Intense competition in the infrastructure consultancy business adversely affected state-run RITES in FY25. This arm of the Indian Railways, which posted net profit of Rs 423.7 crore in FY25 on a turnover of Rs 2323.5 crore, is in the process of e-engineered its costs and business model to stay competitive. Chairman and managing director Rahul Mithal spoke about recent improvement in the consultancy space and what lies ahead for the company, in an interview with Manu Kaushik.
Q. RITES has been aggressive in adding new orders across its key verticals. What’s the outlook on your future order book?
Mithal: There are about 16 consultancy PSUs and a large number of private infrastructure consultancy companies. But RITES has got the unique position because we are covering all areas of infrastructure. We have 13 different verticals, including rail infra, highways, ports, airports, buildings, metro systems, sustainability.
There is a huge infrastructure push as we have been seeing in the last few years across these sectors. We have been able to attain a milestone of becoming a one-order-a-day company. In fact, we achieved that (milestone) last year, and now we are hovering at more than one order per day. That became possible because we are able to get orders across verticals.
In the last few months, we have got orders from educational institutions like IIM Bangalore, IIM Raipur, hospitals, etc. There are also orders for various rail infra studies, bridges and tunnel studies, airports and ports. All of these are contributing to the growth in the order book, which hit a record in March this year.
Q. What’s your average order size? Has it changed with the increase in the number of orders?
Mithal: In the first quarter, the total orders were about Rs 450 crore, out of which Rs 330 crore came from consultancy, our core business. While the consultancy orders are comparatively high-margin ones, their ticket sizes are small. The consultancy orders range from Rs 2-5 crore, and a few would be double-digit orders.
An average time span of an infrastructure project is about 2.5-3 years. If the revenue is fixed on milestones – based on the progress of the project as a consultant – we need to have a larger number of orders so that some orders keep giving us revenue in every quarter. The size of the consultancy orders is gradually increasing because the size of infrastructure projects is increasing.
The other contributor to our revenue is turnkey vertical. While the turnkey order size is much larger – minimum of Rs 100 crore – the scope of work is more in consultancy vertical.
Another important stream for RITES is exports. We are not just buying rolling stock like locomotives or wagons and selling them. We are also design consultants, and customise the capital equipment to the gauge of the country. For example, in Mozambique, we are exporting locomotives on a Cape gauge which is completely different. The export orders are definitely on a larger size. An export order could range from about Rs 50 crore to Rs 900 crore.
Q. As consultancy space is getting very competitive, how do you plan to tackle it?
Mithal: In the last 2-3 years, all the work – irrespective of the value of the consultancy work – or even in our quality assurance vertical, which was doing inspection for railways for last five decades, or the work we do for central government departments, PSUs, state governments, most of them are now not giving the work on nomination basis. A large percentage of the orders that we are getting about – more than two-thirds are on a tendering basis. In that, a lot of small players have also come in. There’s a stress on the margins. We have to be more cost-effective. The percentage of competitive orders is definitely going up sequentially in every quarter.
Q. Does high competition affect your profit margins?
Mithal: It does. Our EBITDA (earnings before interest, taxes, depreciation, and amortisation) margins historically were about 27-28%, but these saw a reduction in the past two years, especially in FY25. We did a lot of re-engineering, and that’s how we could achieve one-plus-order-a-day. For the first time in five decades, we got the first global export order for global tendering (last year), and we followed it up with a second one. Our EBITDA margins will settle at around 20%, and PAT (profits after tax) margins will be around 15-16%.
Q. What was the idea behind expanding the export business was primarily to improve the margins?
Mithal: Our international business traditionally has two elements. One is the project consultancy, and the other is the export of rolling stock. Last year, we created a strategic initiative called RITES Videsh.
Traditionally, these businesses had good margins. But what has changed is that in both these areas, all the works which we had been getting were against the projects which are line-of-credit-funded projects. Because in that case, only Indian companies could bid for it, and we had an advantage. As the line-of-credit-funded projects has become small in the transportation sector, we did not get any export order for about 3-4 years. After a gap of about four years, we got the first order from Mozambique on a global tendering (last year). We have set ourselves a target that we will try and maintain one export order a quarter. We have been able to maintain that for six trailing quarters.
We most recently expanded into the Middle East. We’ve got an order in Jordan. We are doing some work in Latin America.
Q. Do you have any plans to diversify into new areas?
Mithal: Our goal now is to induct technologies like artificial intelligence (AI) in each of our verticals. For example, we were doing inspection of rails manufactured at the SAIL Bhilai plant for Indian railways for the last five decades. These were being inspected manually. Now we have started an initiative a few months back where we are doing the inspection through AI.
So whether it’s our inspection vertical, building vertical, and infrastructure vertical, we are looking at how best we can leverage our experience and induct technology to give better and cutting-edge services to the clients. The induction of technology also has to finally benefit us in terms of profitability.