Texmaco Rail & Engineering Ltd

NSE:TEXRAIL

Earnings Call Analysis

Significant Production Growth and Positive Outlook

The company experienced a 300% increase in wagon production with minimal investment, expecting to grow 30% in the following quarter, targeting a production of more than 1,000 wagons per month. Q3 saw 1,756 wagons produced, and a 20-25% growth is anticipated for the next year, promising a substantial revenue jump. The total order book stands at over INR 8,500 crores, with diverse contributions across segments. A reduction in interest costs by INR 30-35 crores is expected, supported by internal accruals. The demerger effective April 1, 2024, should transfer INR 200 crores of debt. Regarding Kalindee Rail, which operates at marginal profit or breakeven, unresolved claims are under recovery efforts. The company maintains a 25-30% market share with a promising tender pipeline, indicating sustained growth momentum.

Robust Wagon Production and Expected Growth

In the third quarter, the company produced 1,756 wagons, maintaining an average monthly production of over 750 units. This performance is a testament to the organization's commitment to growth and sets a positive trend for the future. Looking ahead, the company anticipates a significant increase in production, projecting around 30% growth in the upcoming quarter. This is part of a sustained growth strategy that aims to stabilize production at just over 1,000 wagons per month by mid-financial year 2025. The growth trajectory is not only a marker of operational success but also of strategic foresight, with considerations for further expansion as market conditions demand increased capacity.

Impressive Production Surge with Minimal Investment

The company achieved a remarkable feat, increasing production by over 300% without significant capital expenditure. The ensuing increase in the number of wagons produced is generating an exceedingly high rate of return. As the production surpasses 1,000 units monthly, the company plans strategic capital investments to support further growth. These investments appear poised to enhance production capabilities to achieve the 30% growth target they have set for themselves and potentially even exceed it, further improving the return on investment.

Expansion in Steel Foundry Output

In the steel foundry division, the company reported a production of around 10,500 metric tons in the third quarter, with production totaling around 30,600 metric tons over nine months. The company conveyed optimism with the announcement of continued growth in this sector in the ensuing quarters, starting with the immediate next quarter. This not only assures investors of the company's manufacturing capabilities but also its potential to capitalize on increasing market demand for its products.

Diversified and Substantial Order Book

The company's order book is indicative of its strong market position, with a total of over INR 8,500 crores. This order book is diversified across different sectors, including freight car production at INR 5,750 crores, infrastructure and green energy at INR 1,100 crores, rail electrification at INR 900 crores, the steel foundry at INR 325 crores, and joint ventures and other subsidiaries at INR 425 crores. The order book composition not only reflects the company's multi-faceted operational capabilities but also underscores the confidence that customers across these sectors have in the company's ability to deliver.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the Texmaco Rail & Engineering Limited Q3 FY '24 Earnings Conference Call hosted by Nuvama Group. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Parvez Akhtar Qazi from Nuvama Group. Thank you, and over to you, sir.

[Parvez Qazi, analyst]

Good morning, friends. On behalf of the Nuvama Group, I welcome you all to the Q3 FY '24 Conference Call of Texmaco Rail & Engineering.

Today, we have with us from the management side Mr. Indrajit Mookerjee, Executive Director and Vice Chairman of the company; Mr. Sudipta Mukherjee, Managing Director of the company; and Mr. Hemant Bhuwania, Chief Financial Officer of Texmaco Rail.

I would now hand over the call to the management for their opening remarks. Over to you, sir.

[Indrajit Mookerjee, executive]

Parvez, this is Indrajit Mookerjee. Good morning, and I wish to welcome all our well-wishers and the investors for this call. I also would like to thank you for sparing your time to discuss business with us. I also would like to admit that you all are our very valuable partners and all our inspirations on business come from all of you, and we would be very happy if we can satisfy or if we can meet your expectations. We continuously try to do the same thing.

So we had a quarter, which we ended on -- our quarter that ended on December 2023. So we had a Board meeting, which -- in which our unaudited results were cleared by the Board of Directors. And as you would see, because we have already published the results in the national dailies as well as we informed the stock exchange, that you would see that we have an increased growth on the sales turnover by somewhere at about 12% and the profit before tax has gone up to the extent of about 45%, 50%.

Now I'm happy to report that these all happened because of -- firstly, because we touched -- report productions of wagons is the best ever that we had seen in the recent past from our multiple workshops, multiple manufacturing facilities, which we have in Kolkata.

We also have been able to work on the cost. Of course, the cost reduction is an ongoing exercise. So I think the first touch of it and the first reflection of it is also coming up in our financial results.

In addition to our QIP, which allowed us to raise fund, and that made us to retire about INR 200 crores of high-cost debt. So that's -- I must also admit that the impact of that cost reduction isn't too high in this quarter because our QIP process was finished only in the end of December. So the impact that we got is only for 1 month, that is for the month of January.

So this is what as we have done now, and I think I should spend a little more time in looking at the future as we see before I would request my esteemed colleagues to chip in and say their views and answer to the various queries.

I think the future looks very good. And if you look at the macro level, the investment in the rail segment is somewhere close to about INR 2.4 lakhs crore, that has been the investment budgeted. And I think about very large amount of that is getting invested, which is a very good news that the -- whatever the government of India and the Ministry of Railway have announced or allocated as budget and it is getting invested, which really means that capital is getting formed in the -- and that's a very good sign for us.

The second thing that we see that this is going to continue in order to keep pace with the growth of GDP target that the country has. Now out of this INR 2.4 lakhs, which is the yearly budget for the whole year that the railways are allocated to -- for Indian Railway, a substantial portion is coming in the zone or in the domain where we operate. So it's a question of really making it to operate with skills, with efficiency and with also effectiveness.

So we promised during our last call as well as when we had gone to our investors in December that we have a strategy, which has got two prongs. One is the strategy on the short and medium term. In the short and medium term, we have decided that we should like to get the best value, extract the best value out of the places, out of the areas where our competencies are the best.

When I say this, I would say that Texmaco has been in operations for the last 70 years, making wagons for the last 70 years. And we know that our -- we have very strong competencies in building of wagons, in the design, in the development for newer generations of wagons. So we decided that we'll concentrate. We'll concentrate on where we excel.

But then this also give rise to other benefits. And these benefits are if you want to make wagons, you need lots of components. For example, we need the foundry, the casting items. We need other mechanical components. So we decided that we should be moving into this area and deep dive to get the best value out of our foundry. So we expanded our foundry capacity marginally. And we also -- marginally, we bought whatever was possible to debottleneck our foundry operations. We have gone up our capacity by 20%.

We also are very strongly looking at the other component business, which could be for India as well as it could be for exports. So that's a new strategic business unit has been formed, which is going to look after only the components, and we see the future to be excellently good.

So this is what we are -- we have decided to do as far as the immediate, medium-term exercise because we strongly believe that the allocations on freight movement will keep on going up. This budget is one of the points here, which I've said the 3 most dedicated freight corridors are going to come up. And when that comes up, you need more wagons. And now you need wagons -- advanced wagons, the wagons, which can carry more load, which can reduce the carbon footprint. And I'm happy to say that we are very strongly we have revamped our design and development group to work in this direction.

And I could also say that we are talking to some of the international players also to see how we could improve our wagon designs and cost of manufacturing, et cetera. So that's the medium term.

In the longer term, as you would see that out of this INR 2.4 lakhs crore, which is the allocated budget, a substantial part of it is going for commuter mobility, which is really the mobility of the passenger movements, be it [indiscernible], be it other transportation in terms of metro or the light metro, which has been announced in this yesterday's budget. There has been an indication of that from Honorable Finance Minister's speech.

So with all this together, we feel that that's an area which cannot be left behind. But we want to move to that area having been properly prepared. We just don't want to be a player just going in without bringing in much value.

So some actions are also going on in this direction. And hopefully, by -- I would be -- or our team will be very happy to announce to you that in course of time our entry plan into the commuter mobility.

Having said this, I once again would like to thank all our investors who have had belief in us, who have had trust in us to make us to grow. And I must say that you are the inspiration based on which we work.

With this, I would like to hand over to the team, which is Sudipta, who's our -- whom we are very happy to have, Sudipta. He comes with a wealth of knowledge in the industry, in the freight car industry; and also with Hemant Bhuwania, who is our energetic CFO. I think one of the youngest CFOs that Texmaco ever had. And that's usefulness of ours and our instantaneous responses, I think, will -- I strongly believe will take us forward. Thank you very much.

May I now open the forum for questions. Any questions that comes to your mind, we will try to be honest. We have always been honest to this point. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of [ Piyush Bora ] from [ Samba Investments ].

[Unknown Analyst]

First of all, thank you so much for the good set of numbers. I have three questions. Now as per the deviation report, working capital requirement was INR 250 crore. Does -- the interesting, this amount, will reduce your short-term borrowing? This is my first question.

[Sudipta Mukherjee, executive]

Yes. So to reply to this, yes, you are absolutely right. While we were on those, we had committed that our working capital requirement would be INR 250 crores and INR 250 crores would be for high-cost debt -- reduction of high-cost debt, INR 100 crores was for CapEx and INR 150 crores was more general corporate purpose.

So we need to make a statement that as of December, INR 200 crores of high-cost borrowing has already been paid and the balance, INR 50 crores, if you -- as on date has already been cleared. So the commitment of INR 250 crores we have honored.

Out of the working capital required INR 250 crores, we have -- around -- till date around INR 180 crores for reduction in creditors, inventory and making the working capital more smooth. And the balance amount is still lying with us.

[Unknown Analyst]

Okay. And could you please give the breakup for general corporate purpose amount of INR 132 crores? What is going to cover under that?

[Sudipta Mukherjee, executive]

So as we told earlier that this general corporate purpose would be primarily for investment in our joint venture companies. We have 3 joint venture companies, Touax, Nymburk and Wabtec. And this apart, there might be some ups and downs in CapEx on working capital. So we have kept [ a fund ] for that.

[Unknown Analyst]

Okay, okay. That's good. Now my second question is regarding your Hindalco JV. Could you please put some light on that because I have read this in our annual report, and the same is that I also have available in Hindalco. Hindalco, I guess, I have the corporate announcement for that, but we don't have any. That's why could you please throw some light on that.

[Sudipta Mukherjee, executive]

This is Sudipta here. So this was -- this understanding was done for co-promoting new technology wagons, and of course, also for the passenger mobility, how to introduce aluminum and how to have eco-friendly solutions around. So being said so, these are -- it's required that an ecosystem to be built in and both the companies are working together. So in a suitable time, you will get to know. It is too early to comment on that, that exactly when it can be launched, but the work is on.

[Unknown Analyst]

So do you have any number of total market for that?

[Sudipta Mukherjee, executive]

I'm sorry, I do not have any numbers to have that, but I can give you a premise that on which we are -- we thought of doing this and what is the relevance of it. If you see that with the growth trajectory of bringing down the logistic cost through railways, and railway is also looking for new technology wagons where the pay-to-tare ratio of the freight rolling stock is better and it is upgraded than we -- than what we have today because normally majority of the rolling stocks were historically of mined steel.

And then we introduced some rolling stocks with stainless steel, and of course, aluminum may be a very good solution in certain product-specific transportation. And of course, as you know, the life cycle cost would be much lesser. So it is more on a futuristic kind of a technology [ steel ], which we are looking into through this understanding in the freight as well as in the passenger mobility.

[Operator]

The next question is from Rahul Jain from JM Financial.

[Rahul Jain, analyst]

Am I audible? Hello?

[Sudipta Mukherjee, executive]

Yes, Rahul.

[Rahul Jain, analyst]

Sir, congratulations on a good set of numbers. I have a few questions. So my first one will be what is the scope of work...

[Sudipta Mukherjee, executive]

Speak louder, Rahul. Rahul, if you can be a bit loud, please.

[Rahul Jain, analyst]

Yes. This is perfect?

[Sudipta Mukherjee, executive]

Yes, yes. Perfect.

[Rahul Jain, analyst]

Yes, yes. So sir, my first question will be what is the scope of work in passenger rail side do we do? And what can be the opportunity for us on this passenger side? And again, what are the long-term plan for this business?

[Sudipta Mukherjee, executive]

So to answer you straight that, yes, the company is actively considering. But for us, the thought process is more into the -- enter into the ecosystem of this first because there is a huge growth and huge traction towards the growth of the passenger mobility.

But if you say that our understanding is that we are largely dependent on global supply chain, which may not be in real terms in a proper ratio in terms of the requirement of the rolling stocks. So our focus would be primarily to enter into that segment first. And gradually, of course, we have certain understanding with few global majors also. So we will wait for the suitable time to be get there.

[Indrajit Mookerjee, executive]

Can I just chip in Sudipta, if you allow me? Rahul, this is Indrajit Mookerjee. I -- we are taking a very systematic disciplined approach towards our migration or towards diversifying our business to passenger mobility. So in this, there are a few elements, which are essential for bringing value to this. And these elements are in bits and pieces.

For example, we need to do certain things on engineering, electronics, car body, shelves, et cetera, et cetera. And we have the general competency. We want -- we are -- at this point of time, are developing our specific competencies in these areas. And that's what we are doing right now.

Now once we do that, we, ourselves, will attract the global companies to come to us. Instead of we go and approaching them, they'll come to us because everyone in this world knows that, in the passenger mobility, that India's investment is one of the largest in the world, which could run into something like, I would reckon, will be in the range of INR 1.5 lakhs crores, which in some terms I can say it's something like 20, 30x the GDP of some countries.

So people -- all the global vendors, whoever are not present, are interested, they also tell us. But in order to make them to be more attractive, we are looking at these elements. And that's why Sudipta had mentioned that this disciplined approach is not an [ ominous ] process. We will come to a conclusion and we'll tie up things quite quickly. And we definitely will keep our investors informed of that. And that's the time we will be ready for entry because I think there are lots of rooms for more players to come and play.

But we have to play profitably. So that's what -- we don't want to get to a situation without -- with a doubt that we may not make sufficient money because return on investment is something, which is #1 in our mind.

[Rahul Jain, analyst]

Sure, sir. So what I collect is that whatever you do on the passenger side will be more with a global tie-ups, what usually happens in the industry so that the things are readily available. Is my understanding correct?

[Indrajit Mookerjee, executive]

To some extent, correct, because we also need global support. Otherwise, there is a -- the vendors will not simply buy someone to make metro chains who doesn't have experience. So obviously, there will be certain qualifications, there are certain amount of requirements in the qualifications from the buyer side and we have to satisfy this. And that's the reason I mentioned that we decided to move with all the arms and ammunition in our possession, so that we will be one of the suppliers of choice to the vendors.

I'm sorry. I've been wrong here. I didn't mean vendors, I meant customers.

[Rahul Jain, analyst]

Customers, yes. Sir, my second question will be, so after paying off the debt and also utilizing working capital money from QIP, how much interest cost should we expect in Q4 as well as full year of FY '25?

[Hemant Bhuwania, executive]

So Rahul, you see, we will be -- in this year, financial year '24, we'll be repaying the total debt -- high-cost debt of INR 250 crores as was committed. And this was borrowed at somewhere around 12% to 14% interest. So on an average, you see that there would be a net saving of around INR 30 crores to INR 35 crores in terms of interest finance costs next financial year.

[Rahul Jain, analyst]

So total INR 30 crores, INR 35 crores interest cost will be there, right?

[Hemant Bhuwania, executive]

Finance cost, yes. Savings in account of finance cost.

[Rahul Jain, analyst]

Okay. Sir, my third question is, can you give how much -- how many wagons did we produce in Q3? And what was the peak production during the quarter or till date? And also, what is the production target for Q4 and the coming year, that is FY '25?

[Sudipta Mukherjee, executive]

To answer you, Rahul, Q3, we produced 1,756 number of wagons. And we had 750 wagons plus in a typical month-to-month basis, what we committed earlier also. And in the coming quarter, I mean, you can expect a growth of around 30% on the wagon production. And this trajectory of growth will, of course, continue to the extent anything beyond 1,000 per month.

[Rahul Jain, analyst]

So that will happen by mid-FY '25, that can be expected?

[Sudipta Mukherjee, executive]

Yes, of course. I think that -- I repeat that in the next quarter also, you can find minimum 30% growth over and above what we have done last. And this momentum will go till it stabilizes or -- in and around a little more than 1,000.

[Rahul Jain, analyst]

Fantastic, sir.

[Sudipta Mukherjee, executive]

And we are also -- just to ensure you -- assure you that we are also not stopping there. We are looking beyond.

[Indrajit Mookerjee, executive]

One more thing, I think, Rahul, Indrajit Mookerjee, I'm saying that you would be happy to know that the production in the company has gone up by more than 300% with very marginal investment. So the incremental wagons are giving phenomenal rate of return.

I'm sure we'll come to a point where we need to increase our capacity. But as Sudipta has said that we see very clearly, through proper manufacturing process, bringing in technology and manufacturing, we are seeing ourselves to growing at that rapid rate, as Sudipta has said. Well, there will be a point when we have to think of increased capacity if the market remains buoyant.

[Rahul Jain, analyst]

Sure, sir. So what I understand is that once we crossed 1,000 wagons per month of production, that is where you will start doing additional CapEx. Right now, whatever was happening was with the minimal CapEx. Is my understanding correct?

[Sudipta Mukherjee, executive]

Rahul, what -- I just -- you are very right, but we are just -- I'm interested to put it in other way around, that we thought that we'll definitely need CapEx to go beyond anything, which we are producing in the 1,700, 1,800 third quarter this time.

But without waiting for the CapEx, we have been able to do further few engineering. And we are confident of achieving, during the course of introduction of that CapEx to reach to that kind of a growth of 30% or even more. So -- which is actually what Mr. Indrajit Mookerjee wanted to mention that the return on this growth would be much higher. And maybe after putting those CapEx since, our capacity would be much more beyond 1,000.

[Rahul Jain, analyst]

Sure, sure, sir. Sir, my next question will be how much ton of production happened from the Steel Foundry in Q3, if you can give that number which you usually give?

[Sudipta Mukherjee, executive]

Yes. So Q3, I mean, we produced around 10,500 metric tons. And in 9 months, the production was around 30,600 metric tons. And we are also happy to let you know this will also grow in the coming quarters and from the immediate next quarter itself.

[Rahul Jain, analyst]

Okay. Sir, last question is can you give the order book breakup -- the overall order book breakup?

[Hemant Bhuwania, executive]

Yes. Sure, Rahul. So the total order book stands at INR 8,500 crores-plus as of date, of which freight car would be somewhere around INR 5,750 crores. Infra and green energy would be INR 1,100 crores. Rail electrification, INR 900 crores. Steel Foundry, INR 325 crores. Joint venture and other subsidiaries, INR 425 crores.

[Rahul Jain, analyst]

What was the last number, JV?

[Hemant Bhuwania, executive]

Joint venture and other subsidiaries.

[Rahul Jain, analyst]

How much was that?

[Hemant Bhuwania, executive]

INR 425 crores.

[Rahul Jain, analyst]

INR 425 crores.

[Operator]

The next question is from the line of Balasubramanian from Arihant Capital.

[Balasubramanian A, analyst]

Congratulations for good set of numbers. My first question is regarding like what would be the mix of private and [ R&G ] wagons in this quarter, sir?

[Sudipta Mukherjee, executive]

So we've produced around 400 wagons of private and around 1,360 of around railway wagons.

[Balasubramanian A, analyst]

Okay, sir. Sir, on the export side, like we have in a lot of traction from African countries and especially in the U.S., Australian and the African countries. So like what is our export share in this quarter? And are we getting any traction in those countries?

[Sudipta Mukherjee, executive]

Yes, absolutely. And we already have in -- I mean we are supplying -- started manufacturing to -- wagons to supply to this library. And from the next quarter, we will see that the dispatches are on. And I mean, at least 3 to 4 more opportunities are of active discussion.

And we hope that by the time we finish those by next September, so we will have more indeed. And last quarter, we exported to [indiscernible].

[Balasubramanian A, analyst]

Okay, sir. Sir, in this INR 100 crore CapEx specifically, like for what and when the CapEx will be completed. And I have seen that document like for repayment of debt and working capital, the funds has been utilized to more than INR 180 crore on each. But on the CapEx side, it's been not utilized till now.

[Sudipta Mukherjee, executive]

So I will hand it over to Hemant, but as -- you have to understand that our fundraising, the whole process was completed in the month of December already and we are talking in January. So it was not possible for us to exhaust demand within the short span of time. And we break up and all these, I think, [ level playing ] field.

[Hemant Bhuwania, executive]

So Bala, over here, yes, you're right, INR 100 crores of fund was raised through CapEx, for not -- through CapEx, was raised for CapEx, of which there have been certain commitments already made. However, the outflow of the fund has not happened as of now. As and when the purchase order terms are being made mature, the payments will be made.

So we are firm on this INR 100 crores and this -- we expect that, yes, within this year, this CapEx of INR 100 crores will be met.

[Balasubramanian A, analyst]

Got it.

[Indrajit Mookerjee, executive]

Bala, this is Mookerjee. To clarify on certain export -- on certain export query that you raised, so -- but did you ask -- you asked some questions on exports, is that right?

[Balasubramanian A, analyst]

Exports like -- regarding like U.S., Australia and African countries, like what are the tractions you are taking?

[Indrajit Mookerjee, executive]

Yes. I think very comprehensively with Sudipta Mukherjee, our Managing Director, mentioned to you, but I just would like to add one more point on top of that, I think it's important. This -- I don't know whether you are aware, but Texmaco has a joint venture with a wagon manufacturing company from Czech Republic, and that happens to be one of the topmost manufacturers of Europe. And we are building a wagon manufacturing plant under a joint venture with them.

The purpose -- one of the purposes of the joint venture is to access the European market. So I expect strong participation of our wagons as well as our wagon components in the European market. So that is going to boost up the export further and also on firmer footing. So there will be some buyback by them.

So I think by 2025, this will start getting reflected because this is the time required for building up the factory. So I thought I'll just keep this for knowledge of all our investors.

[Balasubramanian A, analyst]

Got it, sir. Got it. Sir, is there any like what or capacity utilization in range on Steel Foundry and wagon plant? And another thing, so like on the capital utilization levels on our Steel Foundry and that wagon plant? And are we facing any supply chain issues, which has happened earlier?

[Sudipta Mukherjee, executive]

Capacity utilization of the foundry, I will come to you that we are in the level of 85% or 90% of that. And of course, we are doing certain more upgradations to increase the upper limit.

And in terms of wagon, we still feel that we can do further better from whatever we have in terms of infrastructure available with, again, little engineering into it, putting engineering and -- I mean, engineering a different way.

So for wagon, I cannot say that what is the percentage because it is ever growing. And we feel that further capacity of around, say, at least 40% can be increased from the existing one, which we are, of course, doing and working upon.

And in terms of -- I mean, this is on a continuous focus that we can improve further from the existing one. And if required, we will also look there. Have I been able to answer you? Or you have any point to mention? Hello, Bala, you are there?

[Balasubramanian A, analyst]

Yes, sir. Yes, sir. Sir, my next question regarding our supply chain, especially on the wheel set side. Like earlier, if you look at 10 to 12 months back, not only our company, the whole industry is facing the issues for wheel sets. Right now, what are the scenarios on that wheel set side and the supply chain side?

[Sudipta Mukherjee, executive]

So Bala, wheel set has improved a lot because the railway factory has increased their production in terms of the requirement of railways are concerned. And for private sector, wheel sets, it gets always improvement. And we don't find any that of wheel sets at least.

On the other components, of course, while we were having the business, I cannot comment what others are doing. But Texmaco had a very strong focus and the proper planning for backward integration of various items and components, which we developed for our own use as well as also for the market. So -- I mean we have been able to manage it in that way. It's not been a struggle for us, and we don't find it an immediate problem for us in the coming days in the level which we have committed to you.

[Balasubramanian A, analyst]

Any plan in future to enter into wheel sets manufacturing, sir? Wheel sets manufacturing and the component?

[Sudipta Mukherjee, executive]

If the opportunity arises, definitely we'll look into it. But at the end of the day, it has to -- I mean we have to always keep a focus. As Mr. Mookerjee has emphasized also, that we need to have all money and it should not be on a knee-jerk reaction. Many things, which sounds very good and it's very good for the optics, but we're into the business and we have to remain in business.

So if it is commensurate-ing the capacity we require and there are abundance, so there is no point to get into a business. I'm not talking specific, I'm talking in general. So if that situation arises, definitely we'll look into it. It's in the record.

[Operator]

Next question is [ Jana Visha ] from Ventura Securities.

[Unknown Analyst]

Am I audible?

[Operator]

Yes, sir.

[Sudipta Mukherjee, executive]

Yes, please.

[Unknown Analyst]

So I have only one question, but it was mainly regarding as the FM -- Finance Ministry has said that 40,000 rail bogies are to be converted to the Vande Bharat standards, and they'll be used for the Vande Bharat trains. So are there any implications or anything that we would be having or the manufacturing or anything that could benefit like the refurbishing and could help us?

[Indrajit Mookerjee, executive]

It's a very, very interesting question. And I must compliment you for, right on top of it, I think you may have thought before us. So we are interested.

[Unknown Analyst]

Okay. So we have -- like we have the bandwidth to just refurbish and so probably...

[Indrajit Mookerjee, executive]

We have been thinking of it even before the budget pronouncement to increase our, as again, I said our value addition. So we are in the process, but I think it's too premature to see what we are doing right now.

But as an investor, I would like you to see and feel satisfied thinking that this is very much in our strong focus to build our competencies to move in this direction.

[Operator]

The next question is from Mohit Kumar from ICICI Securities. There seems to be no response from the line of Mr. Mohit Kumar.

We'll move to the next question. [Operator Instructions] Next is from Ankit Babel from Subhkam Ventures.

[Ankit Babel, analyst]

A few questions from my side. Sir, your operating margins are still shy of this double-digit mark. So once you reach the 1,000 wagons-per-month mark, what could be your operating margins?

[Hemant Bhuwania, executive]

So Ankit, we cannot commit or comment on the forward-looking statement. But our guidance, if you see while we were on the road, we had given certain guidance to the investor. So whatever we had committed, I think we will be achieving that.

So we have -- so yes, you say operating margin requires a lot of improvement. We are working on that. And definitely, going forward, you will see a much improved number in terms of margin -- operating margin.

[Indrajit Mookerjee, executive]

So Ankit, you also must have seen some improvement already in this quarter. So I hope that this will continue.

[Ankit Babel, analyst]

Okay. And sir, 30% growth in wagon production in Q4. Now I understand it is on the base of Q3, which was 1,756. On this base, you are expecting a 30% growth, right?

[Sudipta Mukherjee, executive]

Yes, I just indicated a growth, Ankit, for better understanding.

[Ankit Babel, analyst]

Pardon?

[Sudipta Mukherjee, executive]

Yes, it is on the last quarter.

[Ankit Babel, analyst]

So you are expecting somewhere around...

[Sudipta Mukherjee, executive]

Last quarter, I indicated a figure that you can expect.

[Ankit Babel, analyst]

So around 2,250 to 2,300 wagons is your target for the current quarter, that is the Q4, approx?

[Sudipta Mukherjee, executive]

We are planning on that, Ankit. You are right.

[Ankit Babel, analyst]

Okay. Okay. and sir, with repayment of high cost that you believe your interest costs will come down by INR 30 crores, INR 35 crores in FY '25, right?

[Hemant Bhuwania, executive]

Yes, absolutely, Ankit.

[Ankit Babel, analyst]

So the current run rate is around INR 35 crores on a quarterly basis, which is around INR 140 crores. So is it fair to assume that your interest cost would be around INR 100 crores next year even at a higher top line?

[Hemant Bhuwania, executive]

Yes. Absolutely, yes. This reduction of interest cost will definitely help us in improving our bottom line. And the number what we have told, a reduction of INR 30 crores, INR 35 crores, that should definitely happen.

[Ankit Babel, analyst]

No. My -- I had one more question and this was that the incremental growth, which you would be witnessing in your revenues, the working capital requirements for that would be from internal accruals? Or you'll increase your debt, I mean?

[Hemant Bhuwania, executive]

That would be from the internal accruals expense.

[Ankit Babel, analyst]

Internal accruals expense, okay. And sir, from 1st of April, the demerger of Kalindee would be there, right?

[Hemant Bhuwania, executive]

So effective date is 1st of April. However, if you see the BSE, [ the dedicated ] stock exchange, has sent a scheme along with all the documents to SEBI for its approval. And SEBI generally takes 2 to 3 weeks' time for its approval.

In the meantime, we have started approaching the lenders also for the NOC. So once we get a clearance on JV and the lenders, we approach NCLT. And we expect that by mid of next financial year, the demergers would happen, but effective date, the 1st of April 2024.

[Ankit Babel, analyst]

And once the demerger will happen, around how much debt it will take away from the balance sheet?

[Hemant Bhuwania, executive]

So that would be around INR 200 crores.

[Ankit Babel, analyst]

INR 200 crores that will go away. Okay, okay. And what would be the top line of Kalindee for this year -- this full year?

[Hemant Bhuwania, executive]

So we will not be able to comment on the full year. For the quarter ended, we can -- for the 9 months, we can tell. Company [indiscernible] was something around INR 360 crores.

[Ankit Babel, analyst]

And the profitability?

[Hemant Bhuwania, executive]

So they are at a breakeven or at a marginal profit. So they are not making money over there.

[Ankit Babel, analyst]

So basically...

[Indrajit Mookerjee, executive]

You mentioned about the pending claims.

[Ankit Babel, analyst]

So once this -- so basically Kalindee top line is also putting some pressure on your margins on an overall...

[Hemant Bhuwania, executive]

Ankit, can you be a bit loud, please?

[Ankit Babel, analyst]

So this Kalindee rail has lower margins and that could be one of the reasons why our overall margins are lower. So once this goes away, your margins will go up.

[Indrajit Mookerjee, executive]

Yes. Actually, I also want to -- sometimes some things, which do not come to our eyes all the time. You would see that the reason why Kalindee's margin has come down is because there are lots of additional work has been done by Kalindee for which we have not been paid. So these are all according to accumulated to the recoverable claim from the customer.

And as you know, the claim process in India is a very sluggish process. So we have a dedicated agency now working with us to recover the claims as quickly as possible under the practical circumstances. So if you would look at the notional claims, the financial numbers will look different.

[Ankit Babel, analyst]

Okay. And sir, my last question is, you did mention that you are targeting 1,000-wagon per month mark maybe from the Q1 onwards and you also expect it to accelerate from here also. So based on your order book and the execution time lines, so for next year, what are your plannings as compared -- I mean, as far as the production of wagons -- or the volume of wagon is concerned for the full year? I mean, can it be like 12,000, 13,000 wagons or more or what?

[Hemant Bhuwania, executive]

So Ankit, you see in this year -- in this quarter, we did around 1,756 wagons. This year, as we told that, yes, we expect a certain growth or what the numbers we told will be somewhere between that. And further from that number also, we expect a growth of around 20%, 15% from there.

So yes, next year, if you see -- or a collective from a 12-month basis that we will have a much improved number what we have shown in 9 months.

So yes, to answer to your question, there would be a substantial jump in terms of revenue.

[Indrajit Mookerjee, executive]

And possibly, there we will taper out with our manufacturing capacity. And then beyond that, we have to do that, that is for FY '26, we have to look at, depending on the market situation, we have to somewhat assess whether we need to go up on our capacity. Maybe we'll have to build looking at delivering our budget outlook. So for our present capacity, I think we'll squeeze out the best by next year.

[Ankit Babel, analyst]

Okay. Sorry, sir, just one more additional question. What kind of inflows you are expecting in FY '25? Order inflows from the wagon side?

[Sudipta Mukherjee, executive]

So I mean we have been typically holding our take around 25% to 30% of the market. And we feel that there will uptick of margins of around -- of import -- tenders 30,000 -- 25,000 to 30,000 more tenders should come. So already another 12,000 is on the horizon other than the 10,000 advanced wagon, and we believe the tender 20,000 should come in a couple of months.

So we will definitely [ build ] that thing. Other than the private, our focus would be on the private market more other than the railway continuous -- our shareholding in the railways.

[Ankit Babel, analyst]

So why I was asking this question was that if you execute some 12,000, 13,000 wagons next year and for further growth in FY '26, you need at least 15,000, 16,000 worth of wagons as inflows in this year. So do you have -- this year means FY '25. So do you have that kind of a visibility?

[Sudipta Mukherjee, executive]

We have a visibility, but already, I would just try to correct you a bit on the other thing. As I said that we will focus on private more. And if you see from the order-to-conversion ratio, it is only a lead time of 6 months on an average, okay? So I don't have around 18 months -- I mean, around 18 to 19 months order book in this thing -- I mean performance rate in which I'm performing including the growth.

So private wagons will keep on coming in every month or every quarter. And when the tender will come, I feel that we will be very comfortable for the current...

[Ankit Babel, analyst]

So sir, I am talking about cumulative. I mean, private plus tender-based wagons, in totality, somewhere around 15,000, 16,000 wagons. Do you have that visibility?

[Sudipta Mukherjee, executive]

Whether we will get 15,000 or 20,000 because if railway comes up with an order of 20,000, 30,000, I cannot comment 15,000 wagon order we will get. I say that we will continue to maintain because it is always a progress. Even now, it's a long-term contract. The last order, which we have received of 3,400 wagons also. So that is also over a period of 18 months.

So whatever will be progressively coming in, I said that we will definitely always maintain a 25% to 30% stake in the railway vendors. And of course, we'll add more to fill up our market towards the private customers and exports.

[Indrajit Mookerjee, executive]

The private market is very broad.

[Sudipta Mukherjee, executive]

We expect we'll be -- we expect with the declaration of these corridors by the Honorable Finance Minister, there will be a big boost in the private procurement.

[Operator]

The next question is from [ Ayush Jain ] who's an individual investor.

We move to the next question. Next question is from Mehul Mehta from Nuvama PCG.

[Mehul Mehta, analyst]

My first question is with regard to capital employed, if I look at. In terms of Q-o-Q, there has been wagons business that is almost 4x increase. And in terms of Steel Foundry, there is about near double-digit like 13% growth despite like a single-digit growth in terms of revenue. So what would have led to this capital employed growth?

[Hemant Bhuwania, executive]

Can you please repeat the question?

[Mehul Mehta, analyst]

Yes. So what I want to know is that if I look at capital employed in segment-wise, in terms of wagon business, there has been 4x increase in capital employed Q-o-Q. So in quarter 3 FY '24 over quarter 2 FY '24. And even in Steel Foundry business, there is double digit, like a 13% increase Q-o-Q in capital employed, despite like a revenue growth being in single digit. So what would have led to this capital employed growth? That is my question.

[Hemant Bhuwania, executive]

Mehul, the main -- capital employed, yes. It has gone in mainly because of the reason that we had paid high-cost debt for our heavy-engineering Steel Foundry business that has led to more and more of our, what do you say, INR 300 crores of capital employed.

Secondly, if you see in Steel Foundry also, there has been certain CapEx that we have done this year, Steel Foundry as well as in freight cars. So that has also led to an increase in the segmental assets and the net -- what do you say, the capital employed.

[Indrajit Mookerjee, executive]

So I think the results of the capital progression, which is taking place and giving results out of it, there is a lag.

[Mehul Mehta, analyst]

Apologize to repeat the question. But like when you are saying repaying off like debt, despite that, there is 4x increase in capital employed, I'm not getting to understand. Because when you are repaying, then like capital employed goes out. So hope my question is correct.

[Hemant Bhuwania, executive]

So you see the segmental liabilities. If you see quarter-on-quarter, my liability was INR 1,200 crores for heavy engineering, which has come to INR 950 crores. And similarly, you see in my capital -- the segmental liability, which was INR 161 crores. For Steel Foundry has come to INR 111 crores. So this is primarily on account of reduction in my trade payables and reduction in my volume cost.

[Mehul Mehta, analyst]

Okay. Okay. My second question is with regard to export business, how would it have been -- like, say, for the quarter, export and domestic business revenue like breakup in terms of quarter 3 and 9 months.

[Hemant Bhuwania, executive]

Out of this 10, 000 I can take in the quarter, the figure is not yet ready here. I mean, in terms of the foundry that in the last quarter [indiscernible] we passed around 10,500 metric tons. So of that, it was 2,500 would be around our export. And in the wagons, I think was around 25 wagons, which was exported in the last quarter to [indiscernible] out of 1,756.

[Operator]

Next question is from Mohit Kumar from ICICI Securities.

[Mohit Kumar, analyst]

Congratulations on a very good set of numbers. Sir, my first question is you did mention about you are expecting your wagon tenders in the next 6 to 12 months. But I understand that there is another tender, which is 20,000 wagon, which is we expect it to be closed in March.

Do you think that the tender is on time and it will get closed in this particular quarter? Or do you think it will get delayed? And do we have the product -- do we have the capability to participate in this particular tender?

[Sudipta Mukherjee, executive]

We have -- I will come to your last question first that we have definitely the capability to participate in this tender. We definitely have the capacity to produce further wagons.

And I can't speak, Mohit, on behalf of our esteemed customers that whether it can be delayed or not. But apparently, looking on the various procurement requirements, which is coming up, I can share my belief that I strongly believe it is as per a long-term plan, which Indian Ministry had and it is here to sustain for another 5 to -- 7 to 8 years, minimum with the same consistency, if not more. So I do not find any extraordinary reasons, which I cannot speculate, that it can delay the requirement.

[Mohit Kumar, analyst]

Understood, sir. My second question is, of course, we closed the tender in this particular quarter. Why was there under subscription in the last tender in the sense of [ up to ] 20,000 wagon. They only come only -- they completed only 11,000 wagons. And how was the competitive intensity in this particular tender?

[Sudipta Mukherjee, executive]

Yes. So railway is now coming up with all these tenders where they do not go by your historical capacity, what was [ accessed earlier ] for a manufacturer. They give you the opportunity to quote that during the -- I mean, in the given time of the procurement cycle or the delivery period has been stipulated in a contract, they -- I mean they give the manufacture an option that how much it will be able to deliver.

So it is based on those declarations. They could complete that 10,000-plus wagons and the balance were kept on adding. And we expect that it will be -- tender will be coming very soon. So that was the reason.

[Mohit Kumar, analyst]

So given the fact that we have the same set of people who are participating in the tenders and all this capacity is full, does it mean that the new tenders will come -- it will not come for delivery for FY '25 and '26? It will come for FY '27? Because given that I think this tender, the delivery time line was FY '25, '26.

[Sudipta Mukherjee, executive]

It is difficult to speculate. I don't believe -- I believe there are enough capacity for the wagon -- I mean in wagon-building capacity in the country. And I believe that -- I mean, many are working even around it.

It is a matter of choice and the moment. When you did not have a choice, then you go for it. But when you know that there are multiple things coming in, you are also having the opportunity to weigh your strategy, that whether you want to come in or you don't want to come in.

So I can give you an example. I mean, a few weeks before, there were 1,000 wagons tendered, 500, 500, and which was not a regular type of wagon. And the delivery period of that were for 6 months. So people who have felt that, yes, we can do, they opted for this. People who have felt that we do not want to, they have not opted for it.

It's not a loss in a way. It's a calculated risk every time you get into a contract. So you need to weigh your ways and means, what you can digest whether you are affording to take a lead.

So we are very clear and focused in our approach that we want to achieve that much where we continue to make our business profitable, as committed, and even beyond.

[Mohit Kumar, analyst]

Understood, sir. My last question, sir, out of INR 560 crore of freight wagon order book, how much is private? And the related question is that how is the inquiry pipeline from the private wagons?

[Hemant Bhuwania, executive]

So Mohit, out of 5,725, close to 1,100 is for private and the balance is for my Indian business. So the intake of private orders, you see that in the current quarter we have executed close to 390 wagons that we have executed, and the inflow of orders for private was close to 400. So whatever we are executing on the private, we are getting back those orders by the way of [indiscernible]. So intake of orders, as of date is not at all a challenge.

[Operator]

Next question is from [ Deval Shah ] from JM Financial.

[Unknown Analyst]

Sir, for the freight wagon order book. So can we get the number of wagons that are yet to be delivered as of December?

[Hemant Bhuwania, executive]

So we have an order book of close to 17,000 wagons, of which 4,500 is for Indian Railways and 2,500, approximately is for private.

[Sudipta Mukherjee, executive]

So to answer -- I mean maybe the premise if I'm able to that the order comes on tranches. And so far, after closing of the December tranches, we are ahead of the monthly asking rate. And to complete our third tranche of the 20,000 order book, we require around 460 wagons to further deliver of that particular time in the month of February, so which we are quite, I mean...

[Unknown Analyst]

Okay. Sir so 17,000 wagons against the INR 5,725 crore of order backlog?

[Hemant Bhuwania, executive]

Come again, [ Deval ]. I didn't get you.

[Unknown Analyst]

So 17,000 number of wagons is for the what is INR 5,725 crore backlog that we have as of December.

[Hemant Bhuwania, executive]

So yes, we have an order book of 17,000 wagons or INR 5,750 crores in terms of value, you are absolutely right.

[Unknown Analyst]

Okay. Okay. And sir, secondly, what would be the debt as of December?

[Hemant Bhuwania, executive]

So debt as of December is around close to INR 800 crores.

[Unknown Analyst]

And which would have reduced to INR 750 crores now?

[Hemant Bhuwania, executive]

Yes. In terms of reducing, absolutely, yes. 100%.

[Operator]

Thank you very much. That was the last question. I would now like to hand the conference back to Mr. Parvez Akhtar Qazi from Nuvama Group for closing comments.

[Parvez Qazi, analyst]

We thank all the partners for taking out time to attend the call. Sir, do you have any closing comments to make?

[Indrajit Mookerjee, executive]

Thank you very much for the questions, which came from our investors. Actually, I would take it bit differently. I would not say that the questions came for answers. I think these questions also give us a lot of thoughts for our improvement.

So I would like to compliment all those who took the pain of going through -- or I wouldn't say pain, but who took all the time to go through our financial results and had asked us questions, so I would genuinely think you to be our partners. And we will try in future -- we have a very vibrant team in Texmaco, and we would try our best to meet up to your expectations in the future. I would like to thank you for taking part.

[Operator]

Thank you very much. On behalf of -- I'm sorry, go ahead. On behalf of Nuvama Group, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.