K&R Rail Engine. Management Discussions


K&R at a glance

Indias only End-to-end solutions provider of Railway EPCC Services under one roof

Indian Railways Present Scenario

• 2.40 Lakh Crores of Railway budget allocated for the year 2023-24

• 47% of increment from the previous budgets

• 49% of track length extension

• Mechanization of ROBs to RUBs

• Upgradation of signaling system for better passenger safety techniques

Indian Railways Present Scenario

• 50,000+ track length extension opportunity

• Civil and Mechanical works of ROBs to RUBs convergence

• Upgradation of physical signaling system

• Upgradation of software signaling system

K&R Market Share

• With a proven track record from inception, K&R have been responsible for many innovations on the horizon of Railway related any work

• Executed several projects offered from Indian Railways

• 20% of track laying, 30% of electrification, 20% of earth works,

18% of ROBs construction, 45% of land acquisition projects done.

K&R provided survey for Last Mile Rail Connectivity for the following clients

K&R Rail entered into Joint Venture Agreement with MEP Group for executing Road and National Highway Project and also entered into MOU with Sri Avantika Contractors (I) Limited for execution of Mining and other Projects in Odisha of Odisha State.

• JK Cements Limited.

• Sagar Cements Limited.

• Subarnarekha Port.

• Vedanta Aluminium Project in Odisha.

• Gujarat Mineral Development Corporation Coal Projects in Odisha.

• Salaya Terminal Project (Essar Group) in Gujarat for their Port Project. ? Gulbarga Cement Project in Karnataka.

• The total expected Order Books value is more than Rs.3000 Crores.

K&R Rail has also opened another subsidiary known as "Robsons Engineering & Constructions Pvt. Ltd" to meet the domestic and Global trade requirements to the countries directly from the Indian sub-continent.

K&R Rail has also opened another subsidiary known as "K&R Global LLC in Dubai" to execute the overseas projects and export requirements for Middle East and African countries directly from the Indian sub-continent, and also meet the supply requirements of Indian Railways.

K&R Rail Engineering Limited is also establishing offices in Saudi Arabia shortly. This improves and add to our core competence and address the market in India and abroad.

Strategy to Leverage the Opportunities

Augment Product Portfolio:

K&R is working towards utilizing the existing strengths to address the markets and augmenting it capacities both in terms of offered services and products.

We are working to tie up with a South Korean company listed at KOSDAQ(UNECO). The idea is to use UNECOs technology to manufacture Precious Slag Balls Pre Stressed Concrete Sleepers. These sleepers offer better durability and can support train speeds of 350 kmph.

This will help us in establishing ourselves as core supplier to Indian Railways.

Establishing Consortium and JVs:

We are looking forward to establish consortium and JVs with partners offering supplementary skills to address more projects.

Establishing Global Foot Prints:

We have established a subsidiary company in Dubai to address the upcoming projects in Middle East and Africa.

Strategy to Leverage the Opportunities

usage for Passenger trains and freight) GCC Component of Kuwait National Railroad (KNRR) From southern border of Kuwait with Kingdom of Saudi Arabia (Nuwaseeb Point) To Shedadia (Kuwait Urban Area) which is the. line terminus where the Passenger Station is located and the approved alignment by Kuwait Municipality with 200 m Right of Way.

• K&R Rail Engineering Limited is in advance stage of negotiation with NUROL LLC, one of the biggest construction companies in UAE for a tender called Etihad Rail Company PJSC for Railway Project of Design and Build Contract for Station Links-Sharjah University.

• K&R Rail Engineering Limited has entered into a strategic MOU with the Botonia - Sari, Siege Social: Kissosso - Commune De Matoto - Conakry - Republique De Guinee for executing Projects of more than 2 Billion USD to 10 Billion USD in Guinee, West Africa.

• K&R Rail Engineering Limited proposed to enter into MOU with MEP Infrastructure Developers Limited for executing Projects in Congo, Central Africa.

• K&R Rail Engineering Limited is in advance negotiation with Kuwait based company M/s. Sadeem Al Kuwait for Railway Project for a tender called by Kuwait Railroad Authority for Phase-1 of 111 Km long (single track - dual K&R Rail Engineering Limited to capture the business in the Middle East and other countries had established a 100% subsidiary by name K&R Global LLC in Dubai of Middle East which will become operational in the next 2-3 months.

Threats...

In certain cases, the project awarding authorities keep stiff qualification criteria which may disallow small or midsize developers having inadequate financial or technical scores to bid for the project. The Company has sufficient scores both in terms of financial or technical aspects to be able to qualify for all categories of projects being implemented or which are in the pipe line.

Force Maieure Threats

There are certain regions in the country which may carry the risk of the project having to be abandoned due to force majeure events like natural perils, war, terrorism etc. However, all the Agreements signed provide proper risk cover in such circumstances with no adverse financial impact on the Company as it is backed by guarantee and covered through insurance.

Change in Law

In case the Government makes changes in law which could have an impact on infrastructure projects, the Agreement provides for the Contractor to be insulated from any adverse impact arising from such change in law.

Threats are described as anything that would contribute to the interruption of any infrastructure development in the country. Threats can be either in the form of major policy changes by the Government, implementation of stringent qualification criteria and insurgency threats in a specific region. These have been described below:

Policy Changes

Policies for development of infrastructure projects are now prepared keeping in view longer gestation period and are being given equal importance by all the ruling Governments as development of the road/rail sector is an example and which is given top most priority at all levels in Government. However, there are chances of major policy changes by the Government either National or at State level which can affect the development of a particular segment of infrastructure. Looking at the current scenario and demand for infrastructure development in the country, the chances of any major policy change which can adversely affect infrastructure business in the country are negligible.

Selection Criteria

K&R Achievements

Has executed Railway Projects of more than 2500 Cr. Has Executed Railway Projects for handling more than 40 MTPA to Indian Railway
Has executed Rly Embankment work of more than 20 Lacs Cum. Has given consultancy to Rly. Projects for handling more than 50 MTPA traffic in Indian Railway
Has executed Maj. and Minor Rly. Bridges of more than 100 nos. Has Executed more than 25 EPCC Projects in India
Has executed Rly. OHE works of 1 more than 150 ETKM Has Executed more than 500 Consultancy Projects in India

Competitive Advantages

Experienced & Vision Oriented Leadership Strong Customer Relationship
Leading EPCC Construction " Company Focus on enhancing capacities with appropriate CAPEX allocation
Navigating Opportunities * across new geographies Strong Corporate Governance
Disciplined Financial P Management Global Presence

Business Strategy

New Management Introduction Focus on Increasing the Share of Value-Added Products Focus on Exports
Product Mix:
KRREL has appointed Senior Personnel from the industry, at the helm of the affairs. Their insights include setting up new operations, technology development, sales & marketing, business development and project management, • Trading of Coal & Stainless Steel KRREL is consistently growing organisation, and exploring Railway projects in:
These driving forces ensures, meeting challenges of K&Rs business goals, organizational development, financial performance and importantly customer satisfaction within the time lines. • Construction of Highways Middle East-Qatar, Saudi Arabia & UAE
• Toll collection projects of NHAI African countries - Algeria, Egypt & Morocco.
• Execution of Civil works for L&T K&R Rail Engineering Limited is striving to capture the business in the Middle East and other countries had established a 100% subsidiary by name K&R Global LLC in Dubai of Middle East.
• Supply of Bridge Steel Girders
• Construction of Warehouses
• Construction of High-rise Buildings
KRREL has recently added of some very niche product lines which are highly margin accretive and volume potential. T he Company is expecting 25% contribution of these Value-Added Products byFY25.

Risks and Concerns

Apart from that Construction risk, Environmental Risk and Time overrun risk, the biggest challenges for any infrastructure project is acquiring land in time, as it often involves resettlement of people and compensation issues. K&R Rail is having highly qualified and experienced team of former railway engineers, revenue officers and bureaucrats who are experts in identification, assessment, and mitigation all risk strategically.

Internal control systems and their adequacy.

CONTROL ENVIRONMENT • Demonstrate commitment to integrity and ethical values & Commitment to competence.
K&R has implemented various internal control systems. • Exercise oversight responsibility.
• Establish structure, authority and responsibility.
• Enforce accountability.
RISK ASSESSMENT • Specify suitable objectives.
K&R put in place risk assessment analyst headed by the CEO for the same. Identify and analyse risk.
• Assess fraud risk.
• Identify and analyse significant change.
CONTROL ACTIVITIES • Select and develop control activities.
K&R has initiated appropriate control activities by deploying smart edge IT solution for enabling the same. Select and develop general controls over technology.
• Deploy through policies and procedures.
INFORMATION & COMMUNICATION Use relevant Information.
K&R works with IT partners, who are leaders in their field to address the same. Communicate internally.
• Communicate externally
Monitoring • Conduct ongoing and/or separate ^ evaluations.
K&R put in place internal committee headed by the CFO for monitoring activities. Evaluate and communicate deficiencies.

Capital Market Information

Market Indicator as on 25/08/23

Incorporated 1983
Listed on BSE
BSE Scrip Code KRRAIL/514360
Issued Share 3,33,54,061
Share Price as on 24.08.23) 595.55
Market Capital (Rs. Mn) 11,458.30

 

Share Holding Pattern as on
31/03/23
Promoter & Promoter Group 74.88 %
Institutions 0.00%
Public

25.12%

Total 100.00 %

Key Financial Analysis

Discussion on Financial Performance with Respect to Operational Performance

During the period under review, the turnover of the Company increased by 99.82% to Rs. 3,902.46 Million in the financial year 2022-23 from Rs. 1,953.01 Million in the financial year 2021-22. The significant increase is on account of merger of Subsidiary company "M/s Robsons Engineering & Constructions Pvt. Ltd." and the number of projects awarded during the financial year as compared to projects accorded in the previous year. The increase in turnover also has had a significant impact on the results for the year.

Other key operating data for the year were as under:

Earnings before Interest, Tax, Depreciation and Amortization grew from Rs. 115.34 Million in 2021-22 to Rs. 137.91 Million in 2022-23 registering an increase of 19.56% over the previous year.

Profit Before Tax grew from Rs. 85.79 Million in 2021-22 to Rs. 88.55 Million in 2022-23 registering an increase of 3.22% over the previous year.

Profit after Tax grew from Rs. 60.55 Million in 2021-22 to Rs. 62.81 Million in 2022-23 registering an increase of 3.73% over the previous year.

Earnings per share on basic and diluted basis stood at Rs. 4.01 per share as at March 31, 2023 as against Rs. 3.95 per share as at March 31, 2022 registering a growth of 1.52% over the previous year.

The increase in investments in a number of projects awarded were domiciled. This resulted in an increase in the overall borrowings that were availed of partly fund the investments in new projects.

The debt equity ratio as at March 31, 2023 stood at 0.88:1. The growth in the business also resulted in an increase in debtors at the end of the year.

Outlook

The Company aims to procure mandates for the mega rail projects considered to be landmarks in the Indian railway sector.

The Government of India has accorded the highest priority to Infrastructure after Agriculture which itself suggests that there is likely to be a continuous flow of new projects in all sectors and hence the Companys outlook for the coming years is positive. The Company already has a large portfolio of projects under various stages of implementation.

The Company believes that its financial position would improve with the number of projects in the pipeline and the Company aims to procure mandates for the Mega rail projects which are considered to be landmarks in the Indian Railway Sector both in terms of project size and in physical and financial terms. The Company has also been declared as the preferred bidder in an International project in UAE and is hopeful of additional International mandates on a select basis.

The Company is also taking various steps such as bidding for Roads, Airports, and Metro Rail development projects.

Human Resource and Industrial Relation

As on March 31, 2023 the company had 120 employees. At K&R the focus of learning and development in on building the capabilities of employees so that they are fully geared to handle the current and future needs of the company. This is also combined with its strong belief that employees play a pivotal role in the Companys transformation and gear up for future growth.

The Companys recruitment practice ensures that suitable candidates with merit are recruited and provided with the right opportunities to grow within the organization. The Companys policies favour recruitment at the entry levels and gradual rise for the meritorious candidates within the organisation

During the year, training programs were held covering behavioural, functional, managerial and leadership areas. The training programs at the entry level as well as the continuous learning programs ensures that the Company has the right competency in its work force that can deliver the customers business needs