Texmaco Rail & Engineering Ltd Q3 FY2023 Concall Summary

Key Takeaways

• Inflection quarter, ascent begins: Wagon volumes more than doubled QoQ as production ramped up, and management declared the painful ramp-up phase is now behind the company.
• GP margin optics distorted by one-off: The 400 bps QoQ GP margin drop (24% to 20%) reflects target order income booked in Q2 that did not recur in Q3; excluding other income, operational performance was slightly better QoQ.
• Strategic reset underway: A board committee is designing an organizational restructuring to refocus on core manufacturing and foundry strengths, while the company actively searches for a CEO/MD after an embarrassing failed appointment.
• Demand tailwind is structural: Indian Railways aims to double tonnage hauled by 2027, and management expects robust wagon demand from both railways and industry to persist for the next few years.
• What to watch next quarter: Whether Q4 production hits the trajectory needed for the 3,300-wagon FY23 target, any concrete restructuring plan presented to shareholders, and progress on the CEO/MD search.

Production Ramp-Up & Operational Recovery

• Volumes doubled QoQ: Q3 wagon production reached 1,072 units, with ~80% (872 wagons) for railways and the remainder for non-railway customers, as the company began scaling after a prolonged low-load period.
• Prototype delays now resolved: A large order for a wagon type not manufactured for a long time required prototype development and regulatory approval before serial production could begin, which delayed the initial ramp-up. Those hurdles are now cleared.
• Monthly run-rate climbing: The company is targeting ~550 wagons per month and expects to achieve those levels in coming quarters; ramp-up will be gradual, not overnight, with numbers constantly going up.
• FY23 target reiterated: Management reaffirmed the aim to deliver 3,300 wagons for FY23, with Q4 expected to be better than Q3 and next year better still as the ramp-up continues.
• Capacity debottlenecking underway: The company is removing inefficiencies that crept into the plant during low-load periods, with the goal of reaching targeted production levels from existing infrastructure.

A.K. Vijay: "So initial pads, whichever was there has now been overcome. And company is now on the threshold of transforming itself with the pain it has gone through over the last few years..."

Margins & Profitability

• GP margin drop is optical, not operational: GP margin fell from 24% in Q2 to 20% in Q3 because Q2 included target order income classified as other income that was absent in Q3; the underlying order book and its nature remained constant.
• EBITDA improved QoQ: EBITDA rose from ~₹16 crores in Q2 to ~₹30 crores in Q3, and excluding other income, operational performance was slightly better QoQ.
• Operational leverage ahead: Management stated that the pains of scaling up and restarting are over, and as production levels improve, leverage benefits will automatically flow into margins in coming quarters and years.
• Tax rate is notional, not cash: The apparent high tax rate reflects deferred tax liability booked on regenerative and actual profit; actual cash tax paid over nine months was only ~₹1.05 crore, with total deferred tax at ₹10.52 crore.
• No margin quantification offered: When asked for a specific bandwidth on improved margins going forward, management declined to provide any number.

Strategic Restructuring & Leadership

• CEO/MD appointment failed: The person expected to join as CEO/Managing Director did not join, an outcome management described as embarrassing; the search is now "very strongly matured" and the company will ensure such a situation does not recur.
• Board committee on restructuring: A committee has been appointed to examine and recommend a future organizational restructuring, with the goal of keeping the company focused on core competencies and avoiding distracted areas.
• Lean-and-mean operating model: A restructuring team is working to make the company operationally more efficient, concentrating on core strengths in manufacturing and foundry; other portfolios will be treated but not necessarily dropped.
• Past acquisitions under scrutiny: An analyst noted the company has not made the most out of certain past acquisitions; this point was not addressed in the response.

Indrajit Mookerjee: "Only thing that we will ensure that these kinds of embarrassing situations do not happen."

Demand Environment & Industry Tailwinds

• National Rail Plan drives structural demand: Indian Railways aims to double tonnage hauled to 0.3 crore tons by 2027; wagon requirements will be less than double because more efficient freight cars will be purchased, but the number remains "huge."
• Next tender on the horizon: Railways are mulling another large wagon tender in a couple of months, though management could not provide a specific quantity or timeline.
• Multi-year demand visibility: Management expects robust demand from both railways and industry to persist for the next few years, and is strengthening its production base and plant efficiency to meet improved delivery requirements.
• Shorter EPC contracts preferred: The company is now looking for EPC contracts of about 9–18 months, maximum 24 months, a shift in duration preference.

Indrajit Mookerjee: "The national rail plan is saying that the total amount, the tonnage that the Indian Railways would like to haul in 2027 is double... So maybe it will be -- I can't give a number, but I would say it will be less than double than what it is today. And that's a huge number."

Balance Sheet & Working Capital

• GST refunds largely realized: Most old GST refunds from the wagon rate revision to 18% have been collected; only ₹50–60 crore remains outstanding due to WLP inventory, stock, and unpaid creditors.
• Stuck EPC receivables progressing slowly: Sites that were unavailable due to COVID and incomplete civil works are now accessible and work is moving forward, but no substantial progress has been made yet on collections.
• Capex focused on balancing equipment: Near-term investment is directed at augmenting existing capacity through balancing equipment; additional capacity building is being planned and will be disclosed to shareholders over time.

Future Growth Levers

• Capacity expansion being actively considered: After debottlenecking the present plant, the company is very actively considering and will implement capacity expansion to remain a major player.
• Passenger segment entry planned: The company is not yet in Vande Bharat manufacturing but has future plans to enter the passenger segment; currently in the planning stage with no specific timeline.
• Infrastructure and productivity investment: Management has big plans for the next year to improve productivity levels, overall production, and infrastructure, leading to improved top-line and bottom-line performance.

Indrajit Mookerjee: "The flavour is very buoyant, and it gives a lot of responsibilities on the management to execute because the expectations are now going to be high. And it would be the efforts of the entire management team to satisfy our esteemed shareholders so that you are happy with your company performing and going back to our glorious days."

Guidance & Commitments

Key Metrics