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RITES to maintain or possibly surpass growth target this year: Rajiv Mehrotra

I do not see any threat to the margins in the near future, says RITES CMD.

ET Now|
Dec 04, 2019, 02.41 PM IST
Rajiv Mehrotra-RITES-1200
At PAT level, 22-21% margins are reasonably favourable and this is a pooled margin of five businesses, not consultancy alone, says Rajiv Mehrotra, CMD, RITES. Excerpts from an interview with ETNOW.

We have been hearing about how the normalisation of project margins may work as a catalyst for RITES. Do you see growth coming in? Also, if competitive bidding has been finalised by the railways, how does that change things?
Coming to the margins the consultancies, these are hitech consultancies and they would continue to remain high margin businesses. As for normalisation of margin, if you are talking about the turnkey projects, I will come to that. As far as RITES is concerned, we have been targeting 35% EBITDA levels margin, including the component of other income. At PAT level, 22-21% margins are reasonably favourable and this is a pooled margin of five businesses, not consultancy alone.

I do not see any threat to the margins in the near future. Coming to the railway project allocations, there was a method announced earlier that 8.5% margin would be given for executing turnkey projects and they want to review this and distribute the railway projects on a competitive bidding basis. I see no problem in participating in those projects. Margins can be different depending upon the level of difficulties in a project.

Current business is coming only because you enjoy special status with railways.
No, that is not the issue. We get a lot of business -- almost the entire metro business, highways business, airport business on competitive bidding basis. A portion of the railway business is nomination but there is no danger if we have to compete and get it. We should be able to maintain the growth. I do not see that as a challenge.

I want to clear the air on that. Do you think your nomination business will contract or will it be a stable business for the next couple of years?
Both will continue. The smaller ones will continue on nomination and for the turnkey works which government is planning to do within the PSUs, that portion might go for bidding. I do not see any risk of the nomination business getting sidelined.

How much of your current business is non-PSU or non-government?
Above one-third, almost 35% or so.

The construction industry is going through a tough time. How has the slowdown impacted you? For 2020, are things looking up or are they still looking sticky?
We had given the current year outlook of operation revenue at Rs 2,300 crore with 17% growth. We are very confident that we will achieve this. If the half-year performance is an indicator, we have recorded a 71% growth in the H1 compared to H1 of 2019.

There is no payment disruption, there is no credit issue affecting us and the projects which are of capital nature are going ahead as scheduled. We are not impacted so far by any such move.

What sort of orders are you expecting in the near term? More importantly, does railway give you more in terms of assessment of margins, risk profile of each project?
The orders in the pipeline that we are working on include a major export order with an African country and this should be known in Q4. Besides that, there are highway projects, outside India consulting business. We are also looking at turnkey projects coming from railways. This month onwards, we hope that will have a reasonable role in Q4. Also we are looking at partnering with the state JVs. That will be new segment we would be looking at.

On the export front, how are things looking?
Exports have given us good growth last year as well as this year and the current order book will show a good growth in FY21 also. We are still building up on the order book and one significant change is that we have now started working on other gauges. The railway sector has got different gauges -- broad gauges, meter gauges, cape gauges, standard gauges.

The new order I am talking about is on a cape gauge country and once that materialises, it will open up new areas for exports.

In terms of execution in the second half of FY20, are we going to see a pick up? How do you see the order book translating in the second half?
Our order book was Rs 5,833 crore at the beginning of H2. We are going as per planned execution. We are not worried about the cash inflows and I see no disruption. March targets are absolutely on track. We should be able to maintain or possibly surpass the growth target given to the market.
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