Q1 Earnings Review With Titagarh Rail Systems
Transcript
00:00Hello and welcome. We have with us a very special guest joining in this morning to talk
00:06to us about the outlook for the company and what lies ahead for the sector as well.
00:10Umesh Chaudhary of Tita Ghar Wagons joins in. Mr. Chaudhary, good morning. Thank you very much for
00:15taking the time out to talk to us. We did not get a chance to talk to you during the earnings
00:19release. I would like to have you discuss that with us and of course draw out the roadmap for
00:24the rest of F525. For the quarter was slightly lower than what the street was expecting and
00:30largely I believe on back of a heat wave and elections. Going ahead, do you feel like there
00:36could be lumpiness in the orders and hence the next couple of quarters may be far better
00:41than what we saw in the first quarter F525? So yes, good morning. Always a pleasure being with
00:47you. Unfortunately, we could connect immediately after the quarter results. But you see, if you
00:54look at the results of the Q1 and compare it to the Q1 of the previous year, we still have
01:01registered about a 13% volume growth on our freight segment and the passenger segment has been lower
01:10primarily on account of completion of the Pune contract, which we had announced
01:15in the March results also. And the Bangalore and Ahmedabad production in the passenger side
01:21will start from Q2, Q3 onwards. So therefore, there is this intervening gap in the couple of
01:30quarters that we have in the passenger side. Having said that, the Q1 that we were expecting
01:39this year was our targets were higher, which could not be achieved on account of the heat wave and
01:46very high absenteeism on account of elections. But we are fairly confident of being able to
01:52recover this in the coming quarters. And we did an average of 700 wagons in Q1 and our target is to
02:04do between 900 to 950 wagons on an average in the balance part of the year.
02:13Right. So, Mr. Chowdhury, is it a fair assumption? Because I think the last time we spoke to you,
02:17it indicated close to 1000 wagons a month. Does that still stand for F525 or are we now
02:24saying that we are revising it downward to 900 or 950 wagons?
02:28No, 1000 wagons is our target. But what happens is that on an average, because of the holidays,
02:33because of the festive seasons and all of that, the average comes down. But our target is to
02:39touch 1000 wagons per month. We have been able to touch the 1000 wagons per month on a few
02:44occasions. Consistently, it's always a range that we like to present. So, when we say 900 to 1000,
02:52we generally take it as a 950 average. But that is more to keep a conservative estimate,
03:00because this is a capital good industry. It's not a process industry. In a process industry,
03:06once you switch on the machines, then the production is on an automated basis.
03:10In a project industry, the production can be different from one month to the other based on
03:15several factors or the completion percentage of the wagon and so on. So, that's where we
03:23always like to give a range and the range we give is between 900 to 1000. And for simple
03:29calculation or simplicity of calculation, we take it in an average of 950 wagons.
03:35Also, help me understand the revenue split between passenger and fret. And I know passenger is the
03:42higher margin business. Where do you see the revenue split at, say, two to three years out?
03:47So, if we really look at the potential. So, let me give you the potential size of the capacity
03:54that we are creating. So, for the freight, we would have a capacity of 12,000 freight wagons,
03:58which is a total revenue of about 4,000 to 5,000 crores. For the passenger, we produced on an
04:06average three coaches per month last year when we were executing Pune. In the current quarters,
04:14it is less than a coach per month because we are in between two projects. And the capacity that we
04:22are creating in the first phase is to get to approximately 35 to 40 coaches per month and then
04:28ultimately to 70 coaches per month. That we should be able to achieve in about four years from now.
04:34So, further kind of putting a number to that, once we are able to achieve full capacity of
04:42about 70 coaches a month or about 800 coaches a year, each coach costs about 10 crores. So,
04:50the total potential revenue of passenger that we can expect in, say, five years from today
04:56is almost 8,000 crores of revenue potential. Now, how much of that will actually get
05:02culminated into revenue is dependent upon the execution about the order book and all of that.
05:07That I'm talking about is the overall capacity that we are creating. In terms of the margin,
05:13right now, because of the low volume and the fixed cost being there, the margins are, of course,
05:18under pressure, but we believe that we should be able to get to between 10 to 15 cars per month
05:25within this financial year, ramp it up to almost 25 to 30 cars next year and gradually build up on
05:32that. So, once we are able to get to a normalized level, then, of course, we are expecting the
05:38better margins of this business to become better. And what is better, Umesh? What is it that
05:43internally have you decided is where you see your blended margins at, say, at the end of F525? I
05:49know this quarter was good. There was some expansion on margins for the passenger vehicles,
05:54but at the end of F525, where would you like to see your blended margins at?
05:58So, I would not answer this on the basis of F525, but what I will do is I will give it to you on
06:04milestone. So, when we are able to get to a 15-20 car per month production capacity, we should be
06:11somewhere in F525-26. We should be able to get 10-11% of EBITDA margin in the PRS. And then the
06:18next margin jump comes in when we are able to equip our coaches with our own propulsion, where
06:26we will be able to get to 14-15% of EBITDA margins. That should happen in F526 and F527 partially,
06:33get completed by F527, I would say. So, that's when we will be able to enhance our overall margin
06:40to close to 14%, between 14 and 15%. And of course, then, as we are able to enhance capacities
06:49and get to the 70 coach number, then we should be able to improve that further by about a percent
06:55points. Okay. Actually, this is great, because I think if you are looking at,
06:59and I think that's the better way to look at it, Titaka, is from a long-term story.
07:04Over the next two to three years, what is the sort of revenue growth you would be eyeing,
07:10and also on the margin front at what level, at a three, and I am saying three years out from
07:16where we stand right now to where you see yourself and say F527-28, what is the sort of growth on
07:22margins and top line are you working with, and what you would be happy with?
07:26So, as I mentioned, and I think you put it very nicely, because our business, I always like to
07:32say generally also that we are a three-year, we should be seen not on a quarterly basis,
07:36but on a three-year period basis. So, if you really look at our business, till FY19,
07:42on a three-year basis, we were doing an average revenue of 300 crores. Then we did an average
07:46revenue for the next three-year period of close to 1000 crores. Now, we are doing a three-year
07:51revenue of almost 3000 crores, and we feel that the potential that we have, so till now,
07:57if you really look at the revenue that we are doing, last year we did close to 4000 crores,
08:01and almost 85-90% out of that was from the freight business. So, that continuing to grow in
08:09the normal pace that it should grow, the passenger business will start contributing, and which on an
08:16overall basis has the potential of being 60% of the corporate revenue. So, effectively, if we see
08:2360% of my potential revenue is zero today, and that's how we should see the company in three
08:29to five years' time from now. Umesh, also, I know you will start delivering on the Bangalore's
08:35Metro Yellow Line by August 2024. So, that's actually this month. And also, Pune, like you
08:40said, will show up, has been completed, but of course, the other, like Ahmedabad will also show
08:45up in the next couple of months. Now, in terms of recognizing revenue for it, is that done
08:51in a lumpy way or is that evenly spread over the contract or the life of the order?
08:57It is on a percentage of completion method basis. So, it is generally progressing based on the
09:03progress made on the project. The production for Bangalore has already started. The first trains
09:10are expected to be rolling out in maybe September or beginning of October, but the production has
09:16already started as we had envisaged in August. Okay. So, that's already hit the ground running.
09:23Also, you know, your business is all about investing in capacity, and I know you've
09:27been aggressively earmarking money and spending a lot of it on passenger vehicles, from what I
09:32understand. Any new CAPEX that you've earmarked in the current financial year or you're going to
09:39make these investments and you're going to now wait it out to bear fruit of that?
09:43No, we are continuously investing. So, I had mentioned during our quarterly earnings call
09:48on the March results also and subsequently that, you know, the total CAPEX that we have planned
09:54for our businesses right now is about a thousand crore, excluding our wheel plant,
09:58wheel project that we are doing in joint venture with Ramakrishna. And this includes what we spent
10:04last year and what we are spending this year and which we will end up spending in the next
10:08financial year. All of this is a part and parcel of this capacity enhancement exercise that we are
10:14doing for both Metro, for Vantaparar, and for the freight wagon, including backward integration for
10:20propulsion, etc. So, all of this is a part of the larger picture that we are trying to emerge to
10:29in the next three to five year period, which I mentioned to you is 800 coach capacity per year.
10:35Right. Also, Mish, I know that there was some business and you had managed to sell some amount,
10:41do some revenue in Italy. You want to talk about that? You want to tell me what is the focus on
10:46the global marketplace? And I'm assuming these are high margin businesses, right? Just simply
10:50because the European countries. Is that something that the company is focusing on to improve
10:55profitability over the next couple of years by building out your international business?
11:00Absolutely. We believe that, you know, so all our investments that we are making,
11:05all the competencies that we are creating, we are doing it on the basis that we should
11:09be able to do international business and we should be able to sell our products
11:14to not only countries which have, you know, equal or, let us say, a slightly
11:22more outdated railway system, but to the most modern railway systems in the world, like Europe
11:27or the US, etc. And the first traction converters that we exported to Italy was a part of that. So
11:34we're not so much concentrated on margins at this point of time, because, you know, right now is the
11:39time that we just need to establish ourselves into the European market. But once we've been
11:43able to do that over the next year, two years time, of course, the cost arbitrage that we will
11:51be able to get of European versus Indian cost in itself will be able to give us a much better
11:59margin play and also de-risk our business. Of course, Indian infrastructure story is going to
12:04be there for years to come right now. But we still believe that the kind of capacity that we are
12:10creating, we should not be only looking at the Indian markets, but looking at the global markets.
12:16And so two things that we are doing, one is focus a lot on engineering, on design. And this is also
12:24in line with what the policy of the government is, you know, the Honorable Prime Minister mentioned
12:30about design in India being given importance and we are already working on that. We have a design
12:37center in Bangalore, we have a design center in Hyderabad, we have a design center in Calcutta.
12:42And we are creating technologies that can be exported. And the second is branding for the
12:49world. So we are trying to create the brand T-Dagger that is exportable, that is recognizable
12:56all over the globe in the railway arena. And so that we can design our product, brand our product
13:03and export our product. Interesting. Also talking about, you know, all the orders and I know that
13:10your business is largely tender driven. And tell me, are there any significant tenders you're
13:15bidding for currently? And is there a good chance that some of that may actually show up
13:20in this quarter's earnings? Or rather next quarter's earnings, Q2?
13:24No, so they will not show up in any earnings right now, because you know, the businesses that
13:28we bid for, they are long gestation. So you know, they take, tenders take time to finalize. And then
13:33typically a passenger coach business when we get the contract from that time to the delivery of
13:40the first trade is two years. But they definitely, then they start showing up in the order pipeline,
13:45etc, etc. There are a number of tenders, we just saw day before yesterday, additional metros being
13:51sanctioned by the union cabinet. So we believe the infrastructure, as I just mentioned a few
13:56minutes ago, the infrastructure play of India, the requirement of railways, urban mobility,
14:01and railway mobility is going to be there for years to come. Because you know, India is an
14:08aspirational country, the youth of India is aspirational, they want better modes of commuting,
14:15etc. And the government is also focusing a lot on creating India for tomorrow or India of tomorrow.
14:22So we believe that there will be a number of tenders, there are a number of tenders in the
14:26pipeline that we are participating, whether we will win or not, you know, this is something
14:29that only time will tell. Right, thank you very much, Umesh. And good luck for everything that
14:37you're undertaking. And hopefully you achieve those targets and goals that you're setting out
14:41for T.Tagar railway system. We'll hopefully catch you soon again and have a good week.
14:45With that, that was the management of T.Tagar railway systems talking about the outlook for
14:49the company over the next couple of years, what sort of product mix that they're focusing on,
14:52and where they expect a significant chunk of the revenue to come from in the current financial year.