Rites Ltd Q1 FY2026 Concall Summary

Key Takeaways

• Flat quarter, back-end-loaded year: Revenue was flat in Q1, but the bulk of the ₹8,800 crore order book was added in H2 last year and is still in design or agency-finalization stages; management expects revenue to start flowing in the latter part of this FY.
• Margin profile resetting lower: Export margins have moved to double digits (below 20%) as orders shift from Lines of Credit to global competitive tenders, while consultancy margins are settling at 30-35% on a consolidated basis, down from a historical 40-45%.
• Quality assurance has troughed: The vertical has "seen the bottom of the barrel" and is now growing sequentially, with two-thirds of revenue coming from non-Indian Railways clients.
• South Africa locomotive prototype is the big swing factor: Designs are nearly finalized and sourcing has started; clearing one prototype with African Railways by year-end opens a pipeline across 11 Cape Gauge countries and 100+ spare locomotives available for export.
• What to watch next quarter: Whether the first Mozambique locomotive revenue books in Q2, progress on the Bangladesh prototype rake, and any conversion of the Etihad Rail MOU into a second export order this quarter.

Revenue Trajectory & Order Book Conversion

• Flat Q1, steep ramp promised: Revenue was flat as orders won in H2 last year are still in design and agency-finalization stages. Management expects physical construction on most turnkey orders to start in the next 3-6 months, with revenue booking from Q3-Q4, and says the full year will "substantially" surpass last year's top line.
• Consultancy drove what little growth there was: Consultancy grew 7%, which helped EBITDA grow ~8% because consultancy is high-margin. Revenue from design and engineering portions of recent orders has started generating revenue and will continue as initial milestones are in designs.
• Turnkey is a pass-through, not EPC: Management clarified that RITES is not an EPC construction company; turnkey orders are primarily consultancy work where revenue flows through RITES for client convenience. Example: a ₹4 consultancy fee on a ₹100 project shows as ₹104 revenue. This model will continue based on client comfort.
• Execution timeline is back-end loaded: The average project time-span for turnkey orders is ~3 years. Management declined to quantify turnkey revenue to be booked this year, calling it "speculative," and also declined to give a segment-wise breakup estimate for FY26.

Rahul Mithal: "we will try and definitely surpass the previous year's performance. We are on track."

Export Orders: Mozambique, Bangladesh & the Pipeline

• Mozambique shipments have begun: The first two locomotives shipped out in early July; revenue will be booked in Q2 FY26. The remaining eight are in various stages, and management aims to complete the entire 10-locomotive order this FY with successive shipments in Q2, Q3, and Q4.
• Bangladesh prototype progressing: Most design elements are being finalized and ordering of detailed subassemblies for the prototype has started. The first rake of 20 coaches is targeted before end of FY26, with the entire order aimed for completion in FY27.
• One fresh export order in Q1: A new order from an African Railway Company was received, maintaining the guidance of one export order per quarter.
• Etihad Rail MOU yielding results: The first order from the Etihad Rail collaboration was secured in Jordan, a consultancy project. Management expects MOUs with partners to convert into orders in coming quarters, though no specific timeline was given.
• Zimbabwe order remains excluded: An agreement was signed but funding is not fully in place and the term sheet has not yet been fully accepted by Afri-EXIM bank. The order is not in the order book, and management acknowledged the risk of cancellation remains, as it has from day one.

Rahul Mithal: "Very frankly, that risk is there. It was there from day one. And that's the very reason we were very clear that even though a formal agreement has been signed, we will not include it in the order book."

Margins: The Structural Reset

• Export margins compressed by competitive bidding: Recent export orders from Mozambique and Bangladesh were won on global competitive tenders, not on Lines of Credit from Exim Bank. Export margins are now in double digits but not above 20%, whereas historical export margins were 20-25%+. Management did not confirm a specific range when asked if it would be 10-15% or higher.
• Consultancy margins settling lower: Historically 40-45% included a higher quality assurance contribution. Now, with a large percentage of orders on competitive bidding and intense competition, consultancy margins are expected to settle at 30-35% on a consolidated basis.
• Segment mix is the defense: Management aims to keep consultancy, export, and leasing (the high-margin contributors) at least 60%+ of the mix, with turnkey at ~30% odd, to maintain safe margin levels. Turnkey contribution will not go below 30% in the next 2-4 years.[14-15]
• Competitive share of inflows is rising: In fresh order inflows, about 65-70% are on a competitive basis, and this trend is only increasing. The order book breakup showing a slight reduction in competitive share is due to execution of competitive orders, not a shift in the inflow mix. [19-20]

Rahul Mithal: "the overall exports margin will be lower, yes, in double digits, but not in the range of 25%, which were hitherto historically there."

Quality Assurance & Subsidiary Performance

• Quality assurance has troughed and turned: The vertical has "seen the bottom of the barrel" and come out of it. It will grow sequentially and for the full FY versus last FY, driven by newer non-Indian Railways clients. Two-thirds of quality assurance revenue now comes from non-Indian Railways traditional clients.
• DNV partnership fills capability gaps: The DNV partnership was one of several initiatives to complement capability gaps in the quality assurance vertical.
• Wagon JV (SRBWIPL) sustaining profitability: After its first major turnaround last year, the JV maintained profitability in FY25 and this quarter. It is getting orders from both Indian Railways and private players, and recently got design approvals for container flat wagons from RDSO. The order book of ₹480 crore is expected to increase in coming quarters.
• REMCL scalability on two tracks: First, consultancy fees from traction power procurement for Indian Railways grow as more states open up to open access; headway was made in two states recently. Second, REMCL is now positioned to get consultancy orders for green energy initiatives based on 2-3 years of piloting for Indian Railways, already getting small orders in recent months. Management sees scope for at least 20% scalability in the next year from traction power procurement open access.

Rahul Mithal: "The quarter that went by, our quality assurance vertical, which I said some time back, has seen the bottom of the barrel and it has come out of it."

South Africa Locomotive Opportunity

• Cape Gauge conversion is the play: The South Africa locomotive orders involve modifying Indian Railways' spare broad-gauge diesel locomotives (1676 mm) to run on South Africa's Cape Gauge (1067 mm). Designs are at a very advanced stage and nearly finalized; sourcing has started.
• Prototype target is year-end: Management aims to have at least one prototype ready and cleared by African Railways by end of this FY, with the first prototype sent for physical trials by end of this financial year. Once the prototype is ready, mass manufacture and design proofing would follow.
• Pipeline extends beyond South Africa: The conversion capability opens potential for 100+ more locomotives available for export, and opportunities in 11 different African countries with Cape Gauge networks.

Guidance & Commitments

Key Metrics