This article first appeared on GuruFocus .
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Revenue Growth:Year-over-year growth of 9% to 10% in Q1 FY27.
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Bottom Line Growth:Year-over-year growth of approximately 8% in Q1 FY27.
Release Date: August 05, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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RITES Ltd ( NSE:RITES ) reported a YoY revenue growth of 9-10% and bottom-line growth of about 8% in Q1 FY27, with management expressing confidence in achieving substantial growth for the full year.
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The company's order book reached an all-time high of INR9,450 crores, with 128 new orders worth INR2,670 crores secured in Q1, maintaining a strike rate of 1.4 orders per day.
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Export business is gaining momentum, with the first rake of the Bangladesh order (200 coaches) set to ship in Q2, and a new order for nine locomotives to South Africa (worth $35 million) received in July, though not yet in the order book.
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Management maintains a strong margin discipline, holding consolidated EBITDA margins at 22% and PAT margins at 17%, with red lines of 20% EBITDA and 15% PAT on an annual basis.
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The company is exploring new growth avenues, including exporting Vande Bharat trains on standard gauge platforms, and REMCL continues to deliver strong performance with 50%+ PAT margins and a 91% dividend payout.
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RITES Ltd ( NSE:RITES ) maintains a high dividend payout policy of 90%+, supported by low capex and a debt-free balance sheet, with no expected changes in the near term.
Negative Points
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Export revenue recognition is lumpy, as the first rake of the Bangladesh order was not recognized in Q1, and the full order (10 rakes) will not be completed this fiscal year, extending into FY28.
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Margins are under pressure due to a higher proportion of competitive bidding (70% of fresh orders), increased travel costs, and the impending pay revision, which could impact profitability.
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Turnkey projects, which now constitute about 50% of the order book, have very low margins (1.5-2%), dragging overall profitability, and management is not keen on increasing this mix further.
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Employee costs have risen significantly due to a net addition of 450 employees (from 2,675 to 3,125), and a pay revision is expected to add 8-10% to costs in FY28, pressuring margins.
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The company faces execution challenges in export orders, with delays in the Bangladesh rake dispatch and uncertainty on Mozambique locomotive deliveries, which may start only by end of FY27.
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Management's guidance for export revenue this year is conservative at INR300 crores-plus, indicating that the full potential of the order book will not be realized until next fiscal year.
Q & A Highlights
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Q: What is the outlook for export revenue this fiscal year, and how will the Bangladesh and Mozambique orders contribute? A: Rahul Mithal, CMD, stated that the company aims to achieve at least INR300 crores-plus in export revenue this fiscal year. The first rake of the Bangladesh order (200 coaches) will be shipped in the next 10 days, with revenue recognition occurring in Q2. The company does not expect to complete all 10 rakes this year, with completion targeted for the next fiscal year. For the Mozambique locomotive order, they are aiming to begin deliveries by the end of this fiscal year, with more clarity expected by the end of Q2.
Q: Can you provide a breakup of the pending export orders from Bangladesh, Mozambique, and others? A: Rahul Mithal, CMD, provided a breakdown of the RITES Videsh order book, which totals INR2,100 crores. Of this, approximately INR1,775 crores is for the export of rolling stock. The Bangladesh order for 200 coaches accounts for about INR900 crores-odd, which is roughly 50% of the export order book. The balance is for locomotives, including orders from Mozambique and other African countries.
Q: What is the company's strategy regarding the export of Vande Bharat trains globally? A: Rahul Mithal, CMD, confirmed that RITES has initiated efforts to explore exporting Vande Bharat trains on the standard gauge platform to certain geographies. They have reached out to countries that have shown interest. Initial discussions with Indian Railways have started to develop a prototype on the standard gauge platform, and this process is expected to gain pace in the coming months.
Q: Why are the margins for turnkey projects so low, and is this the expected norm? A: Rahul Mithal, CMD, explained that turnkey projects, which make up about 50% of the order book, have margins in the range of 1.5% to 2%. He clarified that RITES is a consultancy company, not a construction company. In a turnkey model, the entire project value flows through the P&L, whereas in a pure consultancy model, only the fee is recognized. This larger revenue base in turnkey projects results in lower margins. The company takes on these projects because some clients prefer a single point of contact.
Q: What is the current order book status, and what is the bid pipeline for new opportunities? A: Rahul Mithal, CMD, reported that the order book has grown to INR9,450 crores despite execution, with 128 new orders totaling INR2,670 crores received in Q1. The company is on track to reach its INR10,000 crore order book target. Notably, about 70% of these fresh orders are won on a competitive basis. In exports, the company maintains a target of one order per quarter and recently secured a $35 million order for nine locomotives to South Africa, which is pending formal agreement signing.
Q: Have the margins hit the bottom, or can we expect further pressure on profitability? A: Rahul Mithal, CMD, acknowledged that margins are under pressure due to three key factors: a higher proportion of competitive orders with tougher margins, increased travel costs, and the impending pay revision. However, he reaffirmed the company's "red lines" of maintaining a 20% EBITDA margin and 15% PAT margin on a consolidated basis. The current quarter's margins were 22% (EBITDA) and 17% (PAT), and the company will strategically prioritize higher-margin orders to ensure they do not fall below these thresholds.
Q: What is the expected increase in employee costs, particularly with the impending pay revision in FY28? A: Rahul Mithal, CMD, noted a YoY increase of about INR10 crores in employee costs for Q1. This is attributed to a net increase of 450 employees (from 2,675 to 3,125) to build bench strength for executing new orders. Regarding the pay revision, he clarified that the expected increase would be in the range of 8% to 10%, not 20% as suggested by the analyst.
Q: Will the proportion of turnkey projects in the order book increase or decrease over the next two years? A: Rahul Mithal, CMD, stated that while turnkey projects currently make up about 50% of the order book, the company is not keen on increasing this proportion due to the low margins (1.5% to 2%). However, many clients prefer the turnkey model for a single point of contact. He expects the turnkey share to remain around 50% on average, as parallel growth in consultancy and export orders is also in the pipeline.
Q: What is the performance of the REMCL subsidiary, and will the dividend payout ratio be maintained? A: Rahul Mithal, CMD, reported that REMCL continues to perform well with over 50% PAT margins. In Q1, it generated a profit of about INR22 crores and paid a dividend of about INR10 crores to RITES, maintaining a payout ratio of over 90%. REMCL is focusing on diversifying into international renewable consultancy and domestic renewable projects. Regarding dividends, he assured that with a low CapEx, debt-free balance sheet, and minimal working capital requirements, there is no reason to change the company's 90% plus dividend payout policy.
Q: What is the revenue contribution from the QA (Quality Assurance) segment this quarter? A: Rahul Mithal, CMD, stated that the QA segment has shown steady growth and is on track to surpass previous years' performance with at least double-digit growth. The quarterly revenue from QA is in the range of about INR70 crores.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
