Rites Ltd Q4 FY2025 Concall Summary

Key Takeaways

• Guidance reset to 20% revenue growth: Management aims for highest-ever revenue in FY26, a sharp reversal from the 8% dip in FY25, backed by an all-time high order book of nearly INR 8,900 crores.
• Margins structurally lower, now guided down: EBITDA margins are expected to settle around 20% and PAT margins at 15-16% as the order book shifts almost entirely to competitive-basis orders, a permanent change from the nomination era.
• Export revenue poised for a comeback: After nearly two years of negligible contribution, two large orders (Mozambique locomotives, Bangladesh coaches) worth INR 1,200 crores combined will start converting to revenue in FY26, with management aiming to maximize execution.
• QA business hit hard, recovery will be slow: The diversification into competitive QA partnerships cost INR 40-50 crores in revenue and profit this year; top line may recover by end-FY26, but bottom-line recovery will take much longer due to compressed margins.
• What to watch next quarter: The pace of revenue conversion from the Mozambique and Bangladesh export orders, whether the 20% top-line growth aspiration holds through Q1, and any stabilization in QA margins.

The Margin Reset

• Competitive shift is now the dominant reality: Over the last 2-3 years, the majority of the order book has moved from nomination-basis to competitive-basis orders. Even nomination orders are now single-tender with tough rate negotiation, so the pricing power of the old model is gone.
• Guidance formalizes the new normal: Management guided FY26 EBITDA margins to about 20% and PAT margins to 15-16%, down from the FY25 overall EBITDA margin of about 23% and PAT margin of about 18%. The higher-margin legacy orders are reaching completion, and the incoming competitive orders carry structurally lower margins.
• Consultancy margins converge downward: Consultancy, the core business, will see its margins settle in the same 20% EBITDA range as the overall company, reflecting that competition is compressing margins across all 13 verticals.
• Turnkey is not what it looks like: The INR 4,200 crore turnkey order book does not carry EPC-construction risk; RITES remains a consultant and revenue merely passes through. The work content is the same as a pure consultancy fee on a much smaller order value, so the margin structure is consultancy-like.

Rahul Mithal: "we are aiming and we would see that a realistic EBITDA margins on an overall FY basis would be in the range of about 20% odd and PAT margins would be over 15% to 16%."

Export Orders: The FY26 Growth Engine

• Two large orders break the drought: After export revenue was almost nil in FY25 (vs. ~INR 100 crores in FY24), RITES holds a INR 300 crore order for 10 locomotives to Mozambique and a INR 900 crore order for 200 coaches to Bangladesh. Together they form the bulk of a INR 1,350 crore export order book.
• Execution timeline is tight: Locomotive deliveries are targeted to start by end-Q1 or early Q2 FY26, with management aiming to book 70-80% of the order value within the year. Coach deliveries depend on final design approval from Bangladesh Railway and prototype manufacture, with initial lots expected in the latter part of FY26.
• Pipeline visibility is deliberately opaque: Management declined to quantify new export orders expected in FY26 or disclose L1 positions, calling it speculative. The only commitment is the aspirational target of one export order per quarter, maintained for five quarters.
• One old deal still stuck: An agreement with National Railway of Zimbabwe for wagons and locomotives, signed about two years ago, remains unconverted because the client is still waiting for funding confirmation.

Rahul Mithal: "It's too early right now to predict an exact number. I can only say that we are trying to maximize out of all of these, the entire order."

Order Book & Inflow

• All-time high order book: RITES ended FY25 with an order book of nearly INR 8,900 crores, after adding more than 500 orders worth INR 5,500 crores during the year, nearly equivalent to the entire closing order book of March 2024.
• Strike rate sustained: The company maintained a pace of more than one order a day (over 150 orders in Q4 alone, totaling INR 1,400 crores) and one export order per quarter.
• International consultancy gaining traction: Recent wins include a highway project in Guyana and an order in Jordan, plus an MOU with Etihad Rail in the UAE that has already led to empanelment and some work. The target geographies are Africa, Southeast Asia, Latin America, and the Middle East, with an aspiration to enter some G7 countries.

Quality Assurance: Diversified but Diluted

• The hit was material: The QA business lost INR 40-50 crores in combined revenue and profit in FY25 as RITES shifted from a largely railway-focused, nomination-based model to a diversified, competitive model with multiple domestic and international QA partners.
• Revenue has partially recovered: The business has clawed back to about 70-80% of previous revenue levels, and non-railway QA now accounts for 55-60% of the vertical, spanning solar, infrastructure, state government work, and vendor assessment for the GEM portal.
• Margins are the lasting scar: Even if top line recovers to prior levels by end-FY26, the bottom-line contribution will take much longer to return because the new competitive orders carry much lower margins. Management said the bottom line can only recover once revenue surpasses the erstwhile peak.
• First international QA win: RITES secured its first international QA order, for Sri Lanka Railway, marking an early step in exporting the diversified QA model.

Rahul Mithal: "And by end of the coming FY, at least in terms, we are aiming to reach back the same levels of business in terms of QA."

Leasing & REMCL: Steady Contributors

• Leasing grows top line, not bottom line: The leasing business saw over 20% growth in the number of locomotives leased and year-on-year revenue growth, but margins and profits are flat as competition from smaller players has opened up. RITES is also winning orders to operate and maintain locomotives owned by clients.
• REMCL is a quiet cash generator: The renewable energy subsidiary paid a dividend of about INR 40 crores to RITES and Indian Railways this year. Its decade-plus expertise in renewables is now translating into consultancy orders in the sector, with substantial growth expected in FY26.

Capital Allocation & Business Model

• Dividend payout stays high: The FY25 dividend payout ratio was about 95.4%. Management reiterated that the business model is low-CapEx, pure consultancy, so high payout ratios will continue in the same trend.
• CapEx remains minimal: FY26 CapEx guidance is INR 50-75 crores, well below INR 100 crores, with no major shift expected.

Rahul Mithal: "we are a low CapEx company. We are not going to give you any surprises. Our business model remains same. We are a consultancy company. So the dividend payout ratios will be appreciably in the same trend."

Guidance & Commitments

Key Metrics