Watch FIEO's Ajay Sahai and Rail Vikas Nigam's Rajesh Prasad in conversation with Samina Nalwala and Tamanna Inamdar. #NDTVProfitLive
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00:00 Welcome, we've been talking in great detail about the huge amount of money that is being
00:08 spent on rejigging and reinventing the way Indian railways are functioning.
00:14 Recently, I had the chance to speak with Union Railway Minister Ashwini Vaishnav as well.
00:19 Now another company that has been on the radar and has seen quite a stellar upside in its
00:25 stock prices, RVNL, Rail Vikas Nigam Limited. A slew of recent news flow as well, they've
00:31 signed an MOU with REC to finance pre-stipulated conditions and returns, a number of bankable
00:39 projects. We want to ask the management a bit about that today. They've also received
00:43 an LOA from Southern Railways. They're going to upgrade a railway station, the Varkala
00:48 Shivagiri railway station in Kerala. And overall, this is a company that is right in the thick
00:55 of what we're seeing in our railway revolution. To understand more about this, I'm joined
00:59 now by Rajesh Prasad, he's Director of Operations at RVNL. Mr. Prasad, thank you so much for
01:05 speaking with us today on NDTV Profit. Absolute pleasure speaking with you. Let me begin with
01:13 this MOU with REC for 35,000 crore rupees. Now it's a memorandum of understanding. When
01:20 does it fructify into actual business and can you give us more details on it?
01:28 So very good morning, Tamannaji. Happy New Year and Happy Winters. Just now you were
01:32 mentioning to somebody that this time winter is really very problematic. See, for the first
01:40 time we are interacting with your esteemed TV channel and we are also privileged to be
01:45 here, the part of this particular show. So you have asked two, three questions. One thing
01:50 you asked about the MOU between RVNL and REC, then you talked about the station development
01:55 programs. Then you said that recently you had interacted with the Honorable Railway
01:59 Minister and he had given the huge vision about the future railway infrastructures.
02:07 So I will try to cover one by one. Since we are interacting for the first time, so I'll
02:11 start with the RVNL. See, this is a 21 year old company. On 24 January, we will be 21
02:18 year old. And this company was incorporated for basically implementation of National Rail
02:23 Vikas Yojana and the mandate was for execution of project resource mobilization. Though the
02:29 resource mobilization issue was subsequently withdrawn because IRFC was already there.
02:34 We have been basically Mini Ratna Awarded, Schedule 1 awarded in September 2013. And
02:40 subsequently a few months back in May 2023, we have become Navratna. This is a very vibrant
02:48 young company and always looking forward. It has got a proven track record and it has
02:54 got the efficiency of a private sector and the authority and the trustworthiness of the
03:00 government sectors. Last 12 years, it has been rated excellent by the Department of
03:04 Public Enterprise. And the Government of India Ministry of Railway had assigned 180 odd projects
03:11 and we have commissioned 140 projects. We are working as per the vision of the Honorable
03:16 Prime Minister and the Honorable Railway Minister. So let me start with the MOU which has been
03:23 signed between REC and RVNL. As you know, this REC is a Maharatna company where the
03:30 PFC, the government share is about 53%. RVNL is also listed. It is government share is
03:36 around 72.84%. The understanding in through this MOU is that we can have the project financing
03:45 up to 35,000 crores in the next five years. We are also a pioneer and trailblazer in project
03:53 implementation through PPP model. We have got equity participation from 30% to 50% in
03:59 the railway infrastructure SPVs and REC have also given the consent that they will examine,
04:07 consider for the equity infusion in these SPVs. So it is a kind of a win-win situation
04:12 for both the companies. This is number one. Number two, see earlier we used to get the
04:18 projects only through the nomination basis and we are in business for the last two years
04:23 and few months. The first bid which we got from the market was in the month of October
04:28 2021. So two years and three, four months. Now we have participated in the bids which
04:34 is approximately 210 plus costing around more than 1.10 lakh crores and we have bagged or
04:41 become L1 in the bids costing around 34,000 crores plus. So in that connection, we are
04:48 now participating in the HAM models. HAM model is the hybrid annuity models. I will cite
04:52 two examples. The Masakani Paralip, it is a road project in Odisha. Then Chhatra Expressway,
04:59 it is a road projects in Jharkhand. So one is the 100% subsidiary and the other is we
05:04 are having a partner. We have got a share of 50%. So there we need the project financing.
05:11 So in time to come what we foresee is that we are going to have large number of projects
05:16 which we will get and we need to have some project financing. So in that connection in
05:20 place of going to the private banks, the other PSU banks and the other financial institutions,
05:26 we thought REC is one of the better options and being a government department, we feel
05:31 comfort when we talk, when we deal. So it is a win-win situation for both the companies.
05:37 This particular MOU has been signed on 2nd of January with a timeline of 5 years and
05:43 we aim to basically debt financing for 35,000 crores in next 5 years and further REC will
05:51 infuse equity in these Arvind L SPVs, the PPP model projects. So this was the first
05:58 question which you asked. I will come back to it. Sir, we will break it up. We will do
06:02 it like a conversation. We will break it up and come back to the other points. I will
06:07 definitely cover them. But I just wanted to put into context why RVNL is right now a company
06:14 that the market is also watching. We cover the news from that perspective. It is because
06:20 of the immense infrastructure spend in railways and the share that RVNL has of that. So just
06:27 to put that in context, I want to play out a bit of this conversation that I had with
06:32 Mr. Ashwini Vaishnav just earlier in the week. Listen in.
06:37 What is then the capex for the coming year? Because the railways…
06:42 We should maintain this level. 2,40,000 crore is a very optimal level. Anywhere between
06:47 240 and 260 is what we should maintain because when we do work at this level of, this quantum
06:55 of work we do, we should continuously focus on quality of work.
06:59 Okay. So I wanted to play that out just for the context of the amount of capex that is
07:04 going to come in from the railways. Now, Mr. Prasad, as I understand it, RVNL has about
07:09 15 to 20% share in railway orders. Do you see that increasing? Can you give us a sense
07:18 of what your order book outlook is? You have said or the company has said 1 lakh crore
07:24 rupees over the next few quarters. Are you sticking to that? Are you increasing that?
07:28 Give us a sense there. So I will start with the vision of the Honorable
07:32 Railway Minister. What he said that in this particular financial year, we have got a capex
07:37 of 2,45,000 crores and moreover, and more or less, it is likely to be maintained in
07:42 next few years. So if you see the statistics in 2014-15, the capex was only 58,000 crores
07:50 in the Ministry of Railways. Now, if you see the RVNL's turnover in 2014-15, it was around
07:59 maybe around 3,000 crores, 2,490 crores to be precise, and the PAT was 157 crores. And
08:07 in 2022-23, it has gone up to 20,300 crores and the PAT has gone up to 1,270 crores. Now,
08:17 the first two quarters results have been out. It is there in the public domain. For the
08:21 first time, we have crossed the number of 10,000 crores in the first two quarters and
08:26 the PAT has gone up by more than 700 crores. So in 2023-24, we are going to have another
08:33 breaking record as far as the top line and the bottom line is concerned. The order book,
08:39 you said, see what are our aims for this financial year? We wanted to have the top line growing
08:45 to the extent of 21,000 crores plus, the bottom line growing to 1,400 crores plus. We wanted
08:51 to have the order book of 1 lakh crores, but we may land maybe around 80,000 to 85,000
08:57 crores, but we are actively participating. We are eyeing so many projects. See, this
09:01 is altogether a new field. Earlier, we were getting the works only on the nomination basis
09:07 and in two years and a few months, we have transformed from the local rail infra to global
09:12 all infra. And the honourable Prime Minister keeps on saying the reform, perform and transform.
09:18 RVNL is the perfect example of this, that we have reformed, we have performed and we
09:23 are transforming. Now, if you see the statistics of RVNL, the last 10 years continuously, even
09:29 during the COVID time, it has broken the previous year's record in terms of the top line, in
09:35 terms of the bottom line. And we are very confident. See, the railway infrastructure,
09:40 the honourable Railway Minister had also said that it is very complicated and complex. And
09:44 here comes the expertise of RVNL. We have got the proven track record. We resolve the
09:49 technical issues through technical expertise and technical knowledge. We do a lot of value
09:54 addition, we save a lot of time. We try to execute the projects in the fastest manner.
09:59 Some of the things are not within our hands, but we have been delivering. That is why we
10:03 have been able to commission more than 140 projects which have been assigned by Ministry
10:07 of Railways.
10:08 You know, you said that your top line is going to grow, your bottom line is going to
10:12 grow. I want to come on your margins and just ask you about that, Mr. Prasad, and we will
10:16 pull that chart up which was showing, you know, the quarterly performance of the company
10:21 in the last few quarters. Margins have remained steady at 6%. Why is that? Even as your revenues
10:29 have grown quite significantly, why are margins stagnant? And how do you see an improvement
10:35 taking place there?
10:36 Okay, so let me explain. The gross margin upon turnover is basically stagnant to the
10:43 numbers at around 6%. Last year it was around 5.9% and again it is the same. The reason
10:51 being is that the projects which we were getting on the nomination basis, we used to get the
10:56 fixed nomination fee, management fee. And the margins basically, we have got the different
11:03 sources of earning. Number one is that the project which we execute. Number two, we get
11:07 the dividends. We have commissioned five number of special purpose vehicles. So we get the
11:11 dividends from these SPVs. And of course, we have got some reserve and surplus we have
11:16 put in the banks and we get the interest, etc. Now the model is changing. Now we have
11:21 got almost 50% through the market, 50% on the nomination basis. See, in time to come,
11:27 this margin is going to get changed because we are in the market. There could be a scenario
11:32 that there would be some losses in some of the projects. But in majority of the projects,
11:37 we have been doing a lot of value engineering at the stage of pre-bid. And we are allocating
11:43 some risk also in the risk factors. And I can tell you very well that the first project
11:49 which we got in Indore Metro, in one year and six months, we could basically do the
11:55 trial for the Metro and this became the fastest Metro in the country. And the margin which
12:01 we got was more than the margin which we used to get on the nomination basis. Similarly,
12:07 the margin which we have got the first overseas project, Maldives, again, the margin is more
12:11 than what we used to get through the nomination basis. So in time to come, the scenario is
12:17 going to be changed. A lot of risk factors will be there, but we have totally geared
12:22 up. We have transitioned from the contract manager's role to contractor and we have been
12:26 delivering and the market has also been appreciating this.
12:30 Can you give us your sense of when you are saying the margins will grow and especially
12:34 for these projects in Maldives, you are doing a project in Kyrgyzstan as well. I am assuming
12:40 with these projects, RVNL can bump up their margins versus what you do for Government
12:45 of India. So can you give us a sense of how much we can see an increase in margins?
12:51 Madam, at this stage, we cannot tell anything. But the kind of professionalism and the kind
12:57 of technical expertise we have got, we are 100% confident that in time to come, you will
13:02 get the results. We cannot predict the margins at this very stage, but I have cited the example
13:07 of the first Indian project which we got through the bidding, first overseas project which
13:12 we got through the bidding and the results are very good and encouraging for RVNL.
13:16 And see one more thing which I wanted to tell the Honorable Prime Minister keeps on telling,
13:21 this inflight structure creation is directly linked to the social justice, social requirements.
13:26 When intangible benefits are there, it increases the ease of living, ease of doing business,
13:32 boost to economy, overall development and then of course the market capitalization of
13:37 this company goes up which is roughly touching now around 40,000 crores.
13:41 Yeah, no, no, of course, undoubtedly majority of the work is for social good and that is
13:47 also what is being rewarded by the markets. I had asked you earlier Mr. Prasad and if
13:51 I may revisit that question, in terms of share of railway contracts, how do you see
13:59 that increasing for RVNL and if you can give us an idea of some of the new exciting projects
14:06 that are in the pipeline.
14:08 See let me start with this that we have got an order book of around 65,000 crores, slightly
14:15 more than 30, 50% is through the bidding and see we have got the proven track record in
14:21 the railway infrastructure segments. So, our first target is the railway projects. The
14:27 second is the metro segments. We are very confident because metro segment is one segment
14:32 where the large number of cities, more than 52 cities are going to have the metros and
14:37 a lot of technical expertise are required and presently we are working in the metro
14:42 segments in seven cities.
14:44 So coming back to your question about the railway infrastructures, see we are very keen,
14:50 a lot of projects are likely to come in time to come and the capacity augmentation projects
14:56 are one of the projects where we are very keen to participate and bid and get from the
15:01 market. See the nomination has been stopped but we are equally keen even today to bid
15:07 and get the works. We are very keen to see the DFC extensions are now going to come in
15:13 time to come. So, the North South Corridor, Sonnagar to Andal, that particular Dalkoni
15:19 corridor, so the tenders have also come. Then similarly high speed, presently only one section
15:24 is under construction and by 2047 we can have more than 10,000 kilometers of high speed
15:30 corridors. So, we are very keen. See here comes the expertise of this particular company.
15:36 So in time to come you will find a lot of railway projects in India and also overseas
15:42 we will be getting.
15:43 Regarding the margins again I'll come back to you. Since we are through the bidding,
15:47 the challenges are there, we have to prove the competency and we have to get the margins
15:52 improved. After all it is a government company, it is a listed company, we are responsible
15:56 for the margin and the overall growth of the company.
16:00 Just one quick last question. I know that the company is looking at projects beyond
16:05 just the railways. If you can quickly tell us about that.
16:10 See, let me start with the railway segment is a very big segment. So, we constructed
16:17 around 20 number of workshops with a 3D approach that is a design, develop and dedicate. So,
16:22 these turnkey projects are now being used for the manufacture and the maintenance of
16:26 the coaches, wagons, rolling stocks. So, we are very keen to enter into such kind of turnkey
16:33 projects whether it is in India or whether it is overseas.
16:37 And madam, in the beginning you asked about the station development. See, we are also
16:41 eyeing for some of the projects of the station development but more interested in the capacity
16:46 augmentation. The recent tender you asked, yes, we have got one tender which is around
16:50 125 crores in the state of Kerala, timeline is 2.5 years, the approximate building size
16:56 is G+5. See, wherever we are working, we are doing a lot of capacity augmentation projects.
17:02 For example, Kharagpur to Adityapur, anybody can go and see the kind of stations we are
17:07 making. It is all world-class stations that is part of the third line project and somebody
17:13 can see and see the pictures of these stations, beautiful stations with modern amenities and
17:18 the architecture of these buildings are depicting the nearby palaces. So, we are very focused,
17:24 we are very keen and as I said, this is a very small company. We have got around 400
17:30 odd persons and the contract engineers altogether it will be around 1400 and with a turnover
17:35 of around 20,000-21,000 crores, every per employee will be, outcome will be, output
17:40 will be 14 crores. So, you can imagine the kind of efficiency of this particular company.
17:45 Absolutely, a very interesting conversation. I wish we had more time, Mr. Prasad, but thank
17:50 you for speaking with us on NDTV Profit. It was our first interaction but here's to many
17:56 more. Thank you very much. Thank you.
17:59 We will take a very quick break but on the other side, we are keeping our focus on another
18:03 story that's been developing. The Red Sea Crisis means shipping rates have skyrocketed,
18:08 almost doubled. Ajay Sehai, DG and CEO at FIEO, that's the Federation of Indian Exporters,
18:15 will speak with us on the other side.
18:30 Thank you.
18:54 Thank you.
19:21 The Red Sea Crisis began a little before the New Year's and has been escalating ever
19:40 since. Quick recap of what's happening. Yemen-backed Houthi rebels have been attacking carriers
19:46 that pass through the Red Sea. It's a very crucial shipping route, a global shipping
19:51 route and while there have been now a coalition led by the US to push them back, it has been
19:57 going on. As a result, major carriers have said they will not pass through this route.
20:02 That means they take a longer route. This has driven up freight rates around the world
20:08 and is bound to impact Indian exporters as well. To get a better sense of that, Ajay
20:12 Sehai, DG and CEO at FIEO joins me now. Mr. Sehai, very good morning. Thank you for speaking
20:18 with us at NDTV Profit. Tamanna here. We spoke a few weeks ago when the crisis had begun.
20:25 Has it gotten worse since then? Can you give us a sense?
20:29 Yeah, definitely the situation has deteriorated in the last few days, I can say. Earlier,
20:35 the large shipping lines, they have decided they will not be operating. There were feeders
20:39 which were operating but their numbers are depleting very fast and I'm sure that within
20:45 couples of days, probably they will also start not operating on the route. So it's definitely
20:50 a huge setback to the entire Ex-Im trade, whether we are talking about exports or imports.
20:56 Both are supposed to take a little hit. Of course, the shipping lines have started using
21:02 the longer route of Cape of Good Hope and that has pushed the freight cost but freight
21:06 is only one of the element. The shipping lines have come with the additional surcharges also
21:12 like contingency surcharge, Red Sea surcharge or even the peak season surcharge. So if you
21:17 are looking into delivery index, it has already gone up by around $1000 in last fortnight.
21:23 That only speaks of the freight across the eight major routes. But if you are adding
21:28 the surcharges, the increase is phenomenal. Tell me about the Red Sea surcharge because
21:34 you just mentioned it. How much is that? Is that a recent thing which has coming? And
21:39 also these feeder lines that you were mentioning. In fact, the Red Sea surcharge is different
21:45 by the different shipping lines. Some of the shipping lines, they have put $1575 for a
21:52 20-fit container, $3000 for 40-fit container and $3500 for reefer container. When I'm talking
21:59 about the freight, the feeder vessels, in fact when the large shipping lines have started
22:05 not operating on the Red Sea, there were feeder vessels available where they were transporting
22:10 from the end point through the Red Sea to some of the destination in the North Africa
22:16 and Middle East and even going up to the Europe. But their numbers have declined drastically.
22:22 And looking into the threat to the human life, most of them have decided not to operate.
22:28 All right. I just want to understand the Indian impact in a bit of detail because we haven't
22:34 seen too much of stress as far as India is concerned. How much of our cargo import and
22:39 export goes through this route? And is this going to develop into a concern in the days
22:44 to come or it won't be too much of a trouble? In fact, if you're looking into to which countries
22:50 we are exporting through this route, we are exporting most of the Europe through this
22:54 route to the east coast of US and to the bordering countries in North Africa and the Middle East.
23:01 So on a rough estimate, roughly total trade of around $230 to $240 billion happens through
23:07 this route. It is important for us so far as exports are concerned because roughly $70
23:12 billion of exports goes to Europe. And with this longer route, since the freights are
23:18 increasing, there will be definitely huge challenges for export of commodity for low
23:25 value, high volume cargo and perishable. So we feel that they will be the worst effect.
23:30 Impact for exporters. What is the cost impact for exporters very quickly?
23:34 There is, I think depends on the route. For example, I will just give you two illustrations
23:40 from Calcutta to St. Petersburg. The freight was $4,100. It has gone to $8,100. In addition
23:47 to that, we have different surcharges from Calcutta to Mersin Port, which is in Turkey,
23:52 rates have gone from $1,000 to $3,600. And if you apply the surcharges, the increase
23:58 is around 500% plus. But that depends from different countries, different destination.
24:06 But if the delivery index has gone up by $1,000 in exclusive of the surcharges, that speaks
24:13 of the huge increase in the freight rate in recent times. And probably they may again
24:18 increase in times to come. That we have to keep an eye on. Thank you so
24:22 much, Ajay Sahai for speaking with us on what we're seeing developing in the Red Sea crisis
24:27 and impact on importers and exporters. We'll take a very short break, but stay tuned, a
24:33 lot more coming up on the other side. Keep it with NDTV Profit.
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