RITES LIMITED has informed the Exchange regarding Analysts/Institutional Investor Meet/Con. Call Updates- transcript of analysts'/ Investors' meet
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No. RITES/SECY/NSE Date: :21st June, 2019
To:
To:
Listing Department, National Stock Exchange of India Limited. BSE Limited, Rotunda Building, 'Exchange Plaza', C-1, Block G, Bandra - P J Towers, Dalal Street, Fort, Kurla Complex, Bandra (E), Mumbai - 400 051
Mumbai - 400 001
Corporate Relationship Department,
Scrip Code- RITES
Scrip Code- 541556
Sub: Transcript of the lnvestors'lanalysts’ meet
Dear Sir/ Madam,
Please find enclosed herewith Transcript of the Investors'lanalysts' meet held on Thursday, 30m May, 2019 to discuss the Audited financial results of the Company for the quarter and year ended on 31St March, 2019.
You are requested to take this information on record.
Thanking You,
Yours faithfully, For RITES
'
ited
(Ashish Srivastava) Company Secretary & Comp l Membership No.: FCS- 5325
e Officer
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CIN : L748990L197460l007227
Scanned by CamScanner
“RITES Limited’s Analyst Meet on Company’s Financial Result and Annual Result”
May 30, 2019
MANAGEMENT: MR. RAJEEV MEHROTRA – CHAIRMAN & MANAGING
DIRECTOR, RITES MR. AJAY GAUR – DIRECTOR (FINANCE), RITES LIMITED MR. V G SURESH – DIRECTOR (PROJECTS), RITES LIMITED MR. PRAMOD NARANG (FINANCE) RITES LIMITED
-- GENERAL MANAGER
Page 1 of 20
Moderator:
Good evening, everyone. Today, on behalf of RITES Limited, I welcome you all to the
Analyst Meet to discuss Company’s Financial Result for FY18-19. Now, I would like to call
Mr. Rajeev Mehrotra – CMD, RITES to take it further.
Rajeev Mehrotra:
Very good afternoon to all of you, ladies and gentlemen and warm welcome to our annual
RITES Limited May 30, 2019
meet with investors and analysts. With me, I have Director Finance – Mr. Ajay Gaur; Director
Projects – Mr. V G Suresh; General Manager/ Finance – Mr. P. Narang. Besides these two
Directors, there is one more Full Time Director (Technical), six independent directors, and two
government nominee directors. Put together 12 people on the board.
A brief presentation and then we will be open to questions-and-answers. Few slides on
introduction of RITES has been included as, to some of you, we are meeting for the first time.
We started operations in 1974. Initially the name was Rail India Technical Economic Service
and 22 years ago, it was changed to RITES Ltd. We started exports in 1994, because we were
already working in many countries. We found there is a scope to export rolling stock from
India and since then we have been into this business stream also. When we became a
Schedule-A company, Miniratna company, the board of directors of the company got
empowered to make investments upto a certain limit out of its networth. In FY 2009-10, we
made a JV with SAIL to manufacture wagons at a place near Asansol, Kulti. In FY 2012-13,
we made a subsidiary company; 51% RITES and 49% Indian Railways, to take up railways
energy management and renewable energy business. We also started taking up turnkey
projects, mainly railway projects doing electrification, third line, fourth line and workshops
which has helped us in getting good growth. We became a listed company in 2018-19 and got listed on 2nd July. So, this is our first annual full year performance review after listing.
We are a technical consulting company with about 3,000 employees, of which about 2,000 are
regular and of them 1,600 are engineers in different fields. We have been profitable since
beginning. Since beginning, this company has been paying dividend. We sign annual MoUs
with the government every year and for last 10-12 years, we have achieved excellent rating in
the performance under these agreements.
We have been associated with several mega projects in the country and infact, we get
associated in the pre-feasibility or the conceptualization stage itself.
We have worked in India and abroad. Almost 55-countries we have worked so far and
presently we are working in about eight countries. Our key working areas are Railways, Urban
Transport, Roads and Highways, Ports, Airports, Inland Waterways, Ropeways and then we
have added Railway energy management few years back.
The organization is set up into seven key divisions. I will briefly talk about them and then we
will come to the financial part.
We have Railways Infrastructure division which does all the rail connectivity, feasibility study,
design-related works, not only for Railways but also for several major clients in the country
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RITES Limited May 30, 2019
who have rail connectivity projects like NTPC, Coal India, several other PSUs, private power
producers, State Governments etc..
Quality Assurance: We take up third-party quality assurance for Indian Railways and other
parties. About one-third of the procurement by Indian Railways goes through our quality
supervision.
We have Urban Infrastructure division which largely handles Metro projects, Urban Mobility
and suburban services like recently we did a project report for Bangalore suburb rails.
Highways and Ports. EXPOTECH, they are handling all the rolling stock exports and its spare
parts exports.
Building and Airports. We have worked on several airport projects in India and abroad. We are
also into institutional buildings, large universities including IITs, IIMs, Hostels, etc.,
Technical Services: They do design work and operation & maintenance of rolling stock and
siding and leasing of locomotives etc.,
So these seven divisions are giving us growth and profitability continuously.
Going forward, what we believe is that we will leverage on our experience and continue to
build our core competencies. Predominantly, we shall remain a consulting company because
that is where lot of business gets generated from.
Expand our International Operations: We are right now working in some countries but the
focus now is to increase our international footprints.
Strengthen our EPC Turnkey Business: We had a few orders in the beginning. We
concentrated on the execution and the results are before you, that it has given us good revenue
during the year.
Expand our Operations in Power Procurement and Renewable Energy: This Railways Energy
Management Company is handling entire railway power procurement under open access route,
doing complete advisory on technical, legal, commercial issues in power procurement. Right
now, about 60% of Railways power requirement is through open access. You know that the
government has already approved full electrification of Railways by 2022. As the
electrification increases, the business of this company will increase. Not only the power
procurement, we are also going for the power purchase from exchanges. We have so far done
medium-term agreements; we plans to do long-term agreements and we also want to take up
the short-term power purchase requirements for Railways. This company is also handling the
renewable energy portfolio for railways, as railways is now defined as a (DDL) Deemed
Distribution Licensee and they are also required to comply with the renewable purchase
obligations. They are preparing for that and we have that portfolio with us.
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RITES Limited May 30, 2019
This in all about, what we are doing and how we are organized.
Now an overview of the financial year FY 18-19: I am happy to share that this was the best
year we have had so far.
We achieved highest ever revenue and profits.
We got listed in July 2018 with 67 times over-subscription.
We have achieved MoU targets with GoI for FY18-19, so the company expected to get the
excellent rating this year as well.
Started export of state-of-the-art DMU sets and locomotives to Sri Lanka. In December
only we exported the first set of DMUs and Loco and others are in the pipeline. Four DMU
sets have actually already gone, two more will go.
The country got its longest rail-road bridge near Dibrugarh over Brahmaputra river. It’s a
two story (one rail and one road) bridge of about 5 Kms. I am happy to share that we were
the technical consultants for this since beginning.
We have a stream of locomotive leasing. When we were listed, we had about 46
locomotives. We have added more. Today, we have 56 locomotives in leasing business as
well.
We delivered two integrated check posts at Birgunj in Nepal and Moreh in Manipur. These
are airport like facilities for surface transfer of passengers and goods. We are the sole
advisor to the Ministry of Home Affairs for these projects so far.
We were working with Ahmedabad Metro as part of the General Consulting (GC)
consortium. 6.5-Kms of track is already completed and operationalized in last quarter.
We got India Pride Award for Excellence in Performance from Dainik Bhaskar Group
EPCC Gold Trophy for Exports from EEPC.
Now, coming to Financials: We achieved a consolidated turnover of Rs.2,240 crore, which is
35.7% higher than the previous year. On a standalone basis also, almost a similar growth of
36.4% has been achieved by the company. Standalone turnover was recorded at Rs. 2,164
crore. As I said, we have four business segments. All the segments have grown in FY19 except
some dip in exports which we will explain why that is so. We not only maintained our growth
but also the margins, rather we marginally improved over it. So on consolidated basis we
recorded EBITDA of Rs.776 crore, which is 37% higher than previous year. PBT of Rs.730
crore which is 40% higher than the previous year and PAT was Rs.490 crore which is 37%
higher than the previous year. In terms of margins you will see that in FY’19, we have
maintained EBITDA level margin of 34.6%. People who have been interacting with us since
IPO, had issues about maintain-ability of these margins when they were around 32-33, so we
have not only maintained, we have improved upon them in FY’19.
Now, Standalone Margins: We recorded EBITDA of Rs.712 crore, which in terms of
percentage is 32.8% of the revenue. This is 37.5% higher than the previous year. At PBT level,
this is 39.6% higher and at PAT level this is 34% higher than the previous year. This has been
contributed by focus on high margin consultancy. We have a couple of foreign projects which
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RITES Limited May 30, 2019
are giving us good margins. Economies of Scale in turnkey projects and then better margins,
we achieved in leasing and exports business.
In terms of segmental growth, we have four segments mainly. If you look at the first segment,
Consultancy, this has grown by 13.3% from Rs.963 crore to Rs.1,092 crore Leasing has grown
by 12.3%; leasing grows in line with the requirement of ports, power projects, coal companies,
etc., So once the investments pick up, this can further scale up.
Exports against Rs.232 crore last year, we could ship only Rs.207 crore. Due to some logistic
issue, shipment could not be done in March which was done in first week of April. Otherwise,
these numbers also would have been higher.
Turnkey has increased by 287% from Rs.147 crore to Rs.567 crore. This also indicates that the
projects we took, we executed as per the agreed timelines with the owner. In all, we have
recorded 36.4% growth in the total revenue. Other income also has seen an increase of 28%.
The segmental profits before allocation of un-allocable expenses have been like this: FY’18
consultancy had 40.5% margin and in FY19 it has improved to 43.9%. In exports we had
23.4% which has increased to 30.2%, similarly in leasing we had 39.8% margin which has
improved to 42.6%.
Turnkey Projects: We had explained earlier that the turnkey margins would typically be
between 2-2.5% because we get fees of around 8-8.5%. Due to economies of scale, we have
been able to increase this to 3.3% and this has also added to the profitability. We did not hire
any manpower for the turnkey projects, rather there is a reduction of 3% in the regular
manpower. So we have controlled the manpower expenditure and expanded business by almost
one-third before the profitability impact has been there.
Then coming to last quarter at a glance: We had a fantastic Q4, last year. The EBITDA has
improved by 66.3%; PBT has improved by 68.9% and then PAT has gone up from Rs. 77
crore to Rs. 132 crore, there are a few items we will explain as we go through questions-and-
answers. There was increase in interest income by Rs. 20 crore, exchange gain of Rs.17 crore
and some export incentives. So other income also looks much higher because of that as well.
There was a provision of about Rs.58 crore last year which is not there this year, which makes
the Q4FY19 profit improvement very significant.
A significant effort was made to reduce the trade receivables cycle. I am happy to share that
we have been able to reduce it in last 2-3 years from 161 days to 97 days. This helps us reduce
the working capital requirement and gives us funds to invest as per our investments policy
which in-turn gives us additional interest.
Value generation for investors: our networth has gone up to Rs.2,384 crore; EPS on a
standalone basis has increased by 34% from Rs.16.59 per share to Rs.22.23 and on
consolidated basis this is Rs.23.5 per share.
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RITES Limited May 30, 2019
Last but not the least, Dividend: Based on the standalone PAT, the dividend payout comes to
57%. I would like to draw your attention to FY’19 numbers. First, Rs.40 crore (Rs. 2 per share)
was of last year, paid in the current year, then Rs.95 crore first interim i.e. Rs.4.75 per share,
then Rs.4 per share second interim, and now the board has proposed another Rs.4 per share as
the final dividend. So in this year, shareholders will be getting Rs.12.75 dividend per share
which is about 127% dividend.
We managed productivity well this year, from turnover of Rs. 49 lakhs per employee in FY18,
we could get turnover of Rs. 65 lakhs per employee in FY19. Instead of increasing, we actually
fine-tuned by not filling some retiral vacancies. So this enhanced employees’ productivity has
given us additional profitability.
Order Book: We had started with a order book of Rs.4,800 crore and we ended the year with
an order book of Rs.6,097 crore and whatever was converted into revenue was also very high.
So there was a substantial increase in the order book which now comprises of Consultancy of
Rs.2,300 crore, Exports of Rs.1,086 crore, Leasing of Rs.152 crore and Turnkey of Rs.2,542
crore. Some of the projects secured in Q4FY19 are; station development, third-party quality
assurance for 30-new AIIMS, PMC for certain railways network for Jawaharpur Vidyut
Utpadan Nigam; DPR for Rail Infra for Tata Steel, O&M of nine locos for SAIL, Jodhpur
Workshop Modernization, then one shifting of workshop and new workshop at Sabarmati for
High Speed Rail Corporation; Wet leasing for two locomotives for CONCOR. I think that is
all about the performance.
Outlook: We sign one agreement (MoU) with the Government every year to set targets for the
company and for the management, we call it KPAs. For FY19-20, we have signed 17% growth
over actual revenue of FY’19. So Rs.2,300 crore is operating revenue. To that we add other
income which could be in the range of Rs.150-200 crore. Operating margin is Rs.534 crore,
which is higher by 11%. So that is the minimum we should be striving for and more will
depend upon, how many new orders we get, how do we execute the order book in hand, etc.,
With this, thank you very much for your kind attention and we are open to questions-and-
answers.
Participant:
Thanks, Rajiv for that very informative presentation. At the outset, let me congratulate you for
numbers which has beaten what the street expected. So two very basic questions: One, some of
your sister concerns have been talking to us about this minimum fee that is being paid by the
ministry of 8.5% which could be relooked at. Of course, it should be applying to you because
your EBITDA is 4x that number. So now that we have a government in place, what does this
8.5% actually mean for the work that happens?
Rajeev Mehrotra:
This was based on a decision by the government that any such project given by them would be
uniformly extending 8.5% execution fees to the company. Some companies who are doing
only these projects, for them it may be a concern. On the other hand, we are a several sector
company doing variety of projects, we are doing railways projects, we are doing airports and
we are into metros significantly. I don’t think anybody can guarantee same pricing for ever for
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any product. But if there is a consideration, I am not aware of any such decision. Should there
be any such review, we will see in terms of what is best suited for this company in terms of
maintaining our growth and profitability and I am sure nobody will do an unreasonable deal.
RITES Limited May 30, 2019
Ajay Gaur:
I will also add something to that. How this 8.5% happened? Basically, Railways was doing all
projects themselves earlier, and then they decided to give it to PSUs under the Ministry of
Railways. It is understood that Railways was spending 8.5% on administrative cost. Railways
decided to give it to PSUs in case PSUs are willing to take up the projects at 8.5%. With 8.5%
fee where margins are around 3%, which is low, it is not expected that it will be further
reduced.
Participant:
Second question sir is consultancy. Everything originates from consultancy. So how much are
you able to upscale consultancy, into may be execution, into some sort of order being realized
from that. From your past experience and going forward how much more do you expect this
can get upscaled?
Rajeev Mehrotra:
For consulting business, we record only the fee as our income and not the value of projects
executed. So one has to compare this differently from other companies. In a consulting
company, if you are able to achieve a double-digit growth, you are actually doing a good job.
So 10%-15% is the maximum range of the consulting company can grow, because there is
competition, and then people starts getting foreign consultants, if you are too expensive. So
keeping view of this, if we are able to get 10% growth in consulting segment, I say, it is
reasonable. But put together is a package we may grow faster because we have other
businesses which are growing faster.
Consulting growth, I will say now we can achieve more than 10% as I see several infra
projects coming out after the budget. We have been involved at initial stage in several mega
projects which could not be announced before the election process started. So I am very
optimistic that these projects will definitely come out. To name one is Bangalore Suburb rail
connectivity project where we did a quick study. This is at very advanced level of decision-
making but it takes time to implement that. Such projects are there, whether it is DFCs,
whether high speed corridors or semi high-speed corridors or doubling or third line or fourth
line etc. A big bouquet of projects which is waiting investment decisions. So, I am optimistic
that the consulting per se would also see growth and a reasonable expectation would be around
12-15%.
Participant:
You were in the news recently for some sort of fund raising where the government is looking
to divest some portion and you are looking to raise some fresh capital. Could you throw some
light on that?
Rajeev Mehrotra:
We are not raising any fresh capital. Right now we are a debt-free company but we are a cash
surplus company. People know that, we still have about Rs.1,200-1,300 crore in our books, so
we are not raising any fresh capital. 12.6% was earlier offloaded through IPO, now
government has decide to offload 15%, put together 27.6% of the company’s equity would be
in the market which is not a surprise because you are required to do 25% float in any case.
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They are offloading just 2-3 percentage points more, but I believe after that, although I am not
the decision maker on this issue, there will be a pause after that.
RITES Limited May 30, 2019
Participant:
Sir, firstly, in export order, after the Q3 results, we have Rs.1,200 crore order book and you
mentioned Rs.600 crore of Sri Lanka would be executed in Q4 and something in Q1 FY’20
which got little bit delayed. So if you can explain how it will come back going forward. I
mean, remaining Rs.500 crore from Sri Lanka will come in Q1, Q2?
Rajeev Mehrotra:
Yes, this will be executed before end of Q2. Already two shipments have happened in April
and May.
Participant:
Remaining Rs.600 crore you mentioned that second half…?
Rajeev Mehrotra:
Yes, by second quarter this order of Rs.600 crore would be executed. We have another order of
Rs.600 crore from them, on which design issues are being finalized. We will try to start
shipment this year itself, if designs issues are finalized. If not last quarter of FY20, definitely
the Q1 of FY21 would see shipments of those 160 air conditioned, non-air-conditioned
coaches put together.
Participant:
Secondly sir, in our redevelopment subsidiary, how much we have, till now invested and how
much stake we have?
Rajeev Mehrotra:
Station Redevelopment, we had expressed our interest to do it. We are yet to conclude the
modalities actually. We have got some work from them, about Rs. 80 crore work, because we
saw engineering solutions required there to be of our business area, so we entered there. We
already have got business, but the investments are yet to be concluded and I am sure now soon
this will be. We are just talking Rs.50 crore now and not Rs.250 crore.
Participant:
Rs.50 crore would be how much stake?
Ajay Gaur:
It will be about 20% of their equity. Initially, at the time of DRHP it was Rs.250 crore. We
asked for information regarding business plans and haven’t put in any money till now. The
requirement is reduced to Rs.47 crore as against Rs.250 crore. So RITES will be investing up
to Rs.50 crore as of now, if we go ahead with the proposal.
As regards to the export, around Rs.450-470 crore will be the likely turnover, because other
than Sri Lanka, there is a small order from Myanmar also which we will be exporting. Against
exports of Rs.206 crore of this year (FY19), in the next year we see it will be around Rs.450
crore plus. Exports of coaches should start sometime next year, FY20-21.
Participant:
Lastly, there was some impression earlier that we might look to enter into the hybrid annuity
model road project which one of our peers is doing. So are we planning to do or we will not?
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RITES Limited May 30, 2019
Rajeev Mehrotra:
We have funds; we can pick, if we have to pick up one or two medium size projects. We do not
have any project under consideration right now but this possibility cannot be ruled out. That is
also not a priority area.
Participant:
Sir, on the turnkey projects, what is the relation between the consulting assignment and the
turnkey projects, what is the cause and what is the effect? Secondly, the certain hike in revenue
there. Can we see this as a tipping point that we have reached that or will go to the next level
or this was one-off and what are the margins like?
Rajeev Mehrotra:
When we quote this 8.5% fee, we are supposed to do the key components of design, tendering
and project supervision and build to design. Now, this complete chain pays us 8.5%. So I think
it does not compete with consultancy rather this creates a component of consultancy also, but
then that comes as a project fee on turnkey basis. To your second question, we want to keep a
reasonable portion of this also in the portfolio. So from here this might increase.
Ajay Gaur:
Let me also add to this. You asked about the relationship between consultancy and turnkey.
Normally we do number of projects for and on behalf of clients, there we get a PMC fees and
we work as an agent i.e. representative of the client, the work remains same. We engage
contractors on behalf of the clients. We get the work executed but get paid only fee and fee
portion only goes as revenue. But in case of the turnkey projects, RITES is termed as a
principle contractor, the total project value goes to turnover. So, the basic difference is that in
turnkey, it’s the total value of the work done goes to the turnover and in case of the
consultancy, it is only percentage of fee goes to the turnover. So far going farward is
concerned the order book for turnkey projects is Rs 2500 crore plus.
Participant:
This is the contractor replacement that is coming to you?
Ajay Gaur:
So far all turnkey projects are being executed on behalf of Ministry of Railways, there we are
termed as prime contractor. We outsource it on back-to-back terms and conditions and terms
sometimes are more stringent what we outsource to the contractor(s). So there is no additional
risk.
Participant:
As a consultant, you will always say that my turnkey business is the best and best terms?
Ajay Gaur:
In turnkey business margins are different. All these turnkey projects we are doing are on behalf
of Ministry of Railways where we are paid on cost plus basis. Whatever is the cost, we get
8.5% on that and then we spend money for our administrative, manpower and traveling cost,
margins are around 3% in that. But in case of the consultancy margins are around 35-40%.
Consultancy will continue to remain the predominant area for doing our business. But we are
taking up the turnkey projects also to improve our profile. In future we want to participate in
the turnkey projects and these projects will qualify us to participate. These are given by the
Ministry of Railways, our parent organization, the terms and conditions are same for all the
PSUs and therefore we have taken up these projects.
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RITES Limited May 30, 2019
Rajeev Mehrotra:
Can I answer last point you raised? What is the risk to the company? The owner is giving you
funds to execute the project, so there is no working capital blocked. Same number of
employees, rather 3% reduction in the regular number of employees in the company, has added
to this turnover. So what is the harm in taking an additional business if it gives you more
profit? Without working capital, without losing productivity, rather increasing productivity.
Therefore I think this has to be seen with positivity rather than replacement of the business
because we will predominantly be a consulting company.
Jonas:
Just wanted clarity on the FY’20 MoU guidance of Rs.2,300 crore. If you can give us a
breakup of various segments like you said you expect exports to do about Rs.450 crore. What
would your other major segments do because your FY’19 closing order book for consultancy is
down 10%, so should we sort of build in a decline in consultancy revenues while turnkey
revenues go up and that has a sort of impact on the margins as well, so how should one break
up the Rs.2,300 crore?
Rajeev Mehrotra:
The Rs.2,300 crore is not further segmented in the signing. It is left to the company. We have
internal target. But let me assure you there is no reason to believe that consultancy will fall.
Rs.2,300 crore is a benchmark and not the benchmark, we can always cross this. This is
something which you must do but not necessarily stop there. We had 22% this year, we did
37% output. So again, if it is 17%, one has to be optimistic and then you will see growth in
exports also, you will see growth in consulting.
Ajay Gaur:
Mr. Jonas, since you are asking for the breakup of Rs.2,300 crore, the break up is as follows;
consultancy is likely to be Rs.1185 crore, exports will be around Rs.450 crore and leasing
should be somewhere around Rs.110 - 115 crore and Rs.560-570 crore should be turnkey. We
are expecting a growth of about 9-10% in consultancy, exports will grow maybe more than
double of this year and turnkey should remain same.
Jonas:
So the question was sir, when you have a decline in your opening order backlog for
consultancy of about 10%, so if you want to grow 10% in consultancy effectively then your
order inflows in the first half need to grow by 20% if I assume that they are short cycle in
nature. So what are prospects then you are looking at if you are calling for such a large delta?
Ajay Gaur:
In the consultancy order book of about Rs.2,300 crore, we do not include inspection fee for the
entire year. Inspection order are executed immediately maybe in a month or two months time.
The turnover for this year inspection fee has been Rs.331 crore. Next year we expect to do
about Rs.380 crore. This year we have been able to increase the inspection fee to Rs.331 crore
from Rs. 249 crore of last year. But so far order book is concerned; we have taken inspection
fee for about one quarter in the order. If you add balance of Rs.280 crore, order book for
consultancy will be more than the turnkey job or maybe equivalent to that. We normally expect
to execute these orders in 2-2.5-years time and consultancy business is likely to grow. We are
expecting more projects to flow now as the new government has taken over. So earlier because
of general elections there was some slowdown.
Page 10 of 20
RITES Limited May 30, 2019
Rajeev Mehrotra:
Our Director Projects has informed that in last few days he has signed order worth Rs.150
crore for consultancy. You did not connect to my first explanation that we are involved in
certain mega projects which will see outcome as soon as the government starts investment
decisions. So if you connect this, there is no reason to believe consultancy will not grow and
we will remain a consulting company predominantly and growth will come.
Jonas:
The second was the impact of increasing turnkey revenue in our mix. Does it have any impact
on receivables because you have a very healthy receivable cycle of almost less than 100-days
now. So how do you route the receivables on projects?
Rajeev Mehrotra:
This is best in terms of receivables management because somebody gives you money in
advance and then only you spend, so there is zero receivable against turnkey.
Ajay Gaur:
Turnkey projects, these are called deposit works where we get paid in advance. We open a
separate account for the client, in the name of RITES and client. Keep advance money there
and out of that money we disburse payments to contractors. We are able to set off our fee
against the deposits lying with us so there is no question of outstanding there at the end of the
day.
Nitin Rao:
My name is Nitin Rao. One slide showed the trade receivable days coming down significantly.
Since you have basically one major client, is this sustainable in terms of the receivable days,
how is it dependent on the …?
Rajeev Mehrotra:
We will try to manage in about 100-days.
Ajay Gaur:
Like you said one major client, let me clarify it. Till last year and maybe earlier, the
contribution of Indian Railways in the total turnover used to remain around 12%- 14%. This
year because of the turnkey projects it has gone up to 36%. So 64% still comes from other
clients. Against exports, all payments are secured against LC. The moment exports take place,
we get paid. In turnkey projects, deposits are already lying with us, so we get paid
immediately. Therefore the number of debtors days are likely to be in control. Debtors are high
wherever we submit our reports. There the debtor days are more because the report acceptance
takes time and the client has to disburse payment based on their budget. It is not one client, let
me clarify it, we do projects for number of clients like NHAI, Container Corporation, NTPC,
MEA, many other ministries and Govt. Departments and private sector etc.
Nitin Rao:
Government is still owing 87%. So any plans to come down to 75%?
Rajeev Mehrotra:
We already discussed this. Government has already decided to offload another 15%. So put
together 15 plus 12.6, 27.6% would be with the public, maybe in Q3 this should happen.
Ajay Gaur:
Government has already floated RFP for engaging bankers and law firms. Otherwise also we
are supposed to do it by July 2020. Government is planning to come out early and it has
already decided to further offload 15%.
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RITES Limited May 30, 2019
Pritesh:
This is Pritesh here. Sir, on the consultancy part, we do a lot of business for Railways. So just
wanted to understand, if those projects are awarded on nomination basis or tender and if it is
let us say awarded on nomination, then have we ever looked at the pricing that we give out,
any comparable that we have in the engineering space? If it is nomination, then does it gets
reviewed eventually or altered eventually?
Rajeev Mehrotra:
For getting any project on nomination, there is a justification, there is a comparable fee
structure, then only the owner agrees to pay that money. We also participate in the tenders
floated by others. Some Railway divisions have started floating tenders for certain works. We
are participating there also. We are getting projects on tender basis also. So we will see as the
market evolves, we will be following that structure. It is not correct to believe that if
nomination stops, we stop getting order, no.
Pritesh:
No-no, so my question was is it today on nomination?
Rajeev Mehrotra:
Two-third nomination, one-third is on competition broadly. That is not railways alone, several
ministries, whether it is Home Ministry, MEA, Ministry of Health, most of them prefer to go
to a government consulting company.
Pritesh:
So if it is on nomination and if a pricing is offered, how is it compared on the pricing side?
Rajeev Mehrotra:
I am sure they come to us for repeat orders. For the owner they must be comparing the market
conditions before they give it to us. We should not be unduly worried about it. If the whole
thing goes through competition, we will be in the competition. If we are there predominantly,
we will structure our things to suit that. But this fear, I think, has been given too much
weightage that if nomination stops we will not be able to compete. We have 3,000 employees
who have worked in India and abroad on variety of projects, they will not sit idle.
Participant:
Our market share would be plus 75% in the engineering side of the…?
Rajeev Mehrotra:
I do not have any market size estimation on this because we are into railways, metros,
highways, then rail connectivity projects of coal companies, mining companies, power
companies, port companies. So put together we are there in significant, role say more than
50%.
Participant:
Who would be the other competitor alongside you taking the projects?
Rajeev Mehrotra:
In consulting, there are smaller consultants, two, three, four people do it together, but not of
the size we are.
Participant:
Your growth in consultancy mirrors a lot with the railway CAPEX growth. So if you would
plot that for the last 10, 12-years? Right now there is this whole thing about focus on railways
spend. So just wanted to take a couple of insights from you as to the extent of spends and
where is it planned over the next couple of years because obviously you would have bird’s eye
view on being a consultant, so ideas there?
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Rajeev Mehrotra:
Look, we are not a single sector company. Predominantly, yes, 70% of business comes from
RITES Limited May 30, 2019
railways sector, not Ministry of Railways alone other clients of Rail Connectivity needs are
there. So if railways investments are going up, definitely there is a reason to believe the growth
will continue. But we are also into metros, highways, airports we are doing projects outside
India also, we are doing metro rail project in Mauritius. We believe that if such metro projects
are done in India as well, we might have a simpler or a cheaper solution for metro. So, the
story will not end with one sector investment. We were growing even when low investments
were going into railways. I think we have to grow faster with this. Now, getting a sense of
what is going to happen is very difficult to say. We are privy to certain projects which are at
various stages of approval. I gave few names say, Bangalore Suburb Rail, then four DFCs, I do
not know which one is picked up first, but definitely the other DFCs are also candidates of
merit, they will get due attention. Then there is complete electrification which has already been
announced. Workshops being modernized. The new Train 18 has been introduced. For that
also, workshops and maintenance facilities are being created. Then the complete upgradation
of Delhi-Mumbai, Delhi-Kolkata track to increase speed to 160km/hr. These are the mega
investments on which we will see decisions as the investment basket increases. I am very
optimistic that next 5 to 10-years should see, a several mega projects coming from railways,
metros and of course highways and airports. We should not underestimate the metro size
investment. This week only we did Gurgaon metro report and we discussed the same with the
Government of Haryana. Also, we has submitted 14 metro pre-feasibilities reports in last 2,
2.5-years, of which I think four have already been announced for investment. And 8-10 metro
reports are already with the government. Some decision will come at some stage on that
segment also.
Ajay Gaur:
I would also like to add; it is very difficult to correlate directly with the CAPEX of the Indian
railways and our revenue. Because CAPEX of Indian railways will include rolling stock,
signaling telecommunication, purchase of plant and machinery, but we are not into that
business as we are primarily a consultant. So whatever consultancy assignments come up or
maybe turnkey projects from Government of India, we will take up. But definitely, the
government is planning to increase CAPEX and we will get benefit of the same. But it is not
purely railways, we do other number of projects as CMD has already mentioned. We have
already given metro studies for 14-states; 3-4 have already been approved by government,
some are at the approval stage of the state government. Once these are approved, we will be
participating in the open tender and we are quite hopeful that we will get more projects.
Ramesh Bhojwani:
Ramesh Bhojwani from Mehta & Vakil. Sir for decades, our railways network has been
stagnating at 65,000 Kms and over these decades, the usage of railways by the number of
people, the masses has gone up manifold. So the thought which comes to my mind, you have a
tremendous technical brilliance and expertise and the best team of engineers. Why not the
existing infrastructure with the help of technology retrograde and retrofit, we can increase the
speed as well as what we are seeing at least in Mumbai? Nine coach trains have become 12,
and GM, western railways, he retired, he gave an interview saying that 12 coaches will become
15 only on the fast trains. So the thought which is coming is the existing infrastructure, if with
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technology of retrograde, retrofit and renovation, we can increase the speed say by 50%, the
capacity increases by 50%, we will solve a lot of problems.
RITES Limited May 30, 2019
Rajeev Mehrotra:
Exactly on this thinking. There are certain projects already announced, like removing level
crossings completely several zonal railways have already done it. Now, DFCs, the entire DFC
route is without any level crossing, all flyovers, ROBs, RORs wherever required. So unless
you do this basic safety requirement, the speed cannot increase. And I said earlier that
government is looking at increasing or augmenting the Delhi-Mumbai, Delhi-Kolkata route to
160 Kms/hr. The first requirement for the same is that people cannot cross the way they do.
That is being done, level crossings are being removed and I am sure government is having that
in mind and you will find some interesting solutions, people are looking at the solutions.
Ramesh Bhojwani:
Because in 2018, after very-very long time, the government publicly announced expenditure
outlay of Rs.1 lakh crore for the upgradation as well as addition in the railways. So, it opens up
a huge unexplored possibility and opportunity for you.
Rajeev Mehrotra:
I am very optimistic that government is fully seized of this issue. We are aware of certain
projects which will be unfolding.
Ramesh Bhojwani:
This 37% CAGR growth will become a standard norm in your company.
Rajeev Mehrotra:
Thank you, for sharing my optimism.
DK Bhargava:
My name is DK Bhargava. I would like to know about Ahmadabad projects. Ahmadabad
Metro is operational. So how much time is the lease and how much CAPEX you are expecting
from Ahmadabad Metro project?
Rajeev Mehrotra:
We have limited role there in high speed, so I would not like to comment more on this. I will
say what we are doing there; we were initial consultants for doing pre-feasibility for Mumbai-
Ahmadabad High Speed along with a company from France. We did the initial study for
Ahmadabad-Mumbai, then we were involved in doing geotech investigations there. Right now
we are creating a station facility for them, some changes required in Sabarmati workshop, we
are doing. Beyond this, I would not like to give more details because we neither owner of this
nor involved in planning of it. I think 2021-22 is the target for them and this is on.
DK Bhargava:
Any other project in Ahmedabad or Gujarat or Rajasthan for metro for our company?
Rajeev Mehrotra:
We have recently got a metro project in Pune. For high speed, we have worked on another
report between Delhi-Chandigarh-Amritsar and that is also very feasible route, but at what
stage government would decide, that is of course to see there, but it is again a very viable
route. There are some other routes being studied. But this being so capital-intensive that it
cannot be decided overnight. I again take to his point, government is also looking at possibility
of doing semi high speed tracks rather going into full high speed alone, because that is a very
costly investment. So, you will see a combination of these two solutions coming
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RITES Limited May 30, 2019
Ajay Gaur
You asked about the value. In Ahmadabad metro project, RITES fees is 30% of the total fee
and it is around Rs.112 crore and now the project is being extended till 2020 October. Apart
from Ahmedabad, we are in Nagpur Metro and Pune Metro. We are likely to get one more
metro project which I cannot name as it is awarded. Then we are working for Mauritius Metro
also where RITES fees is about Rs.144 crore.
Participant:
Sir, you have given MoU target for FY’19 of Rs.1,760 crore in terms of revenue which went
up to Rs.1,960 crore which was an increase of about 12% and simultaneously the operating
profit also grew by about 34% as compared to MoU target of Rs.534 crore. So it means that
you are very conservative somewhere when you gave your targets, right. Now for FY’20, you
have given a target of Rs.2,300 crore for revenue vis-à-vis you also gave Rs.534 crore as net
operating profit. So increase of target is 17%. So my question is firstly is it a conservative
target? Secondly, if you are saying that 17% would be the increase in revenue, why for
operating profit is only about 11% your target is there?
Rajeev Mehrotra:
The profit is only operating profit; it does not include other income…
Participant:
Yes, so operating profit what you are saying is Rs.534 crore, which is about 11%.
Rajeev Mehrotra:
This process of MOU starts sometimes in November – December for next year. So at that time,
what performance for the current year you assess, we start working on that. It gets concluded at
the end of the financial year. At that time FY’19 would cross to that level was actually not
foreseen. So at that time for FY20, we had in mind 20% growth and we worked on that. When
this was done, it was around 20% growth, but when the FY19 number shot up, this became
17% growth over the actual performance of FY19. Now this is again a realistic assessment
based on the conditions at a particular point of time, but it does not stop you from exceeding,
in the interest of the shareholders.
Participant:
That is really a good sign because you are taking conservative estimates and when you give
your future projections, the conservatism is always helpful, but my other question is that
currently now we are seeing Rs.2,300 crore as revenue which you are expecting in FY’20
which is about 17% growth, but the operating profit what you are simultaneously saying is
about 11% only. So why the operating profit you are showing 11% vis-à-vis 17% of your
revenue growth?
Ajay Gaur:
The profit what we are talking about is the profit before tax (PBT), but the targets given in the
MoU are only the operating profit margins. Rs.195 crore earned from other income is to be
excluded. 20.5% was the target given to us for operating margins, which is 24.4% so the
variation is not 34% vs 20.5%, it is 24% versus 20.5%. The target for turnover growth was
22% last time, we did better i.e. 37%. Now for FY20 on the increased scale, it is 17%. We are
hopeful of getting it. This is the minimum target to evaluate our performance which has been
given by the government. We can always do better than this. It is not that we take soft target
from the government. We try to take realistic target and then we try to improve it and we have
been able to do it since past many years. Do not compare PBT of 34% with 20.5% which is the
operating margin in the MoU.
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RITES Limited May 30, 2019
Participant:
Sir, you have said operating profit in your investor presentation on the last page. So I am
referring to that. You have said from Rs.482 crore it goes up to Rs.534 crore is expected for
FY’20 which is about 11%, that is what I am trying to tell you, so that talks about operating
profit, so I am talking on that line, so that is my precisely the question is.
Ajay Gaur:
This is derived figure, In MoU we have operating margin and then based on the Rs.2,300 crore
revenue under target, we are working out this information. And operating profit growth we are
talking about when we say 10.8% over FY19. Last year, the target was 20.4%, this year target
has been given as 23.2% for the operating margin in MoU.
Participant:
Sir, last year we signed an agreement with the Government of Japan when our prime minister
visited Japan for three bullet trains and the funding will come absolutely by the Government of
Japan, repayable at over 50-years. I think with the new government in place, the work for all
the three bullet trains will start simultaneously. So that will open up another avenue of
opportunity for you.
Rajeev Mehrotra:
To the extent I know, this agreement has been signed only for Ahmedabad and Mumbai high
speed link. There they will be running more trains, but there is no other stretch which has been
taken up for investment decision as yet. There are some very interesting solutions emerging
how to optimize the railways cost. At this stage it will not be correct in this forum to speak
about it, but very soon you will find.
Participant:
We have outgrown our margin targets, most of the segments, our margins have improved in
consultancy, exports, leasing. So going forward when you have taken this operating margin
target or the growth, so what kind of margin we are estimating for each of the segment –
specifically for consultancy and leasing I want to know the margins posted in FY’19, are those
sustainable and what has led to this margin growth per se whatever like 200, 250 basis points
margin improvement we have posted in consultancy business during FY’19, so what are the
contributors towards it and how should we extrapolate going forward?
Rajeev Mehrotra:
The consulting and leasing are high margins businesses for us. There is no threat to the
margins there. We had been raised this question during the IPO also, can you maintain this?
We have not only able maintained the margins but also marginally improved upon it. These are
hi tech consultancies, where the rewards are higher, whether domestically or internationally,
this is not just making buildings. So I believe that we will be able to maintain, but how much
competition we face, all that is very difficult to say, but the answer right now is yes, we hope
to maintain these margins in these two segments.
Participant:
My question is regarding electrification by 2022. So can you just elaborate how many
kilometers we will be completing by 2022?
Rajeev Mehrotra:
About 30,000 Kms have been identified, of which it is estimated that IR have already done
5400 route kilometers last year, which is again a record. The exact numbers will come in the
final reports. Already there is a significant execution reported. Because at times, when I talk to
people they say, Projects are not being executed but projects are being executed actually. This
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year target is around 8,000 route kilometers electrification. By 2022 we should be targeting to
do most of elecrtification.
RITES Limited May 30, 2019
Participant:
What will be the role of RITES in that?
Rajeev Mehrotra:
We have role as a consultant also. We are doing designs or feasibility, but in this case
feasibility is not an issue, turnkey would be actually more straight business coming because
these are standard designs for electrification. So we see electrification projects coming to us in
this year also in larger proportion than what we had.
Participant:
So one completely different question. Nothing to do with you or your financials. Ministry of
Railways has a number of different arms. Some of which are quoted. Do you at a ministry
level have a joint meeting of the various companies to discuss broad railway plans and sort of
the roadmap ahead? I do not want details but just how it happens?
Rajeev Mehrotra:
We do get involved in mega projects discussion at times jointly and at times singly, depending
upon who is best fit for reporting on the project situation.
Participant:
There is this Rail Vikas Nigam. We are RITES, there is IRCON. How different is each one’s
role versus one another, can you just explain in simple terms for all of us?
Rajeev Mehrotra:
IRCON’s main focus is railway projects internationally and domestic also now they are doing,
Their main focus is supposed to be international projects execution. RVNL is basically doing
railway projects execution whether doubling third line or New line or electrification but only
railway projects. They do not take any other sector projects. RITES, we are a consultant first
and then we are also into metros, we are also into airports, highways, ports, certain critical
projects for Ministry of Home and MEA etc. Our portfolio is beyond one sector. At times,
when we go outside people try to give work to a consultant who can conceptualize, design,
execute and give it as ready or “turnkey” that it is called. When we got the opportunity to do
this in India, we start doing doubling, third line and fourth line and also electrification of
railway network, so that we have a better portfolio when opportunity arises. I think this has
been a fairly satisfying experience without adding much to the manpower, rather by reducing
we have achieved Rs.580 crore revenue from construction projects. There is a definite given
scope to each Railways company. We also do exports of rolling stock.
Ajay Gaur:
To your question, let me also add, what government has done is to avoid competition amongst
all PSUs within the control of the ministry. RITES was the first PSU to be set up by
Government of India to render consultancy assignments in railways sector outside India. It was
primarily meant only for overseas consultancy assignment in railway sector, but over a period
of time since railways were privatized outside, we diversified our activities. Now we have
become a transport consultant where we are rendering consultancy service in railways, ports,
highways, airports, inland waterways. Whatever transport sector you name, we are there. Then
we are into exports, leasing also. IRCON was formed for carrying out construction activities
which they are doing for Railway and other clients. Even in export also, aprt from three
countries all countries have been given to RITES to avoid competition. Therefore we do not
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RITES Limited May 30, 2019
end up competing with each other outside India. Then Container Corporation is meant for
container business, railway catering corporation is altogether different. IRFC is for the
financing, so there is no competition so far as the companies under Ministry of Railways are
concerned. So far as Government of India, Ministry of Railways is concerned roles has been
clearly defined for all PSUs.
Participant:
One simple question again is on RITES, how much of our business comes from government
entities and how much is from private or non-government?
Rajeev Mehrotra:
About 75% business is with government, not one ministry alone. There are major projects
coming in government sectors. We are getting many projects on nomination. We are executing
these as per our client satisfaction and therefore we are getting repeat orders as well from
them.
Participant:
What is the average execution time for this order book if you can share segment wise?
Rajeev Mehrotra:
This is a composition of all the four segments, but typically one to three years, three years for a
project like metro, one year for a small consultancy work, exports would typically be 18-24-
months.
Participant:
Including turnkey?
Rajeev Mehrotra:
Turnkey we have done 100 Kms of electrification in about 18-months, this last week only
Vijapur-Makshi in Western Central Railway near Jabalpur has been handed over.
Participant:
Can we have breakup of wagons and non-wagons?
Rajeev Mehrotra:
Wagons, we are not exporting. Indian Railways’ workshops produced locos and coaches which
are for broad gauge or meter gauge market, we are exporting. Now we are trying to explore
other markets which are having cape gauge and standard gauge requirement.
Ajay Gaur:
Presently in the order book we have order for export of locomotive, out of 10 locomotives we
have already exported three or four locomotives till current financial year. Till 31st March, we
exported only two locomotives. We have order for six DMU sets with 13 coaches each, then
we already have order with us for supply of 160 coaches and about 5 or 6 million is left over of
Myanmar project where we have to supply spare parts for the rolling stock. That is the
breakup. Normally it is DMU, locomotives, coaches; wagons we are not exporting. Wagons
we did once in Myanmar, but that was two or three years ago.
Participant:
So DMU coaches plus locos put together will be how much amount?
Ajay Gaur:
DMU and loco contract was awarded to us for Rs.680 crore. Out of Rs.680 crore about Rs.200
crore, we have already exported till 31st March. The rest will be exported in this current
financial year ‘19-20. And then contract for coaches is about US$82 million the export against
which may start in 2020-21.
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RITES Limited May 30, 2019
Participant:
Can I have a breakup of opening order book of Rs.4,800 crore?
Ajay Gaur:
Rs.4,819 crore was the last year. The break up was Rs.2,572 crore was Consultancy, Rs.141
crore was Leasing, about Rs.698 crore was Export, and Rs.1,408 was Turnkey projects.
Rajeev Mehrotra:
Presentation, we have already uploaded on our website under investor icon. I am sure you
would have seen. If not please have a look at it.
Participant:
On Railways Energy, can you share what is the potential and how is our billing income to be
netted out from five years perspective?
Rajeev Mehrotra:
Initially, it was a consultancy assignment, but then we found value in this. We thought we
must stay there for long time, we made a company Railways Energy Management Company
where 51% is our investment and 49% is railways. It has three mandates – First, whatever is to
be purchased, try to do it on open access basis. We have implemented about 60% of railways
entire energy requirement which is 2000 MW, is actually coming from open access. Certain
states have raised some issues, there are some technical issues and some legal issues. With
resolutions of these issues, procurement through open source will increase. We are adding
electrification very fast, then DFCs would be ready by 2021. All these projects would need
electric traction and this company has got mandate from all of them to do the energy
management. So far, we did only medium term purchase. Now we find that there is a
possibility of going into long-term agreements because the legal environment on this is now
settled. We got railways notified under Electricity Act 2003 as DDL (Deemed Distribution
Licensee) because they were already a licensee under Railways Act 1908, which has not been
superseded by Electricity Act of 2003. So this came as very handy solution for railways which
we evolved and got through CERC.
Coming to the business potential, last year REMC gave Rs.80 crore of revenue and almost
50% profitability because about 12-people are managing the entire show. But then we are
moving up in the value chain, we are trying to see that the short-term gaps in the requirement
are met through power exchanges. We are working on it. The railways own generation; they
have got a plant in Nabinagar, their distribution, where the power will flow under what
arrangement, who pays and other commercials legal requirement; they have delegated this also
to REMC. So on this REMC is the power manager. Second mandate is renewable. Since it is a
deemed distribution licensee, it has to make up at about 10% or 15% requirement of
renewables. Initially we thought we will do renewables in our balance sheet; we did one
windmill. And after that, we are facilitating rooftop solar power installations, we are also going
for installation on railways land, all those projects are lined up, very soon you will see these
projects coming out. So the second mandate to this company is to do renewable energy
management for the railways. Third is energy efficiency on which we are yet to scale up our
operations. These three looking at the way we are going for electrification, the way we are
going for more route kilometers being added in terms of infrastructure, there seems to be a
definite way forward at least in five to seven years.
Participant:
As far as consultancy business is concerned, who are our one or two main competitors?
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RITES Limited May 30, 2019
Rajeev Mehrotra:
In railways, there is not much competition, but in metro we compete with AECOM, Systra
from France and Japanese consultants. Actually for Japanese consultants, we supplement their
efforts in India. Any JICA funded project, they have to have a Japanese consultant and we
work with them in whatever projects they are associated. So there is a limited competition
more so in the metro segment rather than the rail per se.
Participant:
How much is CAPEX per kilometer for electrification?
Rajeev Mehrotra:
Roughly around 80 lakhs to 1 crore. At times you have to acquire land for substations if it is
not on railway land, so that add to this cost.
So, I think that is the end of questions. I will request Director, Finance to say closing
comments.
Ajay Gaur:
On behalf of RITES management, I would like to thank you all for your presence here and for
giving us an opportunity to reply to your queries. I hope we have replied all your queries
satisfactorily. In case not and you have some more questions, we will be here for some more
time and you can ask us. We hope that your support will continue. Please join us for a cup of
tea. Thank you very much.
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