Titagarh Rail Systems Limited (TITAGARH) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Titagarh Rail Systems Limited Q2 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now like to hand this conference over to Ms. Prachi Ambre from MUFG Intime Investor Relations team. Thank you, and over to you, ma'am.

Thank you, Shravani. On behalf of Titagarh Rail Systems Limited, I extend a very warm welcome to all the participants on Q2 and H1 FY '26 financial results discussion call. Today on the call, we have Mr. Umesh Chowdhary, Vice Chairman and Managing Director; Mr. Anil Agarwal, Deputy Managing Director; Mr. Prithish Chowdhary, Deputy Managing Director; and Mr. Saurav Singhania, Chief Financial Officer, to provide the operational and financial insights. 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.

Thank you, Prachi. Very good evening, everybody, and thank you for joining the Q2 earnings call. As you have already got the numbers, these new addition this time that has been given is the strategic plan of the company, which for the first time, we have been able to give a very clear picture on the trajectory that the company is going to follow in terms of the system and the other businesses that the company is in. As regards the current quarter is concerned, as I had mentioned earlier also, from 1 month of this quarter was impacted by the wheel set availability and then the wheel set availability, which was primarily impacting the company for the last 2 or 3 quarters has been resolved. We have started getting normal wheel set from the month of August 2025. Now the wheel set availability is normal, and we are back to a run rate of around 800 wagons a month. And we intend to continue between 800 and 850 wagons per month going forward. We also believe that the wheel set problem should be behind us as the joint venture of ours, along with Ramakrishna Forgings to produce wheels in Chennai will get operational by Q1 of next financial year. So this should be a problem that has perennially been causing trouble to the industry, the wagon industry. This should be a problem of the past. As far as the passenger rail business is concerned, we have got some very interesting new orders, 2 orders that we got from Mumbai or Mumbai Line 5 and Line 6 that build up the pipeline of the metro coach business up to FY '28. The visibility is there with the order book. And we have also given in the presentation a ramp-up plan of the entire -- of the different SBUs of the passenger rail system, which is the metro SBU, the Vande Bharat and the passenger train SBU as well as the propulsion SBU. And we are fairly confident of being able to achieve the targets of all these SBUs that we have given. So with those few introductory comments, I'd be very happy to take any questions. Thank you.

[Operator Instructions] The first question is from the line of Parvez Qazi from Nuvama Group.

So a couple of questions from my side. First, I think we have about 6 different orders in the passenger go segment across Vande Bharat and the 5 different metro rail projects that we have. Would be great to hear your views on when can execution start on each of these individual projects. And second is on the wagon business. It's great to hear that availability has now become normal and we have ramped up to our usual run rate. With regards to future, what is our view on wagon tender rate, especially from the inventory side?

Thank you, Parvez. So as far as the metro or the passenger train rail segment is concerned, Pune, as you know, we have already supplied. We have got the option. That will be starting in 2 years' time. We have a delivery period of starting from 2 years to be ended in 2.5 years because that is an aluminum coach. And we have already received the machines for making the aluminum coaches entirely in India. So the earlier contract that we had executed for Pune was executed by bringing in flat packs from Italy. But now we have set up the entire facility. The machines have come. They are under installation. They will be getting into production sometime in Q1 of FY '27. And we will be producing the entire car body of aluminum for Pune in our plant in Uttarpara. As far as the Gujarat metro is concerned, this quarter, that is Q3 of the current financial year, we'll deliver the prototype. And then the production will ramp up in the manner that is envisaged in the contract between 2 and 3 trains per month, going up to 3 trains per month. And we have given the overall numbers of coaches, which includes the Gujarat as well as the Bangalore that we intend to be able to deliver this year, which is between 100 to 120 cars, which is almost eightfold to tenfold jump over the number of cars that we delivered last year, which will again almost double next year. So it is a huge ramp-up that we are going to witness. As far as Mumbai is concerned, the first train should go somewhere in Q3 of next financial year -- Q3 or Q4 of next financial year, and then it will get ramped up. For Vande Bharat, again, we are intending to deliver the first train, the Vande Bharat sleeper. The first car body is already made. And we are intending to deliver the first train in Q3 of the next financial year. So that's how the ramp-up will happen in all the passenger orders that we have. As far as the freight wagon is concerned, we have an order of about 8,500 wagons -- 9,000 wagons, I'm sorry. So that gives us visibility for the next around 4 quarters. We are considering the overall demand forecast and the traffic forecast that targets that the railways have, we are hopeful that the tender should come out by Q1 of the coming financial year. So we'll have enough time to switch over or complete the existing contracts and then get on to the new contract.

The next question is from the line of Amay Sharda from Purnartha Investment Advisors.

I just wanted to ask like, can you share the number like how many wagons did we send out in the September month, last month of Q2?

I'm sorry, I didn't get your question. Can you repeat your question?

Sir, in Q2 last month like September, how many wagons did we produce, freight wagons?

We will not give monthly figures, Mr. Sharda. We can only give you the quarterly numbers. We have disclosed the quarterly dispatch of wagons in our presentation, which is 1,872 wagons during Q2 of FY '26.

Okay. So just like -- and wagon normalized now and we'll do 800 to 850 going forward, right?

Yes. We will -- on an average, approximately 800 wagons we should consider for the plant of execution, although our capacity is 1,000 wagons, but in order to wait for the new tender to come in until that time to have an even workload, we are planning to between 800 and 850 wagons.

Okay. Okay. And sir, next question was regarding the Line 5 and Line 6 Mumbai metro order that we received. So like can you bifurcate how much is the AMC value and how much is the value for just the delivery of wagons?

So approximately 15% is the AMC value and the balance is the supply value.

Okay. Okay. Okay, 15% is AMC. And sir, one last question was regarding the...

I think AMC is approximately 3% per year. That's the normal trend of metro. In the case of Vande Bharat, it is 4% per year.

Okay. Okay. Got it. Last question was regarding the tax rate for this quarter. I think the tax rate was a little high. So any reason for that? Or will it get normalized going forward?

I'll request the CFO to answer.

So yes, the tax rate was approximately 26-point-something percentage, but it is the effect of certain transactions when it happens during the quarter, but it will normalize over the year. It will come down to almost like 25.5%, which has been the standard rate for us.

The next question is from the line of Archit Agrawal from Steptrade Capital.

Sir, question is with regard to that guidance of the 1,000 coaches. So sir, is it still doable or not? And what is the progress? So when we look at this 6 months, so can you throw some light on the first half number out of that 1,000 coaches guidance?

We've not given any guidance for 1,000 coaches, sir. We have given a guidance for between 100 to 120 car coaches in this financial year. And we are well on track to be able to achieve that. I mean we've given this -- released this guidance of Q3. So definitely, we're not able to achieve that. We'll not have...

When we look at quarter 1 guidance, it's 1,000 wagon per month, right? That is the run rate for entire FY '26?

I think you're mixing up between the wagons and the coaches, sir. Wagons, we have -- there are 2 segments that the company operates in, the freight segment and the passenger segment. The run rate -- the capacity that we have for the freight segment is 1,000 wagons per month, which has been impacted due to the wheel set problem. Now that the wheel set problem has been resolved, we have a capacity to do 1,000 wagons, but to even out till the new tender is published and finalized by the railways, the company wants to do between 800 to 850 wagons in order to even out the workload in anticipation of the new segment, yes. As far as the passenger coaches is concerned, metro coaches is concerned, we have given a guidance that this year, we will do between 100 to 120 cars, and we are well on track to be able to do that.

Okay. So sir, for us this spread, can we say for the second half, it will be 6,000 or 5,000?

I just mentioned it's going to be 800 to 850 wagons per month, sir.

Next question is from the line of Pranjal Jain from Morgan Stanley.

Sir, I have 2 questions. One is I wanted to kind of understand in terms of execution risk, while you kind of elaborated on the freight side, but wanted to see if there are any execution risk that you foresee on the passenger side or any supply chain issues that one can kind of foresee in the near future?

Yes, Pranjal, so thank you. We have already factored those in. We have been in this business for a while now. We started making passenger coaches or metro coaches in 2021 in the Uttarpara factory. And the reason why we have for the first time put out and standardized our production setup, and we are confident of being able to achieve the ramp-up run rate that we have given in our presentation. In terms of supply chain problems in our industry, supply chain problems is almost like goes hand-in-hand with existing. So we will continue to have that problem somewhere or the other and the bottleneck keeps on shifting. But that's exactly where we are -- we have been prepared for and we have geared ourselves up for to be able to address all these issues as they come along. I would also like to state that we -- one thing that we have now taken up and to a great extent, I would say, implemented and balance will be implemented within this financial year is a lot of back integration in terms of making of these coaches. So all the supply chain that we were dependent on for making car bodies within this financial year, March this year, we will have almost entirely 100% will be in-house with us. So that will address a great deal of supply chain. Technologically and facility-wise, process-wise, approval-wise, order-wise, we are all geared up.

Sure, sir. And secondly, on -- if you could kind of elaborate a bit more on the shipbuilding and what are the prospects and what kind of addressable market did you see? These will be our questions.

I'm sorry, I just lost your question. You said on the shipbuilding, what is the question?

On shipbuilding, if you can elaborate what kind of segments are we targeting? What is the addressable market? Which are the key capabilities that we are kind of targeting towards?

So as far as the shipbuilding is concerned, over the last few years, we've delivered more than 35 vessels to the Indian Navy, to the Coast Guard, to the National Institute of Ocean Technology, to GRSE, we've also exported a vessel to Guyana. So we have developed a great deal of capability over the last 5, 7 years that we have been in this business. And now in line with the government's policy where the government of India has decided that India must be Atmanirbhar also on the shipbuilding side, the industry is being given a great deal of emphasis. So we have kind of been able to leverage upon all these expertise, the qualifications that we had in the past to be able to grow this business. So we will concentrate only on the specialized shipyard, apart from some very few bulk shipyards -- ships, sorry, which we can consider from time to time. But primarily, our focus is going to be on specialized vessels. We will focus on vessels, which are between 100 to 150 meters or 160 meters in length. And the yard that we are building in the south of Bengal in Falta, where we've already got a jetty as well, a concrete jetty, and we had acquired this land by way of a company or land from a company called Precision Shipyard. And so with this, we will be able to have a capacity of doing around 16 to 18 vessels per year. And we are already a naval approved shipyard. So we are also working on enhancing our plan, the type of vessels that we can deliver to the Indian Navy. And in our presentation also, we have given some of the vessels that we have manufactured in the past.

The next question is from the line of Balasubramanian from Arihant Capital.

Sir, you've mentioned INR 120 crores by end of the year on the passenger coaches side. And whether you are completely ready with in terms of supply chain for specialized components, labor skilling and like everything is ready for the execution side? I just want to understand. And you need -- also higher working capital side, how you are going to manage those?

Ladies and gentlemen, the management line has been connected. Sir, please go ahead.

There was a network problem and we lost the connection. So I was mentioning about the ramp-up that we are fully confident. And as far as the -- and that's the reason we have given a complete road map of the ramp-up that we will have not only for the current year, but for the coming few years and also how we are backed up with confirmed order books for the metro coach up to FY '28 and for the Vande Bharat up to FY '31. As far as the working capital is concerned, the company has sufficient working capital leverage, which is unutilized. And we are very comfortable in terms of the working capital management.

Okay, sir. Sir, Firema currently facing challenges and what is the revised international strategy? Are there plans to get our international metro or client contracts using the Indian manufacturing base? And now we have in-house capabilities also. And what we are going to do in Firema, whether we are going to exit or is there any final solutions maybe in short period of time?

So as far as Firema is concerned, there were multiple objectives for the investment into Firema. The primary one of them was to be able to set up the facility in India with the transfer of technology, know-how and credentials. Titagarh has already been able to do that. Now we are a leading manufacturer of coaches. Perhaps with the largest order book for passenger coaches in India, today, our order book, including both Metro and Vande Bharat is larger than what other even foreign companies or Indian companies in India have. And that has been possible because of the initial support that we had got from Firema. Now that strategy is fully achieved and accomplished. And we had mentioned that the operational requirement and the capital requirement of Firema that is required, it is a joint venture between us and the government of Italy. The government of Italy owns a little above 30% in that. So we are in discussion with them to dilute ourselves substantially and let one of the arms of the government take control of that company. As regards the international strategy is concerned, the international strategy of Titagarh would continue to export, not to manufacture in Europe or other countries. And we will continue to pursue our endeavor to export products from India either to Firema or to other customers. But currently, the overall market and the order pipeline in India is very robust. So we are focusing primarily on the Indian market and developing additional capabilities and competencies like the aluminum coach line because in most of these developed countries, Europe, et cetera, the coaches that they buy is of aluminum and not of stainless steel. So over a period of time, we will reenter in a significant manner the international market and start exporting coaches. But for the time being, we are not looking at manufacturing presence outside India.

Okay, sir. Sir, on that vessel business, we have 14 to 16 vessels per annum on the capacity side. And what is the average realization per vessel? And what are the upcoming deliveries are there? And what kind of order book we have right now and what kind of inquiry pipelines we are witnessing?

Are we talking about the passenger rail side of Indian front vessels?

Vessel, sir, vessels.

Shipbuilding. I'm sorry. I'm sorry. Shipbuilding, we have already declared. We have about an INR 500-odd crore order book, and we have a very healthy pipeline of inquiries. We have been seeing a lot of announcements from various ministries about their requirement of vessels that will be in the coming years we be met from Indian shipyards. So we see -- we are seeing a very healthy pipeline. So we cannot disclose any of these till they have matured because we do not like to -- for both competitive reasons and for proprietary reasons, we do not want to be announcing any one of them in haze. But as they develop and they become mature, we will definitely come back and announce that.

The next question is from the line of Amitoj Singh from B&K Securities.

I had one question on the service side. I think I missed that in the early part of the call. How much portion of the Mumbai Metro both Lines 5 and 6 are service contracts?