Expect 20% Growth On The Topline & 10% Growth On The Bottomline In FY26: RITES | CNBC TV18

Summary

Mr. Rahul Mital, Chairman and Managing Director of Rights Management, discusses the company's performance and future outlook in a detailed interview. He acknowledges the challenges faced in Q3, with significant revenue and margin declines, primarily due to delays in executing high-margin orders. However, he is optimistic about the future, projecting a 20% revenue growth for FY26. Mr. Mital explains the shift towards competitive bidding, particularly in the export sector, which has impacted margins. He emphasizes the importance of aggressive order inflow and improved execution for the company’s recovery and long-term growth, targeting an order book of 10,000 crores within two quarters.

Takeaways

• 😀 Mr. Rahul Mital, the Chairman and Managing Director of Rights, discusses the challenges and growth prospects for the company.
• 😀 The company faced a decline in revenue and margins during Q3, with a 15-16% decrease in top-line and a significant margin drop due to lower execution and lack of export orders.
• 😀 The company aims for improved execution in Q4, with expected recovery in revenue by FY 2025, largely driven by new export orders.
• 😀 The order book stands at approximately 8,000 crores, covering around 2 to 2.5 years of work. The company expects to reach 10,000 crores in the next two quarters.
• 😀 Despite a subdued year, the company targets 20% revenue growth and 10% bottom-line growth for FY 2025, driven by aggressive order inflows and improved execution.
• 😀 Competitive intensity has increased, especially in the export business, causing margin compression. The company now faces global competitive bidding for many of its export contracts.
• 😀 The share of government orders has decreased from 60% to about 40%, with the company now increasingly reliant on private sector projects.
• 😀 Competitive bidding has driven down margins in high-margin businesses like export of Rolling Stock and Indian Railways' quality assurance services.
• 😀 The new normal for margins is around 20%, as lower-margin competitive orders are now more prevalent across the company’s business.
• 😀 Internal changes, including a 300-person workforce expansion, have been made to support the company’s aggressive growth strategy and ensure effective execution on new orders.
• 😀 The company is becoming more agile in handling competitive bids, both domestically and internationally, with recent wins like an 80-crore highway project in Guyana.

Q & A

What was the main challenge faced by Rights Management in the third quarter?

The main challenge faced in the third quarter was a 15-16% decline in the top line, with margins falling significantly. This was attributed to a lack of export orders for the last three to four years, delays in execution, and a competitive shift in the quality assurance business with Indian Railways.

What steps are being taken to improve execution and revenues moving forward?

Rights Management is focusing on improved execution with existing orders and aggressively increasing their order book. They are aiming for a sequential improvement with an order inflow that has been growing over the past few quarters.

How large is Rights Management's current order book, and what is the forecast for the next two quarters?

Rights Management's order book is around 8,000 crores, which covers about two to two and a half years of work. They aim to cross 10,000 crores in the next two quarters, maintaining the goal of one new order per day.

What impact is the current competitive environment having on the company's margins?

The competitive environment has caused a reduction in margins, especially in the export segment where global competitive tenders have led to lower margins. The company's margins have settled at about 20% EBITDA and 15-16% PAT margins, reflecting this increased competition.

What is the company's forecast for revenue and margin growth in the next fiscal year?

For the next fiscal year (FY26), Rights Management expects at least 20% growth in revenues and at least 10% growth in the bottom line. The company anticipates that increased execution and a higher order book will help achieve these targets.

How has the ratio of government versus private sector orders changed for Rights Management?

The ratio of private sector orders has been increasing, with private orders growing year on year. Government orders have decreased from about 60% to 40%, and Rights Management is tapping into large private players in various infrastructure sectors.

What is the company's approach to the shift from government orders to private sector orders?

Rights Management has adapted by focusing on both competitive bidding and maintaining strong relationships with private sector clients. The company sees a significant opportunity in tapping large private players in areas such as ports, airports, and highways.

What are some key high-margin business areas that have been impacted?

Key high-margin areas, such as the export of rolling stock and quality assurance for Indian Railways, have been impacted. The export orders, previously secured on a line-of-credit basis, are now part of global competitive tenders, which has reduced margins. Additionally, quality assurance business for Indian Railways, which was once a monopoly, has become more competitive.

How is Rights Management preparing internally to tackle increased competition and larger order inflows?

Internally, Rights Management is increasing its resource base, having inducted about 300 new employees in the past year. The company is also adapting to competitive bidding both domestically and internationally, making the organization more agile to handle the increased competition.

What was the revenue performance in the last nine months, and how does the company plan to end the current fiscal year?

In the last nine months, Rights Management's top line decreased by about 11% and the bottom line dropped by about 25%. However, the company aims to reduce the top-line dip to 10% or below and the bottom-line dip to 20% or below by the end of the fiscal year, with improved execution and order inflows.