Texmaco Rail & Engineering Ltd

NSE:TEXRAIL

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Texmaco Rail Q1 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Navin Agarwal, Head Institutional Equities at SKP Securities Limited. Thank you, and over to you, sir.

[Navin Agarwal, analyst]

Good morning, ladies and gentlemen. It's my pleasure to welcome you to this earnings conference call on behalf of Texmaco Rail's and SKP Securities. We have with us Mr. Indrajit Mookerjee, Executive Vice Chairman, along with his colleagues, Mr. Ashish Gupta, Managing Director; Mr. A.K. Vijay, Executive Director; Mr. Hemant Bhuwania, VP, Corporate Finance; and Mr. Ravi Varma, VP, Corporate Affairs and Company Secretary. We'll have the opening remarks from Mr. Ashish Gupta, and overview on the financials by Mr. Vijay followed by a Q&A session.

Thank you, and over to you, sir.

[Ashish Gupta, executive]

Good morning, and I welcome my fellow colleagues and all the investors joining this call. And so let me start with the overview of the industry. So as you are all aware that we are in the business of railways and primarily manufacturing of wagons and the railway EPC work that we do. So if you look at the industry currently, I think that the industry never had it so good in terms of order book and visibility on the future. I'm very pleased to announce to the investors that Texmaco today has an order book, which is slowly entering towards a number of INR 10,000 crores, which includes the wagon orders both from Indian railways, private customers, EPC business, et cetera.

And so if you look at vertically, we are sitting on an order book of, which is, 3 years plus now. And it's a very good time for the industry, a very good time for the company. In fact, I'm happy to announced that we bagged our largest ever order from Indian Railways last quarter, which is INR 6,450 crores, close to 20,000 wagons to be executed over a period of 39 months. Over and above that we also have a very robust order book from private customers. The scenario is very, very robust. And we are very happy with the current order book that we have.

The railway industry is likely to invest much more to procurement of wagons and holding stock and related services on EPC. And -- so just to give you a brief of what this order is all about. See, typically, the industry has never produced more than 15,000 wagons in a year. And today, the entire industry is supposed to provide approximately 30,000 wagons annually. So from an industry point of view also, it's a very good scenario and very happy to announce that we have been able to bag these orders in a very, very competitive scenario. This is as far as the market outlook is concerned.

On the performance part, you must have seen the results. Mr. Vijay will speak about the results. First, and then we will get back into the analysis of the work. So I'll hand it over to our ED and CFO Mr. Ashok Vijay to brief the investors on the Q1 performance in terms of numbers. Over to you, Vijay ji.

[Ashok Vijay, executive]

Thank you, Ashish. And welcome again, all the investors, and we are happy rather to welcome you in this investor conference, which is for the quarter 1 of the performance of Texmaco Rail Engineering Limited. Although you will be not very happy about, you are disappointed with the kind of performance, which the company has done in the first quarter. There are reasons, but then reasons are no justification. We accept -- we have not been able to perform to the expectations of investors, but we can assure you going forward, we are taking all such steps that as Ashish already explained to you, the order book is very comfortable, and we are taking steps towards how we can increase the production and productivity by increasing shift by increasing investing some money in the balancing equipment, making sure that the company is -- the manufacturing facilities are duly provided with the required working capital so that the production and other things pick up, my dispatches pick up. And we try to churn out one of the best performance, which company can do over the years from now onwards.

Now to begin with, I would like to -- the results are there in your hand. And the portfolio company although not good, but then I have to share with you, the gross revenue for the quarter 1 is INR 305.09 crores, it as compared to [ INR 366.5 crore ] in the corresponding quarter of the previous year, which was unfortunately also impacted last year by COVID surge. So this year, although there was no COVID surge, but still we have not been able to improve the performance. The EBITDA gross profit that is, net profit after tax are negative INR 3.62 crores, negative INR 26.06 crores and negative INR 22.53 crores against a positive of INR 41.57 crores INR 15.66 crores and INR 4.7 crores, respectively, in the previous year's quarter 1. This is a competitive performance, which is just for the sake of your information, I shared, although results are already there in your hand, so you have noted now.

Now I basically like to brief you on why this performance has been so and division wise, what the company is basically performing and what can be the outlook based on what Ashish just briefed you on this thing. So number 1 comes to the Rolling Stock division, which is the main division of the company because the almost 70% to 80% turnover comes from here, if you don't consider Rail EPC. And if you consider Rail EPC, still 60% of the performance comes from here.

So this division, number one, as Ashish just shared, has bagged the largest railway order in the history of the company, which is 20,067 wagons. And this is again the tender, which was last issued by railways, we received the order in the month of May. The order 20,067 order is to be executed in 39 months. And thereafter, so it means, virtually 3 -- 3 and quarter year, we have to gear up for this thing. And this year, we have to perform for 6 months competitively. So roughly about -- we'll have to do about 3,300 wagons. And from next year onwards, as per requirement, we had to deliver minimum 6,600 numbers of wagons.

On top of it, there is -- the market in private sector is also buoying, and we are getting good inquiries and good orders also. And in fact, rather, the deliveries are now a little prolonged, I'll explain you the reasons why it is so and all this thing. So as far as the market conditions are concerned, we are seeing the railway has never seen -- railway industry has never seen that kind of buoyancy in the market. The only thing which we need to do is now deliver. And that is what we are all gearing up towards that.

Now it is not only that this is the order book. Even the railway has further indicated that they require further more wagons and there can be another tender. So the position is positive, and this is all emerging on the railways target of improving the freight volumes to 3 billion tonnes compared to 1.4 billion, which is present. And earlier, the plan was for 2030, which has now a minister wants to keep on it 2027. So in 5 years, if railway wants to improve almost 2.5x naturally the first and foremost thing, which comes in these things is the track and the wagons.

So wagons and locomotives and track, these 3 are the essential and where the focus of railway is there. And this is not that this is a onetime thing and all. Railway are basically assuming that, yes, their share -- market share has to go up and more and more dependence on road has to be eliminated.

Today, the railway share is roughly about 27% of the total freight movement in India, which by 2030, the railways' plan is at least 40%, if not more. And just to give you the idea about this thing it was 80% when the India -- India got independence, which is [indiscernible]. It was 80% through rail at that point in time, the movement -- and with all the green movement, the pollution issues, reducing the carbon footprint and all this thing, I think this focus on railway will increase more and more in the coming years.

So this is how basically it is -- the railway is -- has an [indiscernible] target of CAGR of 16.5%, which is none of the government segment has ever assumed about. This is what railway -- than apart from this, there is a very robust demand coming out of private sector because they know pretty well the railway will be buying only standard type of wagons, which are open and close types. Just all the type of wagon requirement will be have to be met by them through their own sources. So all specialized wagon requirements need to be met by them. This apart, the logistics movement, which is now picking up very fast in India and with a larger participation in the private sector.

So we are having a big demand from new emerging logistic companies, and they are all giants in the field, including the multinationals like Adani, like NYK, like Sojitz, like GATX, like 2x. So all these people are emerging very strongly in this field, including leasing companies this and logistics companies. TCI is also coming in a big bid. So it's a long list about this thing. And they all want to beat up the population because they cannot get garner the market share until the population of wagon is built up by them. So there is a sizable demand, which we see coming from this sector for next -- up to the next 3 to 5 years.

So this is -- now visibility is going about and gradually all the specialized manufacturers will look for manufacturing. I will look for procurement of wagons for specialized freight cargoes only like for Alumina -- Alumina wagon for fertilizer, fertilizer wagon for food grain, the food grain wagon -- the general types of wagons.

So this will also give a lot of edge to organizations in the segment to improvise on new designs, come with innovative ideas and whereby the haulage capacity can be increased in trade incidents on the end user can be brought down. The order book, as we explained, is now close to INR 10,000 crores.

And now I come to the basic reason that why we have not been able to perform. And the primary reason was nonavailability of wheel sets, which railway since they released a large order, the immediate instruction from the ministry came on this, no wheel set to be supplied by rail factory for private wagon users. And they permitted that private wagon users can import the wheel set for their requirement, including import from China. Good enough. But then the issue is this impact demand in locos import from China takes time. And suddenly, when they cleared the imports, the prices also got -- start shooting up.

So we have to take up with all the customers we have to renegotiate with the price because the wheel set price was based on the domestic prices and where the imported price today has shot up. There's interested demand because of Russia-Ukraine war and Ukraine as a source being drying up. So China is remaining on the reliable source only globally. And as a result, the price in China has shot up, and that is what we were trying to work out, negotiate and all this thing.

And Ashish will share with you later that how the result for this negotiation has ended up to this thing. It has been ending up positively.

Now the production. Our production was seriously impacted because -- at the beginning of the year, we have only the private sector orders. And since the wheel set for private sector are not available, we were sitting on our hunches without doing any production or rather doing only the process production, but not actually delivering any wagons. And if you see my performance for the quarter 1, I made only 20 wagon for railway, which was -- which we have committed to them and delivered apart from that 100 wagons could only do private, which means like we don't manage apart from that, no private, and that is the result why we happen.

Also that the order which we received this time was for a type of wagon, which is BCNA. Now BCNA wagon, we have not done in the last 5 years from this plant. And as a result, we were required to do prototype. And as you know, the prototype takes 2 to 3 months. So we were busy doing prototype, which I'm glad to share with you has already been approved, and now we have started the commercial production from this month. And we already started delivering this BCNA, and you will see a substantial improvement in deliveries during the quarter 2 onwards.

Now -- regarding the wheel set also, we are -- at least the railways are now gearing up by themselves importing the shortage item that is the axles from China, and assembly at their end because they have the availability of the wheel sets. So that is the -- at least in that particular -- your maneuvering, the railway has been able to supply the required quantity as of now for the railway orders.

So I don't -- we don't think that there will be a challenge in receiving the wheel sets to meet the railway obligations and railway will do whatever they require because the minister is very keen that deliveries must come whether they import the wheel sets or the import the axle and assemble the wheel sets or they divert the maximum quantity towards freight. All these measures railway be taking so that availability of wheel sets for this railways there. Regarding private -- we have also placed orders for import, and our deliveries will start coming from some time from the November onwards. And once the deliveries start coming from November onwards. But -- then we'll start delivering and accordingly, we have given delivery schedules to all our customers for private wagon orders.

Now -- with this, basically, we foresee that the wagon division, especially the Rolling Stock wagon division, will be doing well from -- will start improving from quarter 2 and do the best performance during quarter 3 and quarter 4 as of now as the situation emerges.

Coming to Steel Foundry division. Now Steel Foundry Division also was -- in first quarter was impacted for a couple of reasons, main reasons, number one, as there's no suction in the wagon industry was there -- in the wagon plant was there. So there was no production, which was feasible to make and store because it requires a whole lot of working capital and this thing. As it is our working -- It will really block in whatever material we have already produced, which was we're awaiting the availability of wheel sets. So steel foundry in the first quarter do suffered the production and all this thing. But from second quarter onwards, as the delivery in the wagon front is improving, the suction is also improved. And according to steel foundry is -- also steel foundry is also gearing up to produce with the requirement of this thing.

The good -- the positive for us is that the kind of requirement which emerges out of the wagon requirement, which you need to deliver to the railways -- will require an amount of castings, which is today is a challenge for steel founded to produce, and we have to really gear up make sure that our production capacity will improve substantially from what we have been doing over years and meet the requirement for the wagon, so that the wagon plant is not wanting for this thing.

On top of it, as you know, we have a large export commitment and which we would certainly like to meet because the export market, we have developed with a lot of efforts over the years, and this export market which we develop gets now started leading result to us as new customers are also approaching us, and they're all coming from developed countries. And the demand pattern over there also is improving because of the global turmoil, but we are restricting our obligations to them. To the extent, basically, we can only meet their requirement and not committing any additional quantity as of now, until less, we have been able to improvise the production or improve the capacity of our steel foundry.

The steel foundry, as you know, has never produced more than 20,000, 21,000. It is a maximum production they have ever achieved. Now we have planned the production capacity increase gradually first to 30,000 and then to 35,000 tonnes which, of course, requires some CapEx, quire some balancing equipment, some minor share expenses all this thing. We'll be carrying on all these things. The plants are already. But yes, we are targeting to increase the production capacity to almost 36,000 tonnes, which will be in operation from next year, middle.

With this, I think we'll be able to grow the domestic as well export requirements. And once we have stabilizes that, then we look to the possibilities that how can we further improve without making any massive capital investment, and more while as you're aware, in Capita, expansion of capacity is resisted because we come in the orange zone, and we are not able to expand the melting capacity. Within this, whatever innovative we can do, we are doing and we are making sure that the production goes up.

Regarding Rail EPC division, our operations suffered a bit because the prices of all the commodities, which are going in this thing have shot up like nobody's business due to the -- again, the global turmoil, which is going on in the steel and other -- all commodity items, they are short to the roof. Resulting in this thing that, yes, the margins have really seriously impacted -- and whatever we are doing, we are trying to restrict ourselves so that we are not serious challenge on the working capital fund and whatever funds are available to us to that extent, only we are doing this thing. We are not booking any order. Details, we'll share with you in the -- once the question and answer session starts and Ashish takes over there.

And other divisions are basically doing the steady level there. We are not focusing too much on those divisions because they are competitively very small -- and when the demand is so strong and bullish and rail wagon sector, that's the area where we are focusing today. So this is the basic summary of the working results, which we have this year.

Now I'll hand over to Ashish to summarize and add further to this.

[Ashish Gupta, executive]

Thank you, Vijay ji. So before I proceed further. May I request our Executive Vice Chairman, Mr. Mookerjee if he has something to add before I proceed on the further remarks on what Vijay has just told.

[Indrajit Mookerjee, executive]

No. Thank you, Ashish. I think you go ahead, if there is something, which I can chip in and add value, I'll do it at the end. So why don't you carry on?

[Ashish Gupta, executive]

Thank you, sir. So picking up from where Vijay concluded, so in terms of -- if you look at the last few months, primarily, our major loss has been because of availability of wheel sets and the uncertainty around it. And this is something which is a controlled item, we could not do anything about it. And therefore, we're not able to produce. In fact, if you look at the results, our WIP or the inventory went up by approximately INR 75 crores. We had wagons ready, produced -- close to 200 wagons ready and produced just waiting for wheel sets. And that you see -- so we did not stop the production.

We kept producing so that when the wheel sets will come, we can do cash as early as possible, because we will only procure all the raw materials and steel for the wagons and these embargo came from the railway board and later, they allow imports of wheels. The import of wheels actually -- the entire wheel market globally is also undergoing its churn because one of the major countries supplying wheels globally is Ukraine. And you are all aware, because of the war going on, this entire market is completely disrupted and so the entire world is moving to China. .

We are happy to inform that we have been able to block capacity in China. We have already opened our LCs, and we are expecting delivery to start. So I would say it was a blip in our performance in terms of number of wagons that we have produced. We are happy to state here that we should be able to cross approximately of 900 wagons in Q2. The other thing which I would like to mention here to the group is, if you look at the railway order, it is typically a 3-year order, 36 months order to be delivered in 39 months. Wherein the first 3 months actually have been allocated for the purpose of preparation of prototypes, [ landing ] of the supply chain, et cetera. So to that extent, I think we are well prepared and we are going full throttle from next month onwards. And with prototype approvals have been done. We have started the production now. And this has started to flow in.

So to that extent, we are very confident that now we should be -- we'll go full throttle in terms of execution. In fact, I'm happy to announce that we have strengthened our teams. We have recruited lot of youngsters. Now we are getting into a 3-shift operation -- already started actually. And so we will look forward to delivering now in the next few quarters. And this blip, which was there in Q1 should be a thing of the past.

And if any, from the investors.

[Operator]

[Operator Instructions]

The first question comes from the line of Kaustav Bubna from BMSPL Capital.

[Kaustav Bubna, analyst]

So I had a few questions. Firstly, wanted to understand clearly why has Texmaco specifically face the shortage of wheel sets -- because if we look at another listed competitor in their rolling stock division, they haven't really suffered as much as this company. So I mean if the shortage is going on from Ukraine because of shift in supply from U.K. and also government diverting wheel set supply to public for public needs. I mean other companies should be affected to right? So why only Texmaco from at least the listed peers who we investors can see from?

[Ashish Gupta, executive]

Yes, I think it's a very good question. So thank you. So if you look at our opening order book beginning of the year, we did not have any significant railway order. So therefore, we could not get those supplies. The other thing which happened was these wheels come in 2 diameters, one is a 1,000 mm dia wheel set, other is 840-millimeter wheel set.

Now I'd love to have it, most of our order book, primarily 80% of my private sector order book needed wheel sets of 840 dia, and RWF has not been producing these wheel sets since January, because they did not have the molds to do it. The production was supposed to start in the month of March -- and it is what we had based our production plan on.

But unfortunately, even until the month of June, this production did not start. So therefore, it is a product mix, which did not allow us to get those wheel sets. And so I hope I answered your question.

[Kaustav Bubna, analyst]

Yes. And the next question is, as per your press release, Ashish, you will be leaving the company for greener pastures. So could you just let us know give us some clarity on who will take over your position, what is happening on that front? Because we haven't got any clarity on that yet? And also, could you -- on that point, just to reflect on your -- during your duration as MD, how has the company evolved -- because clearly, delivery is still lacking. So -- could you speak a little bit about those 2 points?

[Indrajit Mookerjee, executive]

I think Ashish gave an answer to the point two, second part of your question, the first point I would -- I would be volunteering to answer. So Ashish, please go ahead with the second part of the question, which is the question of the evolvement and the evolution of the business during your tenure.

[Ashish Gupta, executive]

Yes. So if you look at my tenure, basically, we did a lot of efficiency improvements in terms of expansion of manpower, if you look at the EPC division, we closed down at 1 of old legacy contracts. We had a lot of book -- cleanup of old projects. In fact, more than 70% of the old projects we have closed. So see, 2 years have been spent on improving the strength of the organization in terms of efficiency improvement, cost reduction initiatives, rightsizing the organization, getting back our mojo on design or on technical prowess. So the last 2 years have been typically spent on preparing for the future, because that if we feel that -- the entire management is working on is to get better face back in the sun and also to strengthen the organization in the long term.

So if you look at the way we have performed in terms of reducing our creditors, reducing our banking exposures. So a lot of strengthening of the system has been done in the last 2 years. There has been a lot of focus on the market development -- if you look at -- we have the largest order book as far as the private sector is concerned. And we have strengthened our marketing teams. We have a fresh team. We have been going around the market, developing new wagon designs. We have also entered the export markets once again. We have recently done a very, very innovative design for a steel company in Africa.

So the entire focus has been -- it's not a thing which you can achieve overnight. But yes, last 2 years have been very, very focused on revering for future. And I think as a company, we have done very well. And today, we are sitting on a very big order book. And the order book it's much beyond what the Indian railway order book is. And very happy to say that our focus on delivering good quality innovative device has come back and we are now focusing on niche products with higher margins. So that is how I would submit them and in the last 2 years, what we have done, I would now invite Mr. Mookerjee to respond to the first part of the question.

[Indrajit Mookerjee, executive]

Yes. Firstly, I would like to start by wishing Ashish all the best in his future endeavor. This was a personal decision of Ashish to look for, as you said, greener pasture, I would say, more than greener. I think sometimes you look at future and you get good opportunities, and you don't like to give it up. But Ashish had a very eventful short but very eventful year because there are lots of things he's changed. And I think as he has mentioned very clearly that these take time. We just can't make it to happen overnight. But the way we look at -- we see that we are in the process of emergence, and we would be back to our glory as we used to be very, very soon. So that's my personal impression. And I also -- I think it's a genuinely realistic impression because lots of things are happening.

I just -- before I come to the specific question of the Managing Director, I would like to say once again emphasize that we got -- we were caught napping, I think, during this quarter because we wanted to have a proper mixture of private and the railway order. So we obviously have a large chunk of private orders, which gives us that -- which will give us better margin, whether the peers are continuing with the railway orders because they have pending railways orders. So we got [indiscernible] because of the wheel supply. And because of the wheel supply, Railway Wheel Factory decided that they would only make supplies for the railway wagons we had no way.

And secondly, also, some of these private wagons required wheels of different dimensions, which the railway factory reduce -- which railway factories failed to produce, and I think -- I don't know whether they have started producing now, Ashish, as it started producing 840 as yet or...

[Ashish Gupta, executive]

840 dia production has started, but that will primarily go for the maintenance of the whole rolling stock. So there are no plans as far as various -- RWF is concerned to supply them for private manufacturers.

[Indrajit Mookerjee, executive]

As a result of that, as you all have seen, and I'm sure you have seen what has happened to our inventory, the inventories went up by something like INR 75 crores, INR 80 crores because we made the wagons, we made half of them or 4 of them accepting the wins, and they were piling up. And that's why had they had gone out in the market, we would have also had the same numbers as the peers have done. So I just wanted to qualify -- clarify. Of course, it has been very nicely clarified by both Mr. Vijay and Ashish.

Coming back to the specific questions of Managing Director. Yes, we will have to look for a Managing Director to take us to the newer future because things are changing, railway is improving. We need to change, we need to improve our manufacturing technology. We have to bring in some management tools, lean manufacturing, qualities, more automations coming up. So we -- the Board has decided that we will go for a search of a Managing Director to replace Mr. Gupta. Of course, -- these things take time. It can't be immediate, but we are on the search.

[Operator]

[Operator Instructions] The next question comes from the line of Parvez Akhtar Qazi from Edelweiss Securities.

[Parvez Qazi, analyst]

So a couple of questions from my side. First, would it be possible to get a breakup of the INR 10,000 crore order book into various segments like heavy engineering, steel foundry, Rail EPC et cetera?

[Ashish Gupta, executive]

I think Mr. Vijay, you can.

[Operator]

This is the operator. The management line has been disconnected. Please be on hold while we quickly get them reconnected.

Ladies and gentlemen, the management line has been reconnected. Thank you, and over to you, sir.

[Ashish Gupta, executive]

Vijay ji, are your there?

[Ashok Vijay, executive]

Yes, yes. Now we got disconnected. Now we have again joined back.

[Ashish Gupta, executive]

Yes. So Edelweiss has question on the breakup of the order book. So can you please take it on?

[Ashok Vijay, executive]

Yes, yes. Hemant, I think this is your.

Order book breakup.

[Hemant Bhuwania, executive]

Order book, okay. So the total order book as on 30th June was INR 9,525 crores the breakup being heavy engineering was INR 7,900 crores. Steel foundry was INR 115 crores, Kalindee was INR 960 crores, Bright Power division was INR 350 crores, and other subsidiaries and associates are around INR 200 crores. Yes. Out of Heavy Engineering Division, the rolling stock comprises of around INR 7,700 and remaining 2,200 is hydromechanical bridges and high-tech.

[Parvez Qazi, analyst]

Sure. And -- what would be the wagon order book in this?

[Hemant Bhuwania, executive]

So that -- the rolling stock wagon order is INR 7,700 crores.

[Parvez Qazi, analyst]

And my second question is regarding our current debt status. So what would be your current gross debt?

[Hemant Bhuwania, executive]

We are having a long-term debt of around INR 135 crores and a working capital debt of INR 700 crores.

[Parvez Qazi, analyst]

Sure. And my last question is, where do we see our debt level going ahead, considering that we have a big plan of ramping up execution in?

[Ashok Vijay, executive]

Yes, I'll take this question, and I'll answer to you. Basically, on the CapEx side, we are targeting to invest close to about INR 100 crores. This funding will be done primarily from borrowing, which is we have basically already tied up some borrowings to the extent of INR 75 crores, INR 80 crores and balance will be from generation. The working up tool-wise -- we are only looking for a ramp-up of about INR 100 crores in the engineering division because we need to really now increase the production nearly to double -- as a result of this thing, there will be a big pressure on the steel and other requirements, which are all being bought in cash. So we'll be looking for an enhancement of about INR 100 crores over there. So that is where we are basically putting a break and want to restrict our borrowing to this extent only to achieve the production in respect of what we have explained to you earlier by -- from here onwards.

[Operator]

The next question comes from the line of Sandeep Sabharwal from Ask Sandeep Sabharwal.

[Sandeep Sabharwal, analyst]

Do you have your guidance for the kind of margins you'll be able to make an operating leverage you will be able to capture as the order execution picks up?

[Ashok Vijay, executive]

Let me take this question. As far as the guidelines for margin, I'm afraid, our company has a policy not going on that. But yes, I can answer your question in a manner whereby the kind of productivity, which we are talking about and the kind of production we have basically planned. The margins are bound to improve because this industry is a volume game. And the moment the volume game, our expenses are more or less constant, irrespective of what actually you are producing. .

So if you see my first quarter result, my expenses are still too high, where the production is hardly everything. So this is the basically the trend of industry, and we cannot substantially control the cost in a quarter or 2 quarters if the production goes down. So as a result of this thing, once the production picks up, which is there, which is bound to do some quarter 2 onwards, automatically, the margins will start improving about this thing. And certainly, we are hopeful that we'll end the year on a positive note.

[Sandeep Sabharwal, analyst]

What typically the payment cycle, which the railways follows?

[Ashok Vijay, executive]

Yes. I'll again come for this answer. As far as the wagons are concerned, the payment cycles are fast. You need to -- if your bills are in order and you have actually delivered the wagons to the railway as per their necessary approvals. The payment normally come not -- in anyway 7 to 10 days. Normally, in a quarter end, there can be a challenge because railways have to get the new budget allocation from the existing. But then as far as capital is concerned, it is planned. And the fund availability is always there. The issue comes in case of Rail EPC. There also fund availability is not serious challenge, but the process of bill passing is something which is -- always becomes a challenge. The process is very long, and it requires the kind of documentation, which I hope Ashish, you will be able to answer that better than me.

[Ashish Gupta, executive]

See, fortunately, our big EPC projects are with the Metro Corporations and DFC. And these are typically well funded projects. So normally, 45 to 60 days is the payment cycle that we get in the EPC business right now. And since most of these projects are not staff for funds. We currently not in the situation where we are not getting paid because funds not being available, which typically becomes a case for government contracts. So we are well placed over there. And the private sector orders also the same is not probably not.

[Sandeep Sabharwal, analyst]

And do you also have the capability to participate for these Vande Bharat Trains?

[Ashish Gupta, executive]

We are currently not in the passenger mobility business, actually. So therefore...

[Operator]

Next question comes from the line of Kaustav Bubna from BMSPL Capital.

[Kaustav Bubna, analyst]

Yes. I just had a few more questions. So -- on this private wagon order, could you give some sort of an indication on what the market size is or the business opportunity is rather for the next 2 years? So like how we know that Texmaco got a 20,000 wagon order from the public sector. Could you give some indication on -- for the full market with the -- what could the wagon order potential be for the next 2 years? And how does Texmaco -- how much market share this Texmaco aim to have here? And what's the point of all of this, if there's no wheel sets for -- if there's a shortage of wheel sets for this segment for this opportunity.

[Ashish Gupta, executive]

Yes, I'll take it you can pitch in.

[Ashok Vijay, executive]

Yes, take it you are the better equipped.

[Ashish Gupta, executive]

Yes, I will do that. See, wheel sets now that the imports have opened, we have placed the orders for imported wheel sets, and this is already price gain as far as the offers are concerned. So wheel sets November onwards would not be an issue. So that is on wheel set issue. Secondly, if you look at the type of wagons which Indian Railways is ordering. So these are typically general purpose wagons, this does not cover wagons to a containers. It does not carry -- it does not cover wagons to carry fly ash, alumina, cement, et cetera.

So that is plus -- the demand which is coming from the power sector because now if you look at NTPC is going for its own racks, big scale companies are buying their own racks now. So with this typically would be selling the general demand, I would assume that close to 2,000 wagons every year would be ordered by the private sector every year for the next few years? I'm not talking about next 2, 3 years.

And if you look at the national rail plan also, the plan is there up to 2026 and 2030, A substantial amount of wagons will have to be procured by the private sector to actually achieve their plan. And so the market will continue to grow and -- and typically, Texmaco has been getting a lion's share of this market. And we have been typically 50% plus on the customer acquisition as far as the private sector is concerned.

[Kaustav Bubna, analyst]

Okay. And what is the margin difference between private and public?

[Ashish Gupta, executive]

So that is -- Vijay ji?

[Ashok Vijay, executive]

Yes, Ashish sorry.

[Kaustav Bubna, analyst]

Yes. But -- so I was asking what is the margin differential between a private order from the private sector and the public sector?

[Ashish Gupta, executive]

I put your question in the right perspective the orders that comes with a price ratios to us? So the risk in these contracts is very, very low. So I would say the margins in the private sector orders are significantly higher. But these are also not very simple guidance to make. These are more -- I know the designs are complicated and sometimes in those reported components also. So Vijay ji, can we give some -- are we allowed to give some number on the margin.

[Ashok Vijay, executive]

To get the margin thing, but as you rightly said, the margins in respect of private wagon orders are comparatively higher than the railway order. Reason being this thing -- railway is a bulk buyer. So they generally go for a large tender where everybody is interested to participate. So margin is always under some pressure, whereas private orders go specific.

And the focus of private parties are basically go for quality manufacturers. So they don't buy from all end general manufacturers. They only buy some quality manufacturers. And moreover, since they are owning the wagons unlike the earlier days, when under LWI scheme, the wagons were owned by them only for namesake, the wagons actually were owned by railways then. And railway is only supplying them the number of wagons in respect to the rates, which they own and nothing more there. But now the private sector is owning the wagons, the same wagons are coming back to them. The same wagons is being used and life of wagon, you know is 30 to 35 years. So that's very important for them that they get a good quality wagon, whereby the cost subsequently is not much, and the downtime is not much.

Today, the maintenance is with railways. So maintenance is not a big worry to them. But certainly, still, if the downtime is there, then they are not getting that much of haulage movement for themselves. So these are the issues, whereby the people are basically very selective when the private sector comes. And as a result, you will see the maximum coverage from supplier sector always come to Texmaco historically also and presently also.

[Kaustav Bubna, analyst]

And last question, when will the revenue start coming in from this INR 6,000-odd crores government tender?

[Ashok Vijay, executive]

I already explained in my opening statement that, yes, from quarter 2 onwards, this will start.

[Operator]

[Operator Instructions]

The next question comes from the line of Manish from [ Praya ] Securities Private Limited.

[Unknown Analyst]

Just want to know, the company acquired in 2013 Kalindee Rail almost for INR 800 crores. And market cap of Texmaco rail is below INR 800 crores. Are we ashamed all of us?

[Ashok Vijay, executive]

I don't know where from you got these numbers.

[Unknown Analyst]

I know I am a shareholder of your company for number of years. Go back, check your history?

[Ashish Gupta, executive]

Numbers, which you are -- number one..

[Unknown Analyst]

I'm just telling you the market cap of Kalindee Rail, what we bought is for INR 800 crores. After 10 years, almost 10 years, the market cap of Texmaco is below INR 800 crores?

[Ashok Vijay, executive]

Manish, let me first, you must be -- your tone must be very conducive for the meeting...

[Unknown Analyst]

Absolutely. I'm too much disturbed.

[Ashok Vijay, executive]

Please listen. Number two, your information is wrong. I can't say anything more than that.

[Unknown Analyst]

Click, what do you mean by that?

[Ashok Vijay, executive]

But kindly recheck your information, recheck your data. You are making some serious mistakes somewhere in your...

[Unknown Analyst]

No, no, no, no, no. Gentlemen, what is the cost of acquisition of Kalindee Rail in our books?

[Ashok Vijay, executive]

No, that we have to refer that record is all thing, but it is not even INR 100 crores. So what.

[Unknown Analyst]

Then you have to go back. Then you have to go back. You paid INR 68 to INR 70 per share for almost INR 12 crores shares.

[Ashok Vijay, executive]

How much -- how you're talking about -- we didn't buy all the shares. We bought only a limited number of shares. So your calculation all are wrong.

[Unknown Analyst]

Okay. So we bought the company for INR 800 crores. Of course, the market -- you might not have paid the whole money, but you back bought a company with a market cap of INR 100 crores -- INR 800 crores. And today, the market covers excel, after doing rights issues and several things -- is below INR 800 crores?

[Ashok Vijay, executive]

I think this question cannot be answered by management because you are not willing to listen. So I'm sorry for that.

[Unknown Analyst]

You can explain me whatever you want?

[Ashok Vijay, executive]

I told you that your numbers are wrong.

[Unknown Analyst]

Okay agreed, agreed. So what is the status of Kalindee Rail, which we bought over a period of time?

[Ashok Vijay, executive]

Now you -- that question is over now you are coming on the status on the performance of Kalindee Rail?

[Unknown Analyst]

Yes, I agreed everything, including the --Tex rail, everything. When and how many years do you expect the shareholders of the Tex Rail will be rewarded? See, everybody is getting salary. Everybody is getting whatever they want and shareholders are left in the [ jug ].

[Ashok Vijay, executive]

Maybe that's because the shares have not performed well, you have...

[Unknown Analyst]

Because the numbers have never been there.

[Ashok Vijay, executive]

Navin Ji, this answer, I think better be taken by SKP. We cannot answer this question because...

[Unknown Analyst]

Sourav ji -- [ Sourav Poddar ]. That's perfect.

[Ashok Vijay, executive]

No, no, not Mr. Poddar. It is to be answered by Navin [ Patishia ]. He is there on the call, but your questions are very. Kalindee has not performed well over the years. We understand that. We are working on that direction. And according results are there in front of you. And it is not a the management is taking salary without working. The management people are equally concerned and bothered about this thing, and they are putting their blood into it.

[Unknown Analyst]

I don't know where the blood is getting into it.

[Ashok Vijay, executive]

Please refrain from such comments because being a shareholder, you are welcome, you are an owner part owner of the company. But please understand, we are also working sincerely diligently. All the management team is working diligently about this thing. We are working on -- improvement. And if the management feels that, yes, the team is not doing there, management will certainly keep changing the team.

[Unknown Analyst]

So let [ Patishia ji ] answer, whatever he will.

[Navin Agarwal, analyst]

Manish, this is Navin Agarwal from SKP, you can have some specific questions please take them up. In case there are some unanswered questions. I'll share my coordinates with you. You can forward them to me. I'll take it up with the management and get back to you.

[Unknown Analyst]

Okay, perfect.

[Navin Agarwal, analyst]

Yes.

[Unknown Analyst]

Yes, perfect. That's fine.

[Navin Agarwal, analyst]

So is there anything else that you have right now?

[Unknown Analyst]

Just 1 thing, how long we'll see, traditionally, I don't know how long all of you have been associated with the company. Traditionally, there's a company called, the other company Titagarh wagon, used to be below our Texmaco Rail -- Market cap of Titagarh wagon used to be always below Tex Rail and we are nowhere there.

[Navin Agarwal, analyst]

The management will be able to answer questions related to Texmaco and not Titagarh.

[Unknown Analyst]

I'm just sharing a comparison. That's all.

[Navin Agarwal, analyst]

No, no, I appreciate that. Should there's an ...

[Unknown Analyst]

I say, I think -- giving you an example, that is all.

[Navin Agarwal, analyst]

So if there's anything, please go ahead. Otherwise, you can share your concerns and queries with me, and I'll take it up with the management and get back to you.

[Unknown Analyst]

Okay fine.

[Navin Agarwal, analyst]

Thank you very much, ladies and gentlemen. That was the last question in the queue. As there are no further questions, I'd like to hand over the conference to Mr. Indrajit Mookerjee for closing remarks. Over to you, sir.

[Indrajit Mookerjee, executive]

Thank you, Navin. It's been a very challenging time for us, and I think the management is all geared up, and I would -- I'm not surprised that some of our owners, which is the shareholders could be agitated, but I think I would only make 1 request to the gentleman who was very agitated for correct reason, is that we need your help to be patient because the company is turning around. And I think we will keep on seeing much more brighter results to come from the next quarter. We had problems. We didn't produce as we wanted to. But I think as Ashish, I think, said in one of his remarks that it was a blip we see huge growth potential in our heavy engineering as well as steel foundry.

And we also see that we had certain issues and problems in our EPC business, which is Kalindee, which we are tackling and it's under -- it's getting very much under control, so that the situation would be different in quarters to come.

And the bright part is sitting with a Real Bright power because it's -- we see a tremendous amount of opportunities coming into Bright Power. So that's the -- in summary, I had -- I wanted this to be known to our shareholders because this -- the results were not very good. So we ourselves suggested that did -- be a conference to tell everyone why this blip has come in and how we -- so hopefully, we have been able to at least serve part of our purpose.

And I would like to thank all of you for your patience, not only in attending the conference -- but also, I would request you to hold on to see how we are moving and back us for our future growth. Thank you very much.

[Navin Agarwal, analyst]

Thank you, sir. On behalf of SKP Securities, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.

Thank you, and have a wonderful day.

[Ashok Vijay, executive]

Thank you.

[Ashish Gupta, executive]

Thank you.