Rites - Result Analysis Q1 FY21

Rites - Result Analysis Q1 FY21

CMP: 249 (As on 13-08-2020)

Revenue from operations 335.4 Crs 

537.6 Cr (-37.61%) YoY | 570.7 Cr (-41.28%) QoQ 

Year ending revenue: 2,474 Cr Vs. 2,047 Cr (20.89%)

Net Profit of 64.99 Cr 

102.08 Cr (-36.29%) YoY 143.9 Cr (-54.53%) QoQ 

Year ending Net profit: 633.2 Cr Vs. 470 Cr (34.64%)

EPS (in Rs.) 2.51

3.92 YoY | 5.56 QoQ 

Year ending EPS: 24.64 Vs. 18.78

View: Result is line with the expectation. YoY and QoQ revenue declined due to Less exports scheduled for Q1FY21 (approx impact of INR 128 crore) and profit also declined. 

Business Updates & Highlights

EBITDA in Q1FY21 was around INR 104 Cr Vs. 167 Cr in Q1FY20 therefore declined by 37.7% in YoY. EBITDA margin in Q1FY21 was around 27.4% Vs. 29.1% in YoY. Sustained margins due to cost reduction measures, despite reduction in revenues.

Employee cost, which is 41.3% of total cost in Q1FY21, was reduced by 9.5% 

Company is primarily into four operating segment viz. consultancy – 57.1%, lease –7.4%, Exports -0.3% and Turnkey – 35.2% .

YoY topline growth for consultancy was (20.7%), lease – (19.5%), Exports – (99.6%) and Turnkey – (11.3%). Consultancy and Turnkey Revenues were impacted due to lockdown, supply chain disruptions and travel restrictions. Less exports were scheduled for Q1FY21. Exports are scheduled for H2FY21. Leasing business affected due to stalled works at certain sites, ports etc. during lockdown

YoY bottom line growth for consultancy was (10.2%), Leasing – (44.1%), Exports – (113.3%) and Turnkey – 41%. Profit margins in consultancy was 39.1%, leasing – 44.4%, Exports – 19.9% and Turnkey – 2.8%. Leasing margins got impacted due to depreciation on locomotives. 

Subsidiary REMCL: Revenue in Q1FY21 was INR 20 Cr VS. 15 Cr in YoY, EBITDA in Q1FY21 was around INR 15 Cr Vs. 9 Cr in YoY. Consultancy revenue got impacted due to less traction power requirement by Railways. Power generation through wind mill continued and resulted in growth of 51.7% over Q1FY20

Order book as of June 2020 was around INR 6,157 Cr which includes Consultancy – INR 2,528 Cr, Exports – INR 1,429 Cr, lease – INR 112 Cr, Turnkey – INR 2018 Cr and REMCL – INR 70 Cr.

Project Updates

RITES secured more than 60 projects/contracts including enhanced scope during Q1FY21.

Signed 5 year MOU with Coal India for providing Rail Infrastructure services

Financial

ROE and ROCE is around 20% and 32% respectively and book value per share is around INR 105 and share is currently trading at 2.4x of its book value. Company is currently trading at annualized PE of around 17 which is average as per Industry benchmark. Promoter holding in the company is around 72% which is very good and stable. FIIs and mutual fund hold around 1.5% and 5.3% respectively. FIIs has sold around 1.4% stake in QoQ and mutual fund slightly increased their stake in QoQ

Position: Share strong support price is INR 238/220. Long term investor should continue with the company and any correction till 220/200 will give opportunity to add for target price of INR 300/400. 

Share View: Share price high 331 (52 week) and now 250 RITES Limited is an engineering consultancy company, specializing in the field of transport infrastructure. Established in 1974 by the Government of India, company, is a multi-disciplinary consultancy organization in the fields of transport, infrastructure and related technologies.

Opportunities

Strong diversified order book which is more than 6K Crores. Strategic focus on international projects, exports and domestic mega projects including NIP. Focus on execution of orders while maintaining margins despite Covid-19 outbreak company has able to maintain bottom line along with margins. Moderate revenue growth expected for FY21 with positive long-term business outlook. Experts in Engineering, Science, Finance, Economics etc. with a mix of regular, deputationists and contract employees. Debt free company and given good dividend to their shareholders which was around 4% of CMP and also given bonus also in previous year. 

Risk

Covid -19 pandemic and due to less spending may impact the earnings and profits for H1FY21. Certain order inflows shifted by few quarters. Export business drastically impacted and almost negligible in this quarter and this can continued till Q2FY21 as well. 

Sources: Various publications

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.

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