, but definitely we would
08:45try and optimize it and Q3 onwards definitely have them move faster.
08:52As far as the growth in order book is concerned, we have achieved a milestone of being a one
08:59order a day company and this growth of about 11% in the order book in one quarter itself.
09:07In fact, if you compare in the last FY, we got orders of about 600 crores and in the
09:14last three quarters, we have got orders of about 3000 crores, which is five times.
09:18So with this, I see the trend being maintained across sectors.
09:23The trend that we have seen recently, we've got orders in highways, airport consultancy,
09:29tunnel consultancy in J&K, rail infra in Karnataka, multimodal logistic park in Indore.
09:37Across sectors, across geographies, we see this trend of fresh orders continuing.
09:44Now coming to my final question, on the consultancy side,
09:47how are the margins looking like?
09:49I want to understand the breakup across the different segments
09:52and again, if consultancy will remain as the main focus as we go ahead as well.
09:58Yes, for sure.
09:59You see, our core strength is consultancy.
10:02We are a consultancy company and we have the unique USP of being the
10:09only infrastructure consultancy company in India, whether it is in the PSU space or a private
10:17infrastructure consultancy company space, which has all verticals of infrastructure under one
10:22roof except maybe oil and national gas.
10:25So all areas of infrastructure consultancy, we have about 13 different verticals
10:31from rail infra to highway, buildings, sustainability, airports, ports, etc.
10:36So consultancy, as you see, is the major chunk of our order book.
10:40It will always remain the major focus of our getting fresh orders, execution.
10:47Yes, there are certain high margin consultancy verticals, some
10:51median margin consultancy verticals, but on a blended mix, consultancies are core strength.
10:57And as we have completed 50 years in April recently,
11:01we will continue to build up on our strength of consultancy being our core business.
11:06Okay.
11:06So consultancy to remain as a core focus.
11:09Okay.
11:09Thank you so much, Mr. Mithal for joining into NDTV Profit and sharing your insights.
11:14We look forward to the quarters coming by for more such updates.