Key takeaways of the call

Consolidated sales for the quarter ended June 2017 was up by 15% to Rs 328 crore. Lower EBITDA margin for the quarter was due to loss booked in France wagon order, which was bagged in aggressive price with strategic intent. The company booked a loss of Rs 5 crore in this contract and bulk of the losses in this contract was accounted in Q1FY18. Execution of this France order will get over in Sep 2017. From next lot onwards the sub assemblies will be manufactured in India and only final assembly will be done in France. So the margin in next lot of this order will be good.

Order book of shipbuilding and defence together stood at Rs 210 crore as end of 30^th of June 2017. The railway wagon order book of the company was Rs 325 crore as end of June 2017 and of which the share of Indian Railways (IR) is just about Rs 60 crore and balance are from private sector.

Of the wagon order book of the company of Rs 325 crore the IR order is worth Rs 60 crore only and balance from private sector.

IR has floated tenders for 10000 wagons but finalization of it yet to happen. However the private sector wagon orders finalization picked up in last few months and this has beefed up the wagon order book of the company.

The defence and shipbuilding order book is to be executed in next 18 months. Defence biz concentrated on naval side in shipbuilding, shelters, strategic ground support systems. Not seeing big tenders converted from RFQ to orders. Not seeing any dramatic gain happening in this quarter.

Titagarh Firema is now 100% subsidiary of TWL post acquisition of 10% stake held by Adler Plastic SpA, Italy. This makes TWL is the only company in India with own metro technology and reference. With TF being 100% subsidiary makes technology transfer to TWL easy.

When Firema is acquired, it has lost the credibility with stake holders. So the first essential is rebuilding the credibility and in the last two years it has regained the credibility with customers. As the European economy is picking up, the number of tenders launched in Italy and European in rail transportation sector is up. The order inflow for TF has to grow in next 6 months. Order booking for Italy company will normally happens in latter part of the fiscal. Order booking will start from 3^rd and 4^th quarter onwards.

The Italian acquisition is intended to support metro coach and electrical propulsion manufacturing in the country.

Indian Railways is faced with a short fall of about 600 coaches of EMU/MEMU but how and when that will be filled is not yet known. IR has not acquired any new EMU so far. With states signing MoU with railways for suburban system the opportunity in this segment is picking up. MEMU order given to BEML is a trial one to support the PSU. The company has qualified in tenders for passenger coaches in neighboring countries.

The company narrowly lost the Nagpur Metro tender to the Chinese player with the difference between the two was as thin as 1%. The Chinese company that emerged L1 in case of Nagpur metro has quoted 10% higher price in Noida Metro tender in which the company has not participated. With domestic procurement policy in effect, the company looks for more opportunities in domestic market. The company expects more Metro tenders getting launched soon by end of this fiscal or early next fiscal.

As far is pricing is concerned in case of Metro orders TWL is the only company in India that has its own technology and no need to pay royalty.

Tax rate in Italy is about 40% of PBT.

The 11-12% is the normal margin for Italy business. Newer order the newer orders are 10-11%.

Time gap between tender launch and finalization for passenger coaches is larger compared to wagons due to design and technical evaluation.

IR's tender for refurbishment of passenger coach has been deferred due to clarification by bidders. Scheduled bid opening is end of this month or next month.

Topline is a concern for Indian operations. As bottomline follows the topline the company has to pull up the topline in case of Indian operations. So getting into newer products such as metro, defence etc will drive both top-line as well as bottom-line.

Overseas operation – The company has huge infrastructure in Italy and to optimize the utilization the company is further pushing up the revenue.

Tractor venture was initiated to utilize spare capacity at Cimmco but it was put to slow burner now. CIMMCO made a small profit in Q1FY18.

IR tenders are now finalized within 2-4 months since launch.