rail vikas nigam ltd Management discussions

Industry Structure and Development:

India has the fourth largest railway network in the world with a total length of 68,442 route kilometer (rkm). It runs nearly 22,000 trains daily, out of which around 13,500 are passenger trains that carry more than 2.3 crore passengers and about 8,500 are freight trains that carry around 3.5 million tonnes of freight per day. The humungous magnitude of operations on Indian Railway can be appreciated from the fact that every day it moves people nearly equal to the population of Australia.

In the recent past, various railway reforms have been initiated at the organisational and functional level to enhance efficiency, safety, innovations and transparency and to achieve faster project execution. Participative models for rail connectivity, introduction of private train operators and the focus on encouraging participation of the private sector in infrastructure up gradation and station development are note worthy reforms.

Indian Railways has prepared a National Rail Plan (NRP) for India - 2030 which envisages to create a "Future Ready" Railway system. The NRP is aimed to formulate strategies based on both operational capacities and commercial policy initiatives to increase modal share of the Railways in freight to 45%. The objective of the Plan is to create capacity ahead of demand by 2030. As part of this Plan, Vision 2024 has been launched for accelerated implementation of certain critical projects by 2024 such as 100% electrification, multi-tracking of congested routes, upgradation of speed to 160 kmph on certain routes, upgradation of speed to 130 kmph on all other Golden quadrilateral - Golden Diagonal routes and elimination of all Level Crossings on such routes. While new sections are being progressively commissioned for traffic in the Eastern and Western Dedicated Freight Corridors, new Dedicated Freight Corridors have been identified and expansion of rail networks in Jammu and Kashmir and North Easter region of the country is being emphasized.

Many new improvements, such as self-designed Vande bharat Express, Tejas Express, Vistadome Coaches, new Signalling Systems, Long Haul Freight Trains, High Capacity and High Speed wagons, Kisan Rail, Solar powered passenger coaches etc have been undertaken to bring about sea change in customer comforts and expectations. Innovative improvements are also being brought upon by assimilating new technologies in the form of SMART Coaches, SMART Locomotives, SMART Yards, Automated Train Examination System, Automatic

Train Protection, Centralized Traffic Control and Train Management System etc.

Indian Railways is considered the countrys lifeline for transporting passengers as well as cargo. To remain competitive vis-a-vis other transportation modes and to provide optimum level of service to passengers and for freight, there is an acute need to invest in railway infrastructure to augment capacity, expand the network and make it more efficient and customer centric.

Role of Rail Vikas Nigam Limited:

RVNL was incorporated with an objective to undertake rail project development, mobilization of financial resources and implementation of rail projects pertaining to strengthening of golden quadrilateral and port connectivity and raising of extra- budgetary resources for project execution. RVNL is in the business of executing all types of railway projects including new lines, doubling, gauge conversion, railway electrification, metro projects, workshops, major bridges, construction of cable stayed bridges, institutional buildings etc.

RVNL functions as an executing arm of Indian Railways and works for and on behalf of the Ministry for projects assigned to it for execution. It generally works on a turnkey basis and undertakes the full cycle of project development from conceptualization to commissioning including stages of design, preparation of estimates, calling and award of contracts, project and contract management, etc.

The projects are spread all over the country and for efficient implementation of projects, 28 Project Implementation Units (PIUs) have been established at 26 locations to execute projects in their geographical hinterland. They are located at Ahmedabad, Agra, Bengaluru, Bhopal, Bhubaneshwar (2 Units), Chennai (2 Units), Chandigarh, Jhansi, Kanpur, Kolkata (2 Units), Kharagpur, Kota (2 Units), Lucknow, Nagpur, Patna, Raipur, Rishikesh, Ranchi, Secunderabad, Varanasi (2 Units), Vijayawada and Waltair (2 Units). The PIUs are established and closed as per requirement.

RVNLs major client is the Indian Railways and other clients include various central and state government ministries, departments, and public sector undertakings. RVNL has also started participating in Metro, Highways and other infrastructure sectors through competitive bidding.

In last 2 years, there has been a paradigm shift in functioning of RVNL. RVNL has gone into the market for winning projects through bidding till 31st of July, 2023 for more than Rs. 85000 crores of projects. Projects awarded/ declared L1 was for about Rs. 25000 Crore.

First two projects ofIndore Metro project have progressed extremely well. RVNL has diversified during this period by winning large number of projects of different sectors such as Metro segment, Irrigation, Road Sector, Municipal Corporation(Ahmedabad). First overseas project in Maldives is also progressing very well. Thus RVNL has become from #LocalRailInfra to #GlobalRailInfra.

RVNL combines the efficiency of Private Sector and trustworthiness of Govt. Sector. In last 12 years, RVNL have been rated excellent by DPE which is a huge recognition by GOI and it is a manifestation of persistent excellence. For RVNL, excellence is a prevailing attitude & not an exception. RVNL has been pioneer and trail blazer for PPP model for creation of Rail Infrastructure.

RVNL has commissioned 15000 RKM of infrastructure which is more than 3 times of Length and Breadth of India. The project expenditure was 1.25 lakh as on 31.03.2023.

Disinvestment of Government of India holding in RVNL: IPO (April 2019) 12.16%

OFS (March, 2021) 9.64%,

OFS (July, 2023) 5.36%.

As part of its original mandate, RVNL has successfully set up five project specific Special Purpose Vehicles (SPVs) for execution of important rail connectivity projects in PPP mode. Four SPVs have already been commissioned for traffic. More SPVs are in different stages of being set up under Indian Railways participative policy framework.

RVNL has also recognised the vast potential for building a High Speed Rail Network in the country and with the approval of President of India had formed High Speed Rail Corporation of India Ltd. (HSRC), as its subsidiary. Feasibility studies for Delhi-Kolkata, Delhi-Mumbai, Mumbai-Chennai, Mumbai-Kolkata (upto Nagpur in 1st Phase), Delhi-Chennai and Delhi-Chandigarh-Amritsar have been undertaken by HSRC. Subsequently, HSRC has been renamed as HSRC Infra Services Limited and repurposed to participate in bidding of projects for RVNL and to provide project management consultancy services.

Strengths

• RVNL has successfully mobilized funds for the construction of new lines by creating project specific SPVs with strategic stakeholders. Its large capital base can be leveraged to raise funds as per its original mandate.

• Ministry of Railways has delegated the authority to RVNL for sanctioning of estimates within prescribed limits and for awarding contracts of any value for the projects in hand enabling RVNL to implement projects faster.

• As RVNL can award large value contracts, it has been able to attract the best infrastructure companies in India.

• It has developed expertise in undertaking all stages of project development - from concept to commissioning.

• RVNL has developed the requisite skills and experience to follow ADB procedures for contracting and ensure Resettlement and Rehabilitation of Project Affected Persons to implement socioeconomic safeguards.

• It has introduced large-scale mechanisation in all aspects of construction to achieve high quality output.

• It has refined its tendering processes and introduced innovative concepts like multi-package tenders resulting in faster decision making and savings in overall costs

• It has a sound and robust financial management system, allowing for effective monitoring and control of expenditure.

• HSRC, a subsidiary of RVNL, is available to provide consultancy service and also for implementation of high speed corridors in the time to come.

• RVNL has set up a Business Development Cell to participate in competitive bidding process in Infrastructure Sector.

Weaknesses

• RVNL used to be dependent on the Ministry of Railways for funding of projects which is critical for the future growth of the Company and for timely implementation of projects.

• RVNL has not been notified as a Zonal Railway and accordingly does not have the authority to approve drawings, designs etc.

• As per the MoU executed in October 2003, RVNL was mandated for obtaining sanction from Commissioner of Railway Safety but subsequently the same was withdrawn in November 2007. Authority for CRS sanction shall expedite the project commissioning and enhance the project delivery.

• The progress of projects often gets impaired on account of delays in securing the necessary approvals for plans, granting of traffic blocks, etc. from Zonal Railways.

• Changes in approved plans by the Railways, during execution of projects, result in delays.

• RVNL has to depend on Railways for traffic blocks for execution of projects which causes delays.

• The projects taken from market are new and likely to face new kind of challenges.

Opportunities

• With the work of execution of Kolkata Metro projects, RVNL has developed expertise for implementation of metro projects in other cities across the Country.

• RVNL has successfully constructed major workshops for Indian Railways in fast track mode. RVNL can thus undertake implementation of large buildings, factories, townships etc. for other agencies as well.

• With RVNLs growth as a major provider of a variety of rail infrastructure, there is an opportunity of securing rail infrastructure projects overseas.

• RVNL can play a significant role in raising extrabudgetary resources for project execution as this is a specific mandate of the Company and has experience of implementation of projects in PPP mode.

• RVNL is implementing Rishikesh - Karnaprayag project in the Himalayan region and can also take up more such projects in hilly terrainand also projects located at strategic locations.

Threats

• The shortage of technical manpower, with required experience in the rail sector, is a major constraint in the delivery of projects.

• A large percentage of RVNL workforce is deputationists from Indian Railways. Any adverse policy decision may result in railway officers not being available for deputation.

• Land acquisition issues require to be resolved expeditiously so that the progress of projects is not hampered.

• Delays in clearances for project execution such as tree-cutting, removal of utilities from the construction of viaducts for metro rail projects etc.

• A number of projects are being executed along existing running lines, which makes safety a serious challenge.

• Projects are adversely affected due to poor law and order conditions such as those in Left Wing Extremists affected districts. ^•

• Stoppage of work by MOR on nomination basis and withdrawal of power to sanction of estimate.

Industrial Relation: Industrial Relations remained

harmonious and cordial.

Strategies

The Company is taking measures for ensuring cost control and timely delivery of projects, without any compromise on quality for the execution and delivery of rail infrastructure projects on a fast track basis. RVNL can play a significant role in Ministry of Railways efforts of raising extra-budgetary resources for project implementation, especially through the SPV route. Innovative models for project financing will also have to be explored. RVNL has also requested Ministry of Railways that it may be permitted to leverage its equity base to raise funds from the market as per its mandate.

RVNL has created a permanent cadre through absorption to provide institutional continuity and to reduce the dependence on seeking officers and staff on deputation from Railways. Most of the workforce consists of qualified technical staff with experience in Railways and/or its PSUs. Wherever required, RVNL has also recruited specialists to provide expert guidance in its project implementation.

A comprehensive and appropriate training programme is being implemented to develop competent, suitably skilled and qualified manpower. Efforts are also being made to transfer skills and best practices from other infrastructure sectors and acquiring skills related to execution of railway projects.

The Mission, Vision and Objectives of the Company as per the Memorandum of Understanding (MoU) are mentioned below:

Mission

To create state of the art rail transport infrastructure to meet the growing demand.

Vision

To emerge as the most efficient provider of rail infrastructure, with a sound financial base and global construction practices, for timely completion of projects.

Objectives

• To undertake and execute successfully project development, financing and implementation of projects relating to infrastructure, especially rail infrastructure

• To mobilize financial and human resources for project implementation;

• Timely execution of projects with least cost escalation;

• To maintain a cost effective organizational set up;

• To encourage public private participation in rail related projects managed by RVNL;

• To be an infrastructure Project Execution Company committed to sustainable development and environment friendly construction practices of rail related projects in the country;

• To acquire, purchase, license, concession or assign rail infrastructure assets including contractual rights and obligation with the approval of MoR whenever required.

Outlook

The Company proposes to expand its operations through its Subsidiary Company which will undertake the siding construction, siding maintenance, procurement of machines for operation and maintenance, PMC/GC services, solar panel work, Transmission line work, Export of wagon/coaches, Cranes etc, construction of Metro and HSR and also include biding in the open market and thus it would be bidding arm of the parent Company i.e. RVNL.

Total Projects completed by RVNL

Projects	2019-20	2020-21	2021-22	2022-23
Gauge Conversion (GC) + Doubling (DL) + New Line (NL)	751.97 Km	966.39 km	1000.45 km	591.90 km
Railway Electrification (RE)	1207.86 RKM	1340 RKM	525 RKM	271 RKM
Workshop	1 No.	3 Nos.	3 Nos.	4 Nos.

Details of Projects completed by RVNL upto March 2023

Plan Heads	Completed (Km)	No. of Projects
New Line	589.29	5
Gauge Conversion	2095.83	10
Doubling	5670	54
Railway Electrification	7106	35
Metropolitan Transport Project (MTP)	73.1	1
Total	15534.22	105
RE as part of Doubling/GC/NL (Km)	3818.89	-
Workshop projects (Nos.)		17
Cable Stayed Bridge (No.)		1
Others		17
Grand Total		140

Commissioning of RE works for Indian Railways by various Agencies during FY 2022-23 (in RKM)

Agency	Commissioning of RE in RKM
CORE	4770
RVNL	287
Zonal Railways	524
RITES	211
PGCIL	121
IRCON	640
Total	6714

Concerns

Over the past few years, RVNL has been augmenting its organisational capacity for project implementation and achieved a turnover of Rs.19382 crore in 2021-22. The Company is in a position to further increase the turnover, which however, will be dependent on the continued availability of assured funding from the Ministry or directions with regard to raising of Extra Budgetary Resources.

Over a period of time, it is noticed that there is a huge outstanding share of project expenditure due from State Government/Union Government e.g. Government of Andhra Pradesh, Telengana, Himachal Pradesh, Maharashtra for about Rs. 2776.91 crore and MoRTH about Rs. 237.43 crore. Such committed funds from State and Union Government have got bearings on project delivery.

Delays in land acquisition, finalization of plans by users, timely clearance of permissions from other government departments (mainly Ministry of Environment and Forests), law and order problems, and the continued support from Ministry of Railways are main concern areas in project execution. The capacity constraints of agencies capable of delivery of large value rail infrastructure projects will also have to be addressed to ensure the successful and timely completion of projects.

Internal Control Systems

Effective internal control systems have been put in place for monitoring the implementation of projects including periodic reviews of the physical and financial progress, evaluation of efficiency of cost control measures based on inputs of both the Technical and Finance Departments.

Reviews of the progress and nature of expenditure is regularly conducted by the Finance and Accounts Department and reports thereon are submitted to Management. Budgetary reviews are also conducted.

The Company has laid down and developed a framework of internal financial controls, with reference to financial statements and reporting and such controls are adequate and operating effectively. A system of internal audit by an external firm ensures the efficacy of control systems and also submission of comments on the appropriateness of incurrence of expenditure, and their accountal by the Company. The reports of the internal auditor are periodically reviewed by Audit Committee of the Board of Directors and implementation of recommendations are monitored. The Annual Accounts of the Company are also subject to scrutiny by the Statutory Auditor appointed by CAG and Audit by CAG.

Financial Performance

RVNL has achieved all time highest turnover during the year 2022-23. The Company recorded total income of Rs.21285.51 crore compared to Rs. 20190.97 crore in the previous year. Profit after tax for the year 2022-23 is Rs 1267.97 crore as against Rs. 1087.35 crore in the previous year. During the financial year, the Company has earned a turnover of Rs 20281.57 crore as against Rs. 19381.71 crore of previous year with percentage showing an increase of 4.64%

Key Financial Ratios:

S. Name of Ratio No.	Formula	2022-23	2021-22	Variation over FY 2021-22 (%)	Remarks
1 Debtor Turnover (No of Days)	Trade Receivable X 365 / Operating Turnover	17	18	5.55	-
2 Inventory Turnover		NA	NA		Not applicable as Company does not carry any inventory Not applicable as there is no liability on RVNL to serve the debt.
3 Interest Coverage Ratio		NA	NA
4 Current Ratio	Current Assets / Current Liabilities	2.02	2.07	-2.11	-.
5 Debt Equity Ratio	Long term debt / Equity	0.99	1.17	-15.55	-
6 Operating Profit Margin (%)	PBT / Operating Turnover	8.11	7.25	11.86	-
7 Net Profit Margin (%) (PAT / Total Revenue)	PAT/ Total Revenue	5.95	5.38	10.59	-.
8 Return on Net Worth (%)	PAT/ Avg.Net Worth	20.94	20.52	2.05	-

Human Resource Development and Industrial Relations

Rail Vikas Nigam Limited endeavors at enhancing the capabilities of the organization in acquiring, developing, motivating and retaining its human resources in an environment in which team work and cooperation among employees contributes to the growth and wellbeing of individual employees as well as the organization as a whole. Emphasis is laid on employees maintaining work life balance.

To strengthen its position, the Company has formed a nucleus of its own permanent cadre through an Absorption Policy along with a Recruitment & Promotion Policy as approved by the Board of Directors of RVNL.

Cautionary Statement

Statements in the Management Discussion and Analysis Report describing the Companys strengths, strategies, projection and estimates are forward looking statements and progressive within the meaning of applicable laws and regulations. Actual results may vary from those expressed or implied, depending upon economic conditions, government policies and other incidental factors. Readers are cautioned and not to place undue reliance on the forward looking statements.