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RITES Ltd
Earnings Call Analysis
Q3-2024 Analysis
RITES Ltd
The company has been proactively expanding its export operations, with a total export visibility of INR 1,500 crores. A significant milestone has been reached with the conversion of the first order in nearly four years worth INR 300 crores. Furthermore, the company is currently the lowest bidder (L1) in a substantial Bangladesh order, valued between INR 850 crores to INR 900 crores, expected to be finalized soon and contribute revenue in the following fiscal year. These international contracts are not based on government-to-government (G2G) deals but are instead secured through competitive tendering processes facilitated by the Exim Bank, reflecting a strategic move to diversify revenue streams.
Management has maintained a clear focus on driving the business towards achieving healthy double-digit growth in both EBITDA and profits, echoing the company's longstanding commitment to improving the bottom line and shareholder value.
The company targets a minimum of 50% of its revenue to come from pure project consultancy, with an aim to increase this figure given the company's proficiency in consultancy, design, sourcing, and product customization for international clients. While it's expected that the company's top line and EBITDA profit may not match the '22, '23 figures due to reduced export and inspection revenue, the effort is to minimize this gap. The next fiscal year aims to build upon the '22, '23 base, with the expectation of double-digit growth in profits and EBITDA.
With the INR 11 lakh crore CapEx budget announcement, the company sees a significant opportunity to leverage its expertise across various infrastructure sectors. Its proficiency includes conducting surveys and studies, consultancy for semi high-speed rail corridors, tunnel engineering, and more, which positions it to continue gaining new orders and maintain traction with the trend of attaining one new order per day.
The company is recognized as a leading consultant in India's ropeway projects and plans to tap into new opportunities in this sector. Their involvement spans multiple stages of project development, from initial feasibility studies to detailed project report preparation and project management consultancy. As investments in the ropeway sector grow, the company is expected to capitalize on its established reputation and expertise.
In a shift towards competitive bidding, more than half of the new orders are won through competition. This trend has started to influence margins, with management acknowledging that maintaining margins in the range of 40% to 42% will be challenging moving forward. The company's diverse consultancy revenue streams will face increased margin pressure due to increased competition.
The company contends with longer lead times for realizing revenue from locomotives, as they are only recognized once the products are shipped, without intermediate milestones. This is crucial for investors to understand as it impacts the timing of revenue recognition and may lead to significant revenue being accounted for in one-go, affecting quarterly financial results.
The company has recently achieved the Navratna status, a testament to its operational excellence and governance. Additionally, it received awards for good governance, and was involved in prestigious infrastructure projects like the Ayodhya Dham Station. Proud of these achievements, the management shows confidence in their strategic direction and is committed to continuing their growth trajectory.
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Good morning, ladies and gentlemen. Good day, and welcome to the Q3 FY '24 Earnings Conference Call of RITES Limited, hosted by Elara Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Harshit Kapadia from Elara Securities Private Limited. Thank you, and over to you, sir.
Thank you, Aditya. Good morning, everyone. On behalf of Elara Securities, I welcome you all for the Q3 FY '24 and 9-month FY '24 conference call of RITES Limited. I take this opportunity to welcome management of RITES Limited, represented by Shri. Rahul Mithal, Chairman and Managing Director; Shri. A K Singh, Director Projects; Shri. Dr. Deepak Tripathi, Director Technical; and Shri. K.G Agarwal, Director of Finance. We will begin the call with a brief overview by the management followed by a Q&A session.
I'll now hand over the call to Rahul sir for his opening remarks. Over to you, sir.
Good morning. Morning, everyone. Let me begin with the safe harbor statement. The presentation and the press release, which we uploaded on our website yesterday, and all discussions during the call today may have some forward-looking statements. These statements consider the environment we see as of today and obviously carry a risk in terms of uncertainty because of which the actual results could be different. And we do not undertake to update those statements periodically.
So let us break down the Q3 numbers. If you compare Y-o-Y, the revenue has been flat, profits have dipped by about INR 18 crores, and the hit has been by the 2 identified areas, about INR 25 crores from the export stream of revenue and about INR 8 crores from the inspection stream of revenue, which, as you are aware, we changed goalposts now. So the INR 33 crores in line with our efforts and push to maximize the project consultancy stream of revenue to minimize the impact of these 2 streams, the Y-o-Y, the project consultancy revenue saw a growth of 21%. And what we are happy is that the challenges and the strategy that we identified at the beginning of this FY to counter these 2 impacts to the maximum and minimize that impact has seen steady growth sequentially in line with our strategy.
And if you compare sequentially all the areas, where the revenue Q2 to Q3 has gone up by about 20%. EBITDA has gone up by 30%. PAT has gone up. Margins have gone up by about 2% and project consultancy continues to grow. So sequentially, also, it has grown by 5%. So this is in line with our direction, consolidating our position in this FY. And the biggest, the happiest moment for us was when we got our -- the first export order after a gap of 4 years. So that also now will start generating revenue.
And finally, we can be proud to say that we are now a one-order-a-day company. In quarter 3, we got 100-plus orders totaling to INR 600-plus crores. So our immediate target of being a one-order-a-day company is now in place. And with this, I think, consolidating our position moving forward will only see further improvement sequentially also.
So with these opening comments, I leave the floor open for questions.
[Operator Instructions] Our first question is from the line of Yash Gupta from [ ThinkSight Advisor ].
Sir, my question is on the consultancy margin. In the last 4, 5 quarters, we have seen like a volatility in the margin. In this quarter also, we saw a dip in our consultancy margin. What's your outlook for next financial year FY '25?
Yes. You see consultancy, all the streams of revenue contributing to the consultancy revenue, including the inspection revenue, with more and more all of them opening up to competitive bidding, and we aggressively bidding and getting orders, as I mentioned at the outset, as I said, more than 100-plus orders we've got in this quarter. Yes, definitely margins will continue to be difficult to maintain at the historical levels even within the consultancy stream and also overall the EBITDA margins, including the -- in each of these sectors.
So while these margins will continue to be difficult, as I said, to secure at the historical level. But yes, considering that we are now getting more and more orders and increasing our order book, as you see our consultancy order book has also seen a healthy growth, our aim will be to maximize the orders in the consultancy ring, continue with their effective execution so that you see actual growth in EBITDA and profit while securing margins to an appreciable level.
So we can say that consistency margin will be around to be 22% to 25% level or below -- sorry, below 22%?
You see, overall, our -- we have a blended mix of revenue. And our aim will be that overall, our EBITDA margins should be -- we'll be aiming for anything above 20% plus.
[Operator Instructions] Next question is from the line of Viraj from Jupiter Financial.
Yes. Sir, my question is, we see a dip in international consultancy, what is the reason for that?
See, international consultancy, I agree, Viraj, that the revenue realization of international consultancy has been slightly low in this quarter. However, orders have started flowing in. And the way we have bid across a number of geographies in international consultancy, I'm sure that they will start generating revenue maybe about 2 quarters henceforth. So in the coming FY, you will see a growth both not only in the international consultancy contribution to the revenue as well as, as I said at the outset, the export order, which has now we've got INR 300 crores, start generating revenue next year.
Our next question is from the line of Shreyans Mehta from Equirus.
Sir, my question was pertaining to the export orders. So if you see, we've just converted partial of our L1 into the firm orders. So when can we see the larger pie coming or converting into revenues or even into firm orders?
No. You see, there were 2 different geographies. One was Mozambique, which is the locomotive order, which has got -- we've got it for 10 locomotives. And this should start. Locomotives are normally a longer lead area. So they -- while we are hopeful of pushing them, but they will definitely start generating revenue by latter part of the FY.
The second case was where we are L1 for about 200 coaches and about -- this is amounting to INR 800 crores plus at Bangladesh, we are hopeful that, that should mature into a finite LOI soon in the coming weeks. And coaches since are -- take a lesser lead time, they, to my mind, will definitely start generating revenue quicker than the locomotive. But both combined, as of now, these are the 2, right away, which are visible, should definitely start generating revenue in the coming FY. Besides this, we are pitching for a number of orders and bids for export across various geographies.
Sure. And sir, any clarity on the Zimbabwe order, the rolling stock?
It is still -- the agreement, as I mentioned last time, has been signed a few months back. They are pursuing the -- getting their funding in place. They are moving in the right direction. We are also closely in touch with them. They are getting the funding from the African Development Bank. And all the necessary paperwork is moving in the right direction. And I'm sure that it should mature into formal finite committed agreement very soon.
Our next question is from the line of Vishal from IDBI Capital.
Just one clarification. Last time in the call, you mentioned that the 2 orders, which is Bangladesh is upward of INR 1,500 crores and Mozambique is upwards of INR 500 crores. So just -- I mean, a clarification. So what I can understand as per the release, Mozambique is roughly INR 300 crores that we have received, and Bangladesh is working out to be like INR 900-odd crores. So is it like remaining part yet to be -- like the tender are yet to come out? Or this is a firm like out of INR 1,500 crores for Bangladesh, we have got INR 900 cores and similarly for lower for Mozambique. Is that the right way to understand?
No, no. I think there's a slight -- you can recheck the figures. What we had mentioned last time was that INR 1,500 cores is the total export orders if there's a visibility. Out of that, the one order has converted into a finite order and agreement, which is the Mozambique one. The Bangladesh one is in the final stages, which where we were declared L1, which is totally ranging in about INR 800 crores to INR 900 crores, which is what it should mature soon. So these are things which are immediate visibility. We had mentioned a total pie of the visibility in the range of about INR 1,500 crores.
Okay. So is it like the pie still remains or probably that's all that we get from the Bangladesh and Mozambique as of now?
So right now, right, so that was including the order which was in hand. And that has already -- we have now in quarter 3, if you see, we have exported 2 locomotives and 10 coaches, which has generated revenue. So now what we see with -- and if something more mature or become L1, we bid for a number of locations. We will definitely inform you.
Yes, one portion of the pie, which was where we were declared L1, was the wagon order in Mozambique, which was approximately about INR 150 crores to about INR 175 crores to INR 200 crores. And that was the one where while we were declared L1, but at the stage of finalizing the order, they didn't give us the orders for various reasons. So to that extent, that out of INR 1,500 crores, that amount has gone down.
Right. Maybe just one last thing. So these orders, they are in billed to us in USD?
Yes.
And is it like ForEx and gain and loss that comes to our kitty or how it works?
Yes. Yes, it comes to our kitty. So what the approximate figures in INR and quoting is approximately at the time of getting the order, but obviously, the revenue realization happens at the time the revenue comes in USD.
Our next question is from the line of Viraj from Jupiter Financial.
So sir, with all these things coming online, what would be your guidance now, sir?
So you see, Viraj, our main goal at this FY was to, number one, come as close to FY '22, '23; number two, to get an export order to increase our consultancy order book, have a growth in the project consultancy revenue and continue bidding aggressively, while securing our margins to the extent possible. So with all these, as you see at the outset that I mentioned, they are moving in the right direction.
What we are aiming is that this FY, we should come as close as possible to the last FY. And in the coming FY, these export orders will start generating revenue. These large number of consultancy orders that we are getting, these will start generating more revenue and this push, as you see in the project consultancy revenue, which is happening sequentially also. With all this, our aim is that next FY, our baseline will be FY '22, '23, not '23, '24. And based on that baseline of '22, '23, our aim will be to have a healthy double-digit growth in the EBITDA and profits.
Okay. Even the top line would grow at the same level or would be in the less than double digits?
Viraj, as I have been mentioning earlier in my various interactions, we are an [ EBITDA profit ] bottom line-driven company. And we will aim at double-digit growth on the EBITDA and profit on a baseline of '22, '23 rather than just focus on the top line without giving you enough growth in the bottom line. So the growth in top line will be governed by the strategy, which is aiming to give you a healthy growth in the bottom line.
Our next question is from the line of Rohit Natarajan from Antique.
So I joined the call a bit late, probably I must have missed it, but if you could just touch upon the over and above the current export pipeline. I mean, what numbers are we looking at to finalize them this year? Like will it be -- how many countries if you're talking to, can we make a ballpark state like, maybe increase $100 million in [ tickets ]. That will be really helpful, sir.
So you see our -- as you have been -- if you've seen our figures for last 2, 3 FYs, our biggest challenge has been sinusoidal revenue contribution of the export stream of revenue. And that is primarily because about 2 years, about -- we didn't -- more than 2, 3 years, we did not get any orders. And more so with 2 years of COVID and 1 year after recovery, these countries were recovering, the economies were recovering from the COVID impact.
So now with the aggressive push that we've made for the last 1 year, these have started generating results. As I mentioned, the first order after a gap of nearly 4 years we've got of INR 300 crores. We are L1 in the Bangladesh order, which is about INR 850 crores to INR 900 crores. And these 2 are the ones, which are -- seem to be right away there, which are -- which will generate revenue in the coming FY.
Besides this, the opportunities are tremendous. We have bid for a number of tenders across geographies in Southeast Asia, in Africa and aiming to penetrate the Latin American market also. So moving forward, we see a healthy uptick in my export order book.
Just to confirm, like, I thought these are G2G orders where a right [Technical Difficulty] because you have the government of India financing. So...
Yes. Go ahead. Sorry. Go ahead.
So it should be a ideally a combination [Technical Difficulty].
No. In fact, both these orders, which we have got, I mean, one order which we have got on Mozambique and one which we have declared L1 in Bangladesh, both are funded by the parent countries. In the Mozambique order, it was funded by the Mozambique government. And in the Bangladesh tender, it has been funded by EIB. Both were competitive global tenders, where we were competing with a very aggressive competitor base, and these are all through complete global tender competition.
So these are not on the G2G basis. Even on cases where there are line of credit extended on G2G, they are through a tendering process floated by the Exim Bank, where all Indian entities are free to participate. So they are also through a tendering process rather than a nomination process.
[Operator Instructions] Our next question is from the line of Rahul Jain from JM Financials.
Am I audible?
Yes. Go ahead, Rahul.
So I just started covering the company, and I have 2 questions. Are we the preferred consultant for all rail and transportation in a project in India? And secondly, what percentage of products going forward in the transportation and rail side do you see RITES being a part of, whether that's turnkey or consultancy?
So let me first answer your specific question in terms of the preferred consultant. You see RITES is now in its fifth decade. We complete 50 years in April. And I can say with full sense of responsibility that we are the only company in India, both in the PSU or the private space, which does consultancy across all areas of infrastructure, except maybe oil and natural gas.
So I have 13 different verticals doing consultancy rail infra, airports, ports, highways, buildings, metro system, et cetera, sustainability, city planning. So across all areas of infrastructure, we have been getting orders. And as I mentioned at the outset this quarter, we are proud to become a one-order-a-day company. We got 100-plus orders in 92 days. So we continue to get orders through competitive mode, both in the domestic as well as the international sector.
The second part of your question was regarding turnkey and consultancy. So we are very clear. We are a consultancy company. We are not a construction company. So whether it is our order book, whether it is our strategy, whether it is our revenue, our aim is that the consultancy revenue from pure project consultancy itself will always be about 50% upwards. It will continue to grow. Even the export of rolling stock that we do is not just -- we are not just a window for the trader. It is primarily consultancy, design, sourcing as well as customizing the products for the client country. So if you add that, 75% plus of our revenue is aimed at consultancy.
Our next question is from the line of Yash Gupta from [ ThinkSight Advisor ].
Rahul sir, just a small clarification. For FY '24, we are saying that the top line will be as same as FY '23? And there is a like a double-digit growth in the net profit? Is my understanding correct?
No, I think you got it wrong. What I was trying to say was that the trends of 9-month Y-o-Y we compare both in terms of top line EBITDA and the profit. We are aiming to be as close as possible to the '22, '23 figures because there is hardly any contribution, number one, of the export revenue. There is a major hit in the inspection revenue. So while the efforts have been there, as you see, 21% Y-o-Y growth in project consultancy. But we will not be able to reach the FY '22, '23 figures, either in terms of the top line or the EBITDA profit. The aim will be to minimize the gap as much as possible.
In terms of next FY, these export orders will start generating revenue. The large numbers of consultancy orders, which we have been getting, including the most recent quarter, these will start generating revenues. So our aim is that the coming FY, we will build up on the base of '22, '23. And that base, we will aim to have a double-digit growth in the bottom line, the profits and the EBITDA based on the baseline of '22, '23.
Okay. Great sir. Sir, one small thing on the turnkey. Turnkey this quarter is also roughly around INR 230 crores, INR 240 crores. For FY '25, are we expecting some bigger change into this? Or we are expecting INR 250 crores of every quarter in turnkey?
You see the overall pie, as I mentioned a few minutes past, we are a consultancy company, and the aim will be to maximize first the consultancy and the export revenue. To that extent, the -- we are not a construction company. So turnkey revenue, we take in turnkey projects, also we take primarily on very strategic and consultancy kind of model where it is a cost-plus turnkey type of model. So that -- to that extent, it will have a certain growth. But in terms of total pie, evened out over a period of few factors, we would aim to have it in the range of only about 25% net contribution in the overall revenue.
Our next question is from the line of Viraj from Jupiter Financial.
Sir, I would like to know what will be our addressable market size in terms of the rail orders and the lower order that's announced by -- in the budget as well as on the infrastructure side? Like what percentage would be the 5% of the total order size or 2% you have mentioned?
The announcement yesterday of the large CapEx push across infrastructure, so we are very excited about it because we have the advantage that we can leverage this CapEx across sectors. So whether it is the 3 corridors, which have been announced in the rail sector, each one of them we are already -- have been working, and we will continue to leverage whether it is the minerals, cement corridor, whether it is the port connectivity corridor and whether it is decongesting the high-density routes corridor. So we are already doing a lot of surveys and studies and consultancy for semi high-speed corridors for the railways.
We have a very strong tunnel, bridge engineering and road over, foot over bridge section, which -- vertical, which will pitch in for the various centers, already has got a lot of orders in the recent quarters. And we'll continue to leverage that as these corridors move forward. Similarly, across sectors, whether it is the metro sector, there has been a lot of allocation in that, growth in the airport sector, so we are doing a lot of work in the airports. So across sectors, I see this as a very -- as a perfect opportunity for us to further leverage and continue this trend of being one-order-a-day company.
Sir, what would be the percentage like, suppose one is to analyze [indiscernible], how much is a pilot? Suppose INR 200 crore is announced in the package, what will be the rise -- addressable market size, would it be 1%, 2%? How much will it be? This was my understanding.
No, so you see that -- the INR 11 lakh crore is the total CapEx budget, spread across sectors. For each sector, we do different types of work, some where we make the feasibility report, some where we make the DPR, some where we do the project management consultancy. So to give an overall 1 percentage of the total pie would not be a fair assessment. What is definitely there is that there is -- each of that allocation across each sector, whether it is in fact the green mobility, we have now recently started a green mobility vertical, the push on EVs and green mobility, each one of them gives us an opportunity to leverage our vertical strength, and you will definitely see this trend of 1 order a day stabilizing in the coming quarters moving forward.
Okay, sir. And if I may ask one more question, if I'm allowed?
I think you can come back in the queue, Viraj. There are people waiting.
Our next question is from the line of [ Shri Harsh ] from an individual investor.
Recently, there was a new article saying that the government is going to invest INR 1.25 lakh crore to build the [ 200 ropeway ] projects in 5 years. So I want to know what is the order prospects in this sector? And what is the percentage of the order prospects in this ropeway project for our company?
You see we can say with pride that we are the oldest and the most accomplished consultants in the ropeway area. Any major iconic ropeway that you see in the country, RITES has been a consultant for it, whether it is the Vaishno Devi ropeway and across the country, there are a large number of ropeways, which we have been a part of. Even now, we are working on about 9, 10 different ropeways, different stages. Some of them the initial feasibility report from the project management consultancy. In fact, the Katra, the next ropeway from Katra that also we are already working on. We are working on this long ropeway.
So this announcement a few days back gives us a lot of opportunity, which we will build up upon. Again, to give you one ballpark percentage of the total pie will not be a fair assessment. But yes, because we come into the picture at various stages, right, from the initial feasibility, then maybe post feasibility or detailed project report, and then helping the client do the tendering, finalizing the executing agency. And then the post management -- post contract consultancy, the execution consultancy, the P&C work, the project management consultancy. So a blended mix of all these opportunities, in a nutshell, it will give us a lot of scope to tap in this push in the ropeway sector.
Our next question is from the line of Shreyans Mehta from Equirus.
Sir, our nomination based in terms of order book is closer to 74%. So I'm just trying to reconcile whatever last orders this year, which we've received, are primarily on the competitive based. Still the nomination is at 74%. So can you just help me reconciling the same?
Yes. So if you see this 74% is of the order book. And this is primarily because a large number of turnkey orders, which are higher value, like the railway orders of the electrification, et cetera, which were given to the PSUs a few years back and where we started working and which are now reaching gradually their completion. So in terms of values, that showed it's a higher percentage.
But if you see the -- if you break down the number and if you go down and see the fresh orders, which are coming. For example, as I mentioned, in quarter 3, we have got 100-plus orders totaling to INR 600-plus crores. The percentage of competitive versus nomination would be a wide skew from this. In fact, it is roughly about 2/3, 1/3 is the breakup in quarter 3. So it is ranging from -- if the trend has been in every passing quarter, moving more and more from the nomination to competitive basis about quarter 2, it was round about 50-odd percent, 50% to 60%, and every quarter, it is moving forward, becoming more and more on competition basis.
Our next question is from the line of Yash Gupta from [ ThinkSight Advisor ].
Sir, one question on the India, Middle East, Europe corridor. Have we started doing anything on it? Any work on it?
Yes. So this is a very interesting opportunity for us. And we've been associated in making various plans and the possible opportunities. These are early days, but yes, we have been constantly associated with it, and we'll continue to be associated with this as this pans out in the coming years. So this is our area of strength. We have expertise in this, both in terms of the location surveys, the alignment survey, the designs, the rolling stock design, the [ port ] augmentation, the feeder route augmentation. So while we are associated with closely, we will continue to capitalize on this in the coming years as this catches up speed.
But we don't expect anything in FY '25? Maybe '26 or '27 only?
I wouldn't like to speculate. It may not be correct for me to speculate. Let's see how -- at what pace it moves. What I can only say that we are -- we have the wherewithal and we are already closely associated in all aspects of it, whether it be the rail infra, whether it's the [ port ] augmentation, whether it is the logistic infra, whether it is the design or other consultancy. So as it moves forward, we would continue to capitalize on [ growth ].
Our next question is from the line of Rohit Maheshwari from Tata AIG.
First question is related to -- from your export order book, what you have in hand, it seems that for the next 2 quarters, your execution to export orders will be very low. And then second half onwards it will pick up significantly, yes. So my understanding is correct?
Yes. Yes. Very correct. In fact, as I mentioned some time back, the locomotives take a longer lead time to generate revenue, get manufactured. And revenue realization happens when these are exported out from the port. So that comes in one go. If one locomotive was exported, the entire amount comes the day it is -- the bill of lading is made at the port. So while you're correct that these will start generating revenue by latter part of the FY, the other one is where we are the coaches, Bangladesh one where we are L1. We are hoping that it matures into a finite order soon in the coming weeks. And since coaches have a lesser lead time compared to locomotives, they would start maybe generating revenue a little earlier than the locomotives. But yes, next 2 to 3 quarters, they would not be able to generate revenue, and then they'll suddenly start generating revenue together, maybe by latter part of the FY.
Okay. Related to this, only then, I guess, like for the next 2 or 3 quarters, there will be some pressure on the margin side, correct? So because export orders will be low, so there will be some 100 or 200 basis point impact on the margin for next 2 or 3 quarters?
Yes, for sure because the export is good margin stream of revenue and are blended for streams of revenue. So yes, if you look at it in the next 1 or 2 quarters, as you correctly said, the contribution from this stream of revenue would be low. So yes, there will be -- from this aspect, there will be definitely a pressure on the margin. But while I said efforts will be what you have seen in the sequentially also to maximize the project consultancy revenue, which is also a good stream of revenue.
So to that extent, we have been able to minimize the impact due to Q3, the project consultancy revenue grew, and that's why, in spite of generally sequentially Q1, Q2, Q3, we could even still come back with a 2% growth in the EBITDA margins in Q3. So to that extent, yes, there will be a pressure, but efforts will be to blunt that pressure to the extent possible by project consultancy energy.
Okay. My last question is...
Sorry to interrupt. Please limit your question. [Operator Instructions] Our next question is from the line of Viraj from Jupiter Financial.
Yes, sir. This is regarding the REMCL. There is -- can you explain they were lying in the REMCL report, which says your company has facilitated putting PPA with 51 megawatts, out of which 136 megawatts is operational and remaining to start by FY '23, 2024 and target to be completed by '25, '26. Sir, can you please explain this? Is it possible? I couldn't understand the [indiscernible]. How's -- what's the model there?
So this is basically the RTC tender, which we had quoted. And as these are split between different parties and the power purchase agreement gets signed between the various parties. So they are in the process of one by one by one getting signed. That was the basic -- the amplification in that.
So what is the basic mode of REMCL? Can you just give some color on that? How do we make money in this business?
So basically, REMCL -- see the main role of REMCL when it was formed was to procure the traction power for Indian Railways. And that is a very important exercise because to be able to procure and balance the power requirement so that -- the traction energy requirement so that you spend the minimum and end up as less on spot purchase, that is -- so that we keep -- we have a control center at our REMCL office, which tracks the demand across the Indian railways and from where it can source and do the power balancing and optimize the purchase cost.
So as a consultant, REMCL works as the consultant for procuring power for Indian railways, across Indian Railways, the various zones. And it gets the consultancy fee as a percentage of the total power procurement. So as the electrification grows up or as the traffic grows, and there is more and more demand by the Indian Railways, the revenue, which is a percentage of that, as a consultancy fee grows. So that's the basic model for REMCL.
Further to that, a few years back with the net zero initiative, REMCL was given the diktat of being the key nodal agency for implementing the net zero initiative of Indian Railways. So now REMCL has been floating various renewable tenders on a developer mode. And for doing that work, it also gets some consultancy fees.
Sir, and the same thing, when we go from 136 megawatts to [ 5,111 ] megawatt what will be our size of revenue and opportunity in this?
No, no. That we have floated the contract, have finalized the contract, and we've got the consultancy fee for it. And that's just -- this is just an information that these contracts are getting in place. And the power will switch from -- the sourcing will switch gradually in line with the vision of being net zero from the conventional source of traction energy to the renewable sources of energy.
Our next question is from the line of Rohit Natarajan from Antique.
If I can -- sir, if you could just help us understand, what is the total addressable market in exports for countries like [ Africa ], Lat Am, South Asia. But I'm coming from is essentially trying to understand what is your conversion ratio within that total addressable market?
So to give you a rough insight into what you're trying to assess, you see Africa itself, there are 11 countries, which are in a unique gauge called Cape Gauge. This is unique to these 11 countries, which is 1,067 MM, which is somewhere greater -- a little bigger than the meter gauge. Now when we -- about 4 years back, we designed -- we were the pioneers in designing high horsepower locomotives, push-pull DMU coaches as well as state-of-the-art AC and non-AC coaches for them on -- for Mozambique on the Cape Gauge.
Now because of this, we have got interest from all these 11 countries. The scope whether is in coaches, locomotives or wagons or DMU push-pull trains is tremendous across all these 11 countries. However, each one of them has funding issues. Some of them are trying to get a line of credit from India. Some of them are trying to source funding from their own sources or African Development Bank and other multilateral funding agencies.
So it's to give one figure, one ballpark figure of the size of the market, even the 11 countries, it is very difficult to come at one figure. But the scope is enormous, and it is more dependent on their funding mechanism. So while we keep trying to help them in forging out the funding mechanism, more and more as they get their funding mechanisms in place, we are the preferred choice for them.
Similarly for the immediate neighbors, whether it is Bangladesh or Sri Lanka, because both are in broad gauge, we have been exporting to them. And in this tender, we became L1 through a global tender. As they get more and more funding in place, their requirement is huge. Sri Lanka is wanting to revive back in a big way. The requirement is huge. Whether it is in coaches, wagons, locomotive, they are looking for the ideal funding mechanism so that then we can supply them these rolling stocks. So the market availability is huge. It is more dependent on them getting their funding mechanisms in place.
Just to follow up on that, sir. We have to gauge what is the funding potential of maybe all these countries, what barometer -- or what parameters should we be tracking?
You see each of these countries have a different appetite for taking loans. Their -- strength of their economy and their creditworthiness besides the loan, which they get from any of the funding agencies, whether it is the ADB, EIB or the Indian Line of Credit. So it varies from country to country, and that's the constant exercise with these countries look for and take our support also and advice on what are the possible size of the funding which they can get.
[Operator Instructions] Our next question is from the line of Harshit Kapadia from Elara Securities Limited.
Just one question from my side. If you look at your Q3 results, when we look at on a quarter-on-quarter basis, there has been an improvement. Would it be right to say that this is a quarter that we have hit the bottom, and we will not see, on a quarter-on-quarter basis, a decline? Or we have hit the bottom more in terms of growth revenue as well as in terms of margins? if any color would be helpful.
Yes, Harshit. So if you compare Y-o-Y, moving forward also, it may not always be a fair comparison because of the goalpost being slightly different in terms of contribution from 2 very large streams and higher-margin streams, which were the export and the inspection business. So however, having said that, we -- sequentially, if you even see this FY, Q1 onwards up until Q3, in all parameters, there's been a steady uptick in line with our strategy at the beginning of the FY.
And to my mind and our assessment, we will continue to push this moving forward even in Q4 so that we keep consolidating our position and our push. So that on an FY basis, we come as close as possible to the FY '22, '23. And then building up on these orders and the revenue realization in the coming FY, the coming FY will be a fairer comparison vis-a-vis baseline of '22, '23.
Fair enough, sir. And just one final question, a follow-up on this. What would be the consultancy revenue ex of your quality share in the business, sir?
So the consultancy revenue has seen a Y-o-Y growth of 21%. And it has seen a sequential growth also of 5%, the project consultancy revenue. While it will not be fair for me to break down this further because we take down the total consultancy revenue as a whole. But I can only add color to the fact that in spite of the hit of about 4 quarters back in the inspection business, where we became one of the 4 entities to be awarded the inspection business, which took a hit of about -- with the rates also going down about 20% hit on the top and bottom line from this stream of revenue. We have been able to stand ground and diversify our other clients. And on a steady basis, in all 3 quarters, we are close to levels of the inspection stream, which we were hitherto earlier before this sector opened up.
So the impact has been able to be nullified to an extent possible. We are down by 20%, 25% in the inspection stream of revenue from the earlier levels. And as per our target, which we were aiming for, we should be able to come back to those levels in about 2 quarters' time.
Our next question is from the line of Vishal from IDBI Capital.
Sir, I think you did touch upon the previous participant question that you will come back to the same level what it was 2 quarters back for the consultancy. So that was on the margin front you mentioned? Or on which side you mentioned, sir?
No, I said on the inspection portion of the consultancy business. You see project consultancy business has been -- seeing a steady growth and which has been our push to be able to blunt the impact of the export and inspection. So project consultancy has seen a growth Y-o-Y of 20% plus. Even sequentially, we have seen a growth of 5% plus even with a high baseline.
So the inspection stream of revenue, which contributes to a total consultancy pie, that was the one which has taken a hit. It used to be in the range of about 2/3, 1/3 in terms of the railways as a client and other clients about 1/3, which, in the last 3 quarters, we have made attempts and got a number of orders across other non-IR clients, and that contribution will start coming up. And we are aiming that in about 2 to 3 quarters maximum, our inspection stream of revenue should aim to come back at the levels it was prior to it opening up.
Yes in terms of the margin in the inspection stream, now with all of these coming on a competitive basis, it will definitely be difficult to maintain those level of margins. So the first immediate milestone is to first come back to those levels of revenue and then further grow in that. So that it is the actual contribution in EBITDA from the inspection stream comes back to the earlier levels.
So to give you an example, most recently, we've got a good order of about INR 16 crores plus from -- for our inspection vertical, where -- from the GeM marketplace. So we are doing the inspection and the vendor verification services at about INR 14 plus crores. We got an order from the GeM vertical. So this is a very unique and a very good breakthrough for us. And we'll build up on this to get many such similar orders.
Okay. So then, sir, this last 2 quarters, we are saying that at EBIT level, consultancy margin has been quite range bound at 44% and 44.5% EBIT margin consultancy. So can we say that probably like whatever the impact has to happen, say, for opening of a defector, competition, the margins are reflecting and then probably this is kind of bottom on the margin for consultancy? Can we you that? Or do you still think, I mean, like yet to get more clarity as the quarter comes?
You see the consultancy pie has contribution from about 13 different streams of revenue, inspection is one of them. So whether it is the building, highway, metro, rail infra, airport, port, across these sectors, as I mentioned some time back, when I was answering that question about the nomination versus the competitive basis, in this quarter itself, our fresh orders of 100-plus orders, which you've got, it means 50% plus, in the range of about 50% to 60% are on the competition basis, both domestic and international.
So as all clients, whether these are the ministries or the state government or private clients, they are all opening up to the competitive moat. The margins even at the range of about 40% to 42% are difficult to secure at those levels moving forward because each one of these 13 contributors to the consultancy revenue are taking a stronger challenge in terms of margins.
So the -- while margin percentage will definitely be tough to ensure, what the aim is that you get more and more orders as you see there's a healthy growth in our consultancy order book itself. So that in absolute contributions in the EBITDA and profit, we can able to -- we are able to have a steady growth.
Okay. Okay. So then this new orders that we are getting, what margins or probably any range that you can provide, sir?
Well, these are different across sectors. It will be again unfair and give a wrong picture as to give you one figure. There will be a different margin in areas of conventional consultancy like highways, there are much tougher competition. Then there are areas, there more skilled area, I mean, higher skill sets and tougher and lesser. Or I would say, not lesser, but there are lesser players or bigger players there. So there is the metro sector or the airport sector or the tunnel engineering sector, bridge engineering sector. So there, the margin is slightly better. So every vertical has a different range of margins, depending on the competition and the players involved.
Our next question is from the line of Viraj from Jupiter Financial.
Sir, my question is, what is the time line of the [indiscernible] time line for the export orders, will it be 1 year or 2 years? Like what is the time line? If you can give some color on that.
So Viraj, normally locomotives take a longer period of time. And as I mentioned, the revenue realization happens at one go. There are unfortunately no intermediate milestones where we can recognize the revenue. The revenue comes in one go when these are shipped out and the bill of lading is made at the port. So -- and normally, it is not that 1 or 2 -- normally, they don't take sets of 1 locomotive. So normally, minimum of 2 to 3 locomotives are more. When they get manufactured, then a vessel is arranged and the revenue realization happen.
So locomotives are the large -- the longest lead time, anything ranging from -- beginning from 12 to 14 months to ending in about 16 to 18 months. The coaches are much faster to manufacture. And so once the Bangladesh order is in place and we actually start the manufacturing process. To my mind, they have a faster lead time, and they can start from anything from about 6 to 9 months' time approximately.
Okay. Okay. So the coaches is like when they're delivered, they can be delivered batches and you can get the payment. Is this the way to work, is it?
Yes. For all export orders, whether it is coaches, locomotives, wagons, et cetera. So even for coaches, suppose there are 200 coaches, the order, normally, again, they would be dispatched in lots of maybe 20, 30 coaches. The first set of as soon as 20, 30 coaches are ready to be shipped, they will be shipped. And at least to that extent on that particular day, the revenue realization will happen. So while there are lead times, the revenue happens on one particular day for one set, which is exported.
So the revenue will come in one particular quarter in a bulk. That's how it works, right?
Yes, yes.
That's a correct way to think. Okay.
It's a milestone for the revenue realization. It only happens when one set of, say, 20, 30 coaches or 2 or 3 locomotives are exported.
Thank you. Ladies and gentlemen, that was the last question for the day. I now hand the conference over to Mr. Harshit Kapadia for closing comments.
Yes. Thank you. We would like to thank Shri. Rahul Mithal, Chairman, Managing Director; Shri. A K Singh, Director Project; Shri. Dr. Deepak Tripathi, Director Technical; and Shri. K G Agarwal, Director Finance, for giving us an opportunity to host this call. We also would like to thank all investors and analysts for joining for this call. Any closing remarks, Rahul sir?
Yes, I just wanted to reiterate our strong commitment in the direction we are moving. We are proud to have touched some milestones in this quarter. We were declared the Navratna status. We have got 2 very important awards from the Chartered Association -- Accountant Association of India for good governance. We've got a SCOPE award for good governance and institutional excellence. We were proud to be -- having made the Ayodhya Dham Station, which was inaugurated most recently by the Honorable Prime Minister, and the milestone of having received -- of having become a one-order-a-day company, our dream becoming true in this quarter.
So with all those, in spite of the various challenges, which we have discussed, we are very confident that the movement is aggressively in the right direction, and we will continue to build up on the space and consolidate our position.
Thank you. On behalf of Elara Securities Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.