Key takeaways of the call

Consolidated order Book as end of Sep 30, 2017 was Rs 1900 crore. Of the total order book the India order book is about Rs 550 crore, orders from SAARC countries was Rs 250-260 crore and Italy order book was about Rs 1000 crore. Of the 550 crore India order book about Rs 170-180 is defence orders.

In addition the company is L1 for orders worth Rs 400 crore from IR for supply of diagnostic vehicles.

Tenders for 9500 wagons by IR has opened in Sep 2017 and it is expected to be finalized by end of Nov 2017. The company hope to maintain its share of about 22-23% in this wagon order as well. The realization per wagon in these orders is expected to improve to about Rs 25 lakh/ wagon from usual Rs 13-14 lakh/wagon as IR is not going to supply any materials. The company is actively negotiating for private wagon orders and that start trickling in.

Defence order backlog will be completed within this quarter. Have already put in bids for some tenders and finalization of it is taking time. The shipbuilding order is flat and not new orders picked up during the quarter. Shipbuilding order is about Rs 160 crore.

Profitability in Q2FY18 got impacted due to execution of low margin French order. The French order picked up at low margin as entry strategy in new segment is expected to get completed by Q3FY18 and then the margin will improve as the company is left with order of high margin.

Italian order book consists of legacy orders as well which are of not of high margin.

Metro Coaches – The company expects about 3-4 tenders for metro coaches floated before March 2018 and the company expect to participate and hope to be successful. The confidence of bagging an order arise out of Nagpur Metro bidding experience, where the company was out bided only by 1% by Chinese and preference given to local manufacturers under current public procurement policy.

IR want to convert all the conventional coaches with LHB coaches. The company is the one of established coaches manufacturers along with BEML outside IR factories. The company offered to manufacture coaches with design of Italian subsidiary. Manufacturing LHB coaches requires some investments, the company quoted to IR that it can manufacture about 100 coaches a month.

The company is positive about getting coaching orders but whether it will be LHB or EMU or MEMU or DMEU could not be said now.

Propulsion – The developmental is expected soon. The regular order will follow on approval of prototype which is expected to take 12 months. IR's annual propulsion procurement is worth about Rs 3000 crore and only 3-4 players are catering to this market.

At Pirama, Italy the company is trying to bring down fixed cost especially employee cost at the same time growing the revenue. Order backlog got reduced substantially from the level at the time of acquisition. Italian Subsidiary has put in bids for orders worth Euro 500 million for which price bids are not yet opened. Order under pipeline in Europe is about Euro 2.5 billion. The gestation for the orders is at least 18 months and then only the revenue will start flowing in. Time of the contracted booked and executed is likely to see pressure in next few quarters

IR order and defence orders are backed by price variation contracts. Italy orders are backed up by supply contracts on bagging the orders.

Coach Refurbishment tender have not finalized yet. The order finalization is getting delayed largely due to lack of clarity on GST regarding refurbishment as well as refurbishment is in direct contradiction to the new policy of replacing all conventional coaches to LHB coaches. If all coaches has to be converted to LHB the refurbished coaches life will be only for 7-8 years and by then they have to be replaced by LHB coaches. So the policy dilemma is delaying the finalization of coach refurbishment tenders.