Investors will know we are here for 44 yrs, like an Indian MNC: RITES CMD

With Indian Railway’s subsidiary RITES Ltd set for an initial public offer this month-end, the company is looking to expand its footprint from consulting business to power, renewable energy and station redevelopment. RITES Chairman and Managing Director Rajeev Mehrotra talks to Shine Jacob and Jyoti Mukul about the road ahead. Edited excerpts:

Why do you think that this initial public offering (IPO) is important for a company like RITES, especially since only the promoter is offloading equity and no fresh equity infusion is happening?

We are basically a consulting company doing several infrastructure projects including Railways, highways, airports and metros. Besides this, we are into segments like exports and leasing of locomotives. We have one energy management company now.  RITES is working abroad as well. We have worked in around 55 countries, and have a presence in about 10 countries now. This IPO is only for disinvestment of 12 per cent by the government and then 0.6 per cent will be available for employees. We are not raising any fresh capital. We have reasonable liquidity with us and have a cash balance of around Rs 14.5 billion as of December.

A lot of public sector undertakings become more transparent after listing by improving their corporate governance. Will this IPO bring any material change to RITES’ operations?

It is definitely going to increase the visibility of the company. Investors were otherwise not looking at infrastructure companies like us. They are going to know that there is a company which has been in the business for 44 years. It is like an Indian MNC. We comply with all the requirements that companies have to go through. I see visibility and familiarity to public increasing. Our order book is Rs 48.5 billion as on December 31. In 2016-17, our turnover was Rs 15.63 billion and in 2017-18, till December, we have recorded Rs 10.61 billion. We are firmly placed. If you look at margins, consultancy is always a very high-margin business and consistently this company has been making profits. Our major revenue contributor was the consultancy business (61.6 per cent), followed by exports at 27.9 per cent and then loco leasing around 7 per cent.

You are now into the power procurement business also through the deemed licence. How are you seeing its future?

Initially, there were issues related to permissions being given by the states. Now, by a decision of the Central Electricity Regulatory Commission (CERC), the Railways have been given the deemed licence and allowed to buy power from generators directly. We have so far done about 1,175 mega watt (Mw) of medium-term power, while the present requirement is around 2,600 Mw. With the increasing pace of electrification, the work in our company will increase. I am chairman of the Railway Energy Management company. This is directly beneficial to both the parties — railways will have a direct saving on the cross subsidy element. The demand is growing says electrification pace of railways.

We are working so that the remaining capacity also can be met through us. The Railways also has its own plant now at Nabinagar (960 Mw). We are also helping in transmission of that. The urgency is in doing power procurement directly as well as the Nabinagar project. As for the remaining, we are entering into contracts. In terms of managing sudden spikes in load and all, we are going to have a load management centre here. The dedicated freight corridors will be completely on electric traction. We are looking at the load requirement for them and also High Speed Rail Corporation has asked us to look into how to deal with their power management programme. As the network increases, the mandate of the company will also increase. We are charging railways uniformly on a per unit basis.

Renewable energy is now becoming vital part of your business. Where can we see the company in this regard?

We initially started with one windmill — only 6 MW, which is operating in Jaisalmer for the last three years. Another 10.5 Mw is coming up in Tamil Nadu and 6 MW is Maharashtra. We are also manadated to facilitate about 900 Mw of solar projects. Initially, we thought about starting things on investment mode, but now there is a lot of interest among generators to work through long-term power purchase agreements (PPA), if Indian Railways is the buyer. Therefore, we are now working in PPA mode in renewable and we have a 10.6 Mw project in Maharashtra on that basis. And the solar projects that are now coming, we will not be funding them but facilitating the PPAs. 

In traditional engineering consultancy, are you looking at other areas like smart cities?

Basically, the focus is on urban transport. We are working on the Dedicated Freight Corridor, high-speed projects, air connectivity etc. All these projects shall remain priority. In the smart city segment, integration of transport and infrastructure will be our priority. 

In the last two years, there has been major investment in adding capacities and easing congestion of Railways. So, the railways also asked if any public sector undertakings wanted to take up projects. Hence, we have taken up two projects each for doubling and electrification and three workshops too. This we will be doing as a turnkey execution. As far as we are concerned, this comes as a deposit from railways and we work out of that deposit. This is going to be a new stream and as the railways increases their capex, we will get more projects.

With the domestic aviation segment booming through schemes like Udan, how are you seeing growth in aviation and metros?

Aviation is one of our fastest-growing segments. We are working on Gwalior, Singroli, Khushi Nagar for civil, engineering, concept and implementation. We have worked on aviation projects outside in Botswana and Mauritius too. Metros are also doing a lot of business — like a 32-km light metro in Mauritius, Delhi metro, Bengaluru, Nagpur and Pune. Last few years, we have been doing studies on various metro projects. To name a few, we were doing Guwahati, Patna, Varanasi, Agra, Kanpur, Meerut, Gorakhpur, Jammu and Srinagar.