Titagarh Rail Systems Limited (TITAGARH) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Titagarh Rail Systems Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Parth Patel from MUFG Intime, IR. Thank you, and over to you, sir.

On behalf of Titagarh Raill Systems Limited, I extend a very warm welcome to all the participants on Q1 FY '26 Financial Results Discussion Call. Today on the call, we have Mr. Umesh Chowdhary, Vice Chairman and Managing Director; Mr. Prithish Chowdhary, Deputy Managing Director; and Mr. Saurav Singhania, Chief Financial Officer. Before we begin the call, I would like to give a short disclaimer. This call may contain some of the forward-looking statements, which are completely based upon our beliefs, expectations and opinions as of today. These uncertainties are not a guarantee of our future performance and involve unforeseen risks and uncertainties. With this, I would like to hand over the call to Mr. Umesh sir. Over to you, sir.

Thank you, Parth, and a very good afternoon to everybody, and thank you very much for joining this earnings call of Q1 FY '26. We have already shared by both the press release alongside with the results yesterday as well as the investor presentation, a lot of details, and we have tried to segmentize the details this time, and we would intend to follow this format in periods to come to be able to give the complete picture of the progress of the different projects. But in a nutshell, I would like to say that as far as the overall company is concerned, there have been significant developments during the period. The company I had mentioned in the last call that our focus is going to be a lot on booking new orders. And I'm happy to share that the company was able to book orders worth almost INR 2,500 crores during this period, including GST, both some -- in the passenger rail segment as well as in the freight rail segment. And this is a trend that we intend to continue. This is an effort that we will continue to pursue to build up a stronger order book to have a larger visibility both in the freight side and the passenger side. Apart from that, a very significant development during the period has been the acquisition of the land from West Bengal government. This was the land which was a part of the -- earlier part of Hindustan Motor which the government has resumed on account of the closure of their unit. And this is contiguous to our existing passenger rail factory. In fact, the only thing we had to do to take possession of the land once we were allotted was to break open the boundary wall. It is that contiguous with our existing facility. This enables us in many ways. One, of course, it helps us to expand capacity and to pursue backward integration in the same premises. But more than that, it enables us to become a comprehensive -- create a comprehensive facility for testing and commissioning of rakes, including the modern rakes and probably in the future high-speed rakes, which as India is moving towards the high-speed trains and being a leader or emerging as a leader of the rolling stock, we would definitely also like to evaluate that opportunity in years to come. So this will give us a test track of about 1.6 kilometers level test track, which is unique because that is not available with any of the private sector or coach manufacturers in India and will be a huge advantage to us in years to come. So that is a very, very significant development because it's not very easy to get land contiguous to our existing factory. And of course, the promoters have infused INR 200 crores into the company or have committed to infuse INR 200 crores in the company against a preferential issue. And of course, all the other highlights have been given. But on the challenges faced by the company, the severe challenge that has been shared also with the investors in the last quarter was the poor wheelset supply from the railways, which actually was quite a big setback for the company and for the industry as a whole. I'm happy to share over the last 2, 3 weeks, the position has normalized, and we are getting adequate wheelsets now from the railways. But during the quarter, the production fell to almost 1,600 an odd wagons, which was a significant drop over the earlier period or the corresponding period. The company is extremely confident. We are almost certain that we will be able to recover this loss of production and maintain volumes, which are in line with what we did last year and also the EBITDA margin in line with what we did last year. So we don't see much of a concern on that as far as full year is concerned. However, the biggest growth story, which we have also mentioned in our press notes -- press release is the passenger rail system. All the SBUs, and we have divided this time, the disclosure on the different SBUs within the main business unit of passenger rail system. All the SBUs have actually started functioning. While the Vande Bharat revenue will start accumulating only next year, but all the other SBUs, which is the propulsion and electrical as well as the metro will start contributing in a meaningful manner within the current financial year. I think that in a nutshell sums up the overall picture. And of course, one very important development is also that the company has decided to focus on the core sector of its business, which is railway systems. And we had announced that we had constituted the Board committee to evaluate what we have to do for the shipbuilding, bridges and defense business. So the Board has decided to demerge the shipbuilding business into a wholly owned subsidiary, which will then pursue its growth with or without induction of strategic stock financial partners. But the idea is that to grow that business, which is also a very core sector of the government, the government has identified that as a core growth sector for the country. And considering that our company has all the credentials and is currently also delivering several vessels to the Indian Navy, has delivered vessels to the coast guard and National Institute of Ocean Technology, and all of that. We believe that this is going to be a business that can grow significantly in its own accord. But since there is not much synergy with our railway business, we would like to pursue it in a separate style and separate company. And the company intends to continue to focus on the railway business, which is both the passenger rail system and the freight rail system. For the signaling system, signaling and safety system, which is a subset of the passenger rail system, the company has participated in a few tenders and is also pursuing certain strategic partnership or tie-ups or technology tie-ups with certain international companies. But that will be folded in into the overall business growth of the passenger rail system. So with that, I would conclude my opening remarks, and I'll be very happy to take any questions, any suggestions. Thank you.

[Operator Instructions] The first question is from the line of Vedant Sarda from Nirmal Bang Securities Private Limited.

I just wanted to know our full year revenue guidance and our long-term revenue guidance for the company.

So we do not give any revenue guidance per se on the company long term. But what we have mentioned in the guidance note that has been issued alongside with the result is the freight business of the company, we expect in the current year to remain in line with what we have done last year. So we do not expect any significant growth on the freight side. But on the passenger side, what we had done was 12 cars in metros and about 300 traction motors in the full year in the propulsion, and we are expecting this year to grow that 12 cars to 120 cars, which is a tenfold jump. And the propulsion system also, we are expecting to have a significant jump as we have already disclosed in our press note. In terms of the long-term potential, the first phase expansion of our passenger coach plant will take this capacity to about -- which we expect to reach maybe in the next year or end of next financial year to about 50 cars per month between Vande Bharat and metros. But subsequently increase to about 72 cars a month in another 2 to 3 quarters thereafter. And the long-term target for the passenger is to reach 100 cars per month, which we expect to reach in about 3 to 4 years' time, particularly with the acquisition of the new facility or the new asset that we have acquired. As far as the wagon is concerned, our capacity is now between the Calcutta unit and the Bharatpur unit is at about 1,000 to 1,200 wagons and the current expected business volume that we expect should be in the vicinity of about 900 to 1,000 wagons per month till the new power plants, which have been planned come up or the substantive growth in the railway freight revenue goes, which we expect also should happen once the overall CapEx of the railways develops and all the DFCs has start operations. But till that time, we expect that we will be able to maintain the current run rate of between 900 plus/minus something.

The next question is from the line of Amay Sharda, Purnartha Investment Advisory Private Limited.

So the first question was regarding the wheelset issue that you have faced. You said that it has been resolved. So from August onwards, can we expect 900 to 1,000 wagons per month volume that you have guided?

So the wheelset problem has been resolved in fact from the last week of July, first week of August. And there is a lot of static, if you can kindly go on mute that will be easier. So we expect to now produce but produce in the vicinity of 900 wagons a year, as we've given in the press note. We would be able to reach the same numbers or maybe make a marginal improvement over last year. And in order to do that, we should be producing in a ballpark of 900 wagons, plus/minus 50 wagons every month, and we are confident of being able to do that.

And the second question is regarding the margins in the passenger wagon segment. So is it true that the margin for propulsion is better than the margin for cars or nothing like that?

No, propulsion is a higher-margin business, sir. We've always maintained that propulsion is a higher-margin business. But of course, right now, it's in a nascent stage. As I've always explained that it is only the operating -- operational leverage that's not available. Once we start delivering a certain volume then the margins that we should be able to get in both operations as well as services should be significantly more than what we should be able to get in the rolling stock.

And sir, the 120 metro cars target that we have, out of that -- like will it be possible to bifurcate how much is for Bangalore metro and how much for Gujarat metro?

We would not be able to do that for competitive reasons. But in terms of the overall numbers because that is very important in the current phase of the company. What is important is to see the ramp-up. And if we are able to do which we are very, very hopeful and confident of being able to do 120 cars that in itself with the Mumbai line having come and with the Gujarat metro and the Vande Bharat and all of that is a clear indication of how the company's PRS can scale up as is well known, metro coach sells at about INR 11 crores a piece and the capacity that is being created once that is operationalized and stabilized that completely changes the dynamics of the overall company as such.

So the Bangalore metro is also INR 11 crores a piece or is that [indiscernible] of the land?

Bangalore metro is as a manufacturer of CRRC, so there, the material is all free supply. So that doesn't -- revenue does not flow into our books.

Just one last question from my side.

May we request you to return to the question queue for a follow-up. The next question is from the line of Mohit Motwani from Tara Capital.

My first question is around the dispatch of 9 coaches, which has been done in this quarter. Can you let us know for which metro project was this done for?

We do not disclose the customer name for competitive reasons, but we have disclosed that our first rake was flagged out by the honorable Prime Minister day before yesterday, and some of you may have also seen the visuals wherein it was a moment of pride for the company to see that the Titagarh name was prominently displayed where the prime minister was flagging of the coach.

And in terms of -- as you mentioned, you just shared the 120 coaches what we the split. But if you can let us know, now you have 4 to 5 metro orders, when do you expect -- is there any completion time line for each of these that you can share with us?

We have already shared that the Mumbai Metro has to be completed. I think if my memory serves me correct, between -- around 24 months or so. So each one of them have a different delivery time line, and we have done our balancing of the capacity accordingly.

And lastly, you have done 9 coaches in this first quarter, and you were expecting to complete 120 coaches by end of this financial year, which is about 111 coaches in the rest of the year. So that is about 12 coaches per month that you'll be doing, and that will be around, I think, close to 50% capacity utilization. So what is driving this change? Is it the operationalization of the new plant or is the ramp-up of your facilities? If you can give some sense on that?

It's a host of that, sir. So it will not be on an equated basis. I mean, it's not going to be an average run rate. It is going to be ramped up. So it is not going to be on every quarter the same. The idea is that every quarter, there has to be an improvement versus the previous one. As we have written also that it marks a beginning for the stainless steel coach production of Titagarh. So our entire stainless steel production line is now fully operational. And that in itself is going to be the game changer for us.

The next question is from the line of Aryamaan Agarwal from Money Stories Asset Management.

So I wanted to understand how the order pipeline scenario is looking, in the next 9 months, both in the freight railway systems and the passenger rail systems. What sort of demand are we looking at?

So we've already given some details about the order book that we have. And you can see that for the passenger rail system for the Vande Bharat, we have a very healthy order book. For the metro because of the development time, we are looking at booking further orders, although we have about 440-odd coaches in order with us now. But we are -- we have participated and we are continuing to participate in additional tenders to get further metro business. And the same is the story with the propulsion. While we have some orders, we have an order book of about INR 550-odd crores in the propulsion, which in itself is a very big thing because this is -- all these businesses were contributing to less than probably a single digit in terms of percentage. All these businesses combined were contributing to less than single digit in terms of the past revenues of the company, and the very fact that the business of each one of the SBU under the passenger has actually started developing on its own is quite significant. So to answer your question, the order pipeline in the investor presentation has been given for the metro, and we have seen it in media about the large tenders that are expected, both in terms of metro as well as suburban transport like MRVC, et cetera, and the company would definitely pursue these opportunities as we go along. As far as the freight business is concerned, we have declared an order book, which is outstanding order book of about 10,500 wagons. And continuously, we are -- during the quarter also, we booked an order of about 900-or-some -- or close to 900 wagons. And we believe that considering the overall cost advantage and the policy of the government to move the transportation from rail to -- from road to rail, the wagon tenders should be issued somewhere this year.

All right. So from the government's order perspective, we're not seeing any slowdown as such. The orders are flowing in then?

So the orders for the passenger side have been very robust. For the freight, as I had mentioned earlier also that small tenders from the railways and private sectors are continuously coming, the large tenders were to be done on a 3-year basis. So the last one was done about 3 years ago, and we are expecting or, I would say, in all probability, the railway should come back with the renewed demand somewhere this year.

Got it. And secondly, on the shipbuilding business, what sort of a business are we -- what sort of vision do we have in that segment? What sort of business are we looking at creating?

That's a very interesting segment. So what we have declared in our press release also that the facility that we are creating in Falta have the capacity to do around 12 to 14 or 14 to 16 vessels per year of up to 150, 160 meters. And that is quite significant. In terms of the facility that this company, this SPV will create we would like to do all sorts of ships, including all sorts of naval ships and other ships. And while the details of this project or the business plan of this project will be issued in due time, and it's just a decision that was finalized yesterday and will be implemented over the next weeks, we believe that considering the number of policies that the government has come out with on the shipbuilding sector and also based on interaction that we've had with the various departments of the government, the government has clearly identified shipbuilding or specialized shipbuilding, particularly as a very core niche sector for the country's development and growth. And particularly because we have the expertise, we have the qualifications of this business, we feel that this can be a very strategic business or a growth-oriented business that we'd like to pursue independently.

The next question is from the line of Parvez Qazi from Nuvama Group.

So a couple of questions from my side on the passenger business. So you mentioned in our press release that we expect the dispatch of Ahmedabad metro coaches starting Q3. So by when do we expect to kind of complete this order? Will it be in 1 year or will it take longer?

So yes, we will complete it within a year because Ahmedabad is only 30 cars. So we have already started the production of 2 trains, that is 6 cars. And we will deliver the 2 trains one after the other in Q3, Q4 time frame. And thereafter, we intend to deliver maybe 2 to 3 cars in -- 2 to 3 trains in a month and complete this. So yes, we will -- to answer your question, we expect that based on the delivery time lines of the contract, once we start the delivery, we should be able to complete it in about a year to 16 months' time, both Ahmedabad and Surat.

For the Mumbai metro Line 6 order that we have recently received for 108 coaches, execution time frame is, I think, about 24-odd months. So from when does this 24 months start?

It started on the second of August, the day we received the LOA.

And when do we expect the dispatch to start here?

So the fast train is likely to -- or scheduled to be dispatched, I think if my memory serves me right, in 62 weeks from the second of August.

And lastly, Pune metro, the additional order that we got is, I think, scheduled to be delivered in 30-odd months. So when do we expect delivery of that to start?

So it starts in 24 months. Yes, that's another significant thing. I'm sorry, I missed that in my opening comments. Thank you very much for asking this question. So the Puna repeat order that we have received during this period is a very significant development for 2 reasons. Number one, it kind of establishes the confidence of the customer on the company to have -- to receive a repeat order is always a kind of validation of confidence. And the second is that these are aluminum coaches. So what we have gone ahead this time and done is we have used this order to set up our complete aluminum manufacturing line. As you may be aware that in the past, we were getting the flat packs from our associate in Italy. And we were doing the final assembly of the aluminum coaches in Calcutta. But with this order, we have already now placed the order. And in fact, as a matter of fact, the equipments are already on the high seas and they should be arriving within this month for making the complete aluminum coaches in Calcutta. This would make us the only company in India to have both aluminum and stainless steel manufacturing -- complete manufacturing facilities. So we expect, to answer your question, Parvez, that the first train for the Pune under the option should get delivered between 18 to 24 months and complete thereafter within the next 6 to 9 months.

Second question on the wagon side...

Sorry to interrupt you, sir. May we request that you return to the question queue for follow-up. Thank you. The next question is from the line of Sudeep Anand from Systematix.

Sir, just one question on Vande Bharat. As we expect our first...

Sorry to interrupt you, sir. Your voice is very low, and it's breaking.

So as we expect our first prototype of Vande Bharat to be ready by Q2 FY '27, is it also subject to...

I'm sorry, your voice is again breaking. If you can not be on speaker, that will be easier, yes.

Can you use your handset?

Yes, I'm using the handset today. So what I was asking, sir, since I was expecting the first prototype of Vande Bharat by Q2 FY '27, is it subject to approval after that from Indian Railways?

There is a concurrent approval process, sir. And as a matter of fact, we had a delegation from the railways headed by the member, concerned member even today, which is there in our social media. So this is a concurrent approval process. And then after the train is delivered, it has to go through an oscillation trial. This is a very standard process. So the terms of the contract is that once the prototype is delivered in 2 months thereafter, we have to deliver the second prototype. And thereafter, in 2 or 3 months, something like that, we can start the regular production and dispatches. That is the time that it normally requires for the oscillation trials.

So basically, we can expect the regular production of Vande Bharat from Q4 FY '27? And that's around 20 to 25 cars as guided earlier per month?

I'm sorry, can you repeat your question. I'm not....

So basically, we can expect the regular production of Vande Bharat from Q4 FY '27 and submit the 2 prototype. And roughly about 20 to 25 cars per month as we had guided earlier.

Yes. So 20 to 25 cars per month goes in a phase. The delivery schedule of the contract is the first year, we have to deliver them 8 trains, then 12 trains, then 16 and then 25 trains per year.

The next question is from the line of Akash from Dalal & Broacha.

So basically, my question is just an add-on to the question of one of my earlier participants asked you. So I just wanted to have a clarity on from today onwards i.e., from Q2 FY '26 onwards, when we exactly plan to deliver on our metro orders? I mean, if you could help us understand by when we'll be completing the Bangalore metro and how the revenue will reflect for other metro orders in our books of accounts?

So as I mentioned, sir, that for competitive reasons, we cannot really give customer-wise bifurcation. But we can give the overall planned production and dispatch targets, which is for the current year, we are targeting and we are expecting to deliver 120 cars. This will be a mix of both Bangalore and Gujarat, which is Ahmedabad and Surat because these are the 2 contracts that are being executed, which will be followed by the Mumbai and the Pune option clause.

And just one more confirmation I wanted. So I think earlier in one of our calls, you have alluded that in the Vande Bharat and the metro coaches, we will be doing similar margins around 8% to 10%, right? And propulsion will be significantly higher, almost around 16% to 18%. So is my understanding right?

So on the metro, the business, I had mentioned that the margins are similar to the one in the passenger -- in the freight business, which is between 10%, 12%. And then, of course, the operating leverage comes in. So being a nascent business, we do expect that we will only be able to improve upon this as we go along. And as far as the propulsion is concerned, you're absolutely right, it is between 15% to 20% of margin. Again, this is something that we will be able to achieve once we are able to achieve the desired volumes which we are ramping up, and we should be getting to each one of the targets over the next, I would say, in different aspects in different quarters. But on an overall basis, between the next 4 to 6 quarters, we should be able to stabilize all the SBUs significantly.

Just last follow-up on this. What would be the breakeven volume at which we should be able to manage these margins? Like what capacity we need to push in to be able to consistently clock a double-digit margin and similarly on the propulsion side, what would be the breakeven volume?

So I had mentioned this earlier in the last call also that we should be able to reach -- once we are able to reach between 15 to 20 cars production, we should be able to get the optimum margin. And thereafter, the operating leverage or advantage once we add on the volume will only improve the margin from there.

And propulsion?

On the propulsion also -- as far as propulsion is concerned, there are different business segments, the traction motor, we should be able to get that at about 120 to 150, which we have almost reached now. So at 150 traction motor a month, which we are expecting to -- and we've mentioned this in our press release also, by end of this year, we should be able to stabilize that 150 traction motors a month that is 450 traction motors a year, we should be able to get to the desired margin. As far as propulsion is concerned, which is the propulsion system, we should be able to do that between 1 to 1.5 rakes a month. And of course, our target is to get to 2 rakes a month.

Okay. And for propulsion, we don't have any more revenue share with ABB right? Or do we still share...

We never had a revenue share with ABB.