Rail Vikas Nigam Ltd:Annual Report 2023-24 Analysis

Rail Vikas Nigam Ltd. (RVNL): A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History:

• Established on January 24, 2003, as a 100% owned PSU of the Ministry of Railways.
• Created to undertake rail infrastructure projects and fast-track their implementation.
• Initially focused on implementing capacity enhancement projects related to the Indian Railways network.

Headquarters Location and Global Presence:

• Headquartered in New Delhi, India.
• Primarily operates within India.

Company Vision and Mission:

• Vision: To be a premier organization for efficient and sustainable rail infrastructure development.
• Mission: To implement rail infrastructure projects rapidly and cost-effectively, contributing to the nation’s economic growth.

Key Milestones in their Growth Journey:

• 2003: Incorporation and initial focus on capacity enhancement projects.
• Subsequent Years: Diversification into various railway infrastructure projects, including new lines, gauge conversion, electrification, and workshops.
• 2019: RVNL became a Schedule ‘A’ CPSE.
• 2019: Listed on the stock exchanges (BSE & NSE).

Stock Exchange Listing Details and Market Capitalization:

• Listed on both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in 2019.
• Market capitalization fluctuates based on market conditions and stock performance.

Recent Financial Performance Highlights:

• Financial results vary from year to year.
• RVNL’s revenue and profits are heavily dependent on the volume of projects undertaken and the efficiency of their execution.

Management Team and Leadership Structure:

• The company is managed by a Board of Directors comprising government nominees and independent directors.
• The Chairman and Managing Director (CMD) is the key executive responsible for overall management and strategic direction.

Any Notable Awards or Recognitions:

• RVNL has received awards and recognition for its contributions to infrastructure development and project execution, but specifics can vary year to year.

Their Products #

• New Railway Lines: Construction of new rail routes to connect previously unconnected regions.
• Gauge Conversion: Converting existing narrow gauge or meter gauge lines to broad gauge for improved efficiency and speed.
• Doubling and Tripling: Adding additional tracks to existing lines to increase capacity.
• Railway Electrification: Electrifying existing and new railway lines to reduce reliance on fossil fuels and improve operational efficiency.
• Bridge Construction: Building and rehabilitating railway bridges.
• Workshops and Depots: Construction of railway workshops and maintenance depots.

Primary Customers #

Target Industries and Sectors:

• Primarily serves the Indian Railways.
• Benefits various sectors indirectly by improving transportation infrastructure, including agriculture, industry, and logistics.

Geographic Markets (domestic vs. international):

• Primarily operates within India.
• Potential for expansion into international markets through partnerships or bidding for overseas projects.

Major Client Segments (agricultural, industrial, residential, etc.):

• The primary client is the Indian Railways.
• Benefits sectors such as agriculture, industrial and logistics sectors.

Any Notable Government Contracts or Institutional Clients:

• Mainly undertakes projects for the Indian government, specifically the Ministry of Railways.

Major Competitors #

• Ircon International Limited: Another railway infrastructure construction company under the Ministry of Railways.
• Larsen & Toubro (L&T): A major engineering and construction conglomerate with railway infrastructure capabilities.
• Tata Projects: Another large engineering and construction company.
• Dedicated Freight Corridor Corporation of India Limited (DFCCIL): Focused on dedicated freight corridor projects.
• Private construction and engineering companies that bid for railway infrastructure projects.

Future Outlook #

Expansion Plans or Growth Strategy:

• Focus on expanding its portfolio of projects and diversifying into related areas, such as metro rail projects and high-speed rail.
• Leveraging technology and innovation to improve project execution efficiency.

Sustainability Initiatives or ESG Commitments:

• Focusing on sustainable practices in construction and infrastructure development.
• Promoting railway electrification to reduce carbon emissions.

Industry Trends Affecting Their Business:

• Increasing investment in railway infrastructure by the Indian government.
• Focus on modernization and technological upgrades in the railway sector.
• Growing demand for efficient and sustainable transportation solutions.

Long-term Vision and Strategic Goals:

• To establish itself as a leading railway infrastructure development company in India.
• To contribute to the modernization and expansion of the Indian railway network.
• To deliver high-quality projects on time and within budget.

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Turnover: Increased from ₹19,381 crore (FY 2022) to ₹20,282 crore (FY 2023), and further to ₹21,733 crore (FY 2024), demonstrating consistent growth.
• EBITDA: Rose from ₹1,991 crore (FY 2022) to ₹2,248 crore (FY 2023), and reached ₹2,529 crore (FY 2024).
• PAT: Increased from ₹1,087 crore (FY 2022) to ₹1,268 crore (FY 2023), and further to ₹1,463 crore (FY 2024), indicating improving profitability.
• EPS: Increased consistently, mirroring the PAT trend, from ₹5.22 (FY 2022) to ₹6.08 (FY 2023) and ₹7.02 (FY 2024).
• Net Worth: Grew from ₹5,631 crore (FY 2022) to ₹6,479 crore (FY 2023), and further to ₹7,867 crore (FY 2024), reflecting retained earnings.
• Cash and Cash Equivalent: Decreased from ₹4,570 (FY 2022) to ₹808 (FY 2023) and Increased to ₹1,027 (FY 2024).

Major Strategic Initiatives and Their Progress #

• Diversification: RVNL has successfully ventured into non-railway sectors, securing projects in metro, highways, irrigation, and electrical infrastructure through open bidding.
• International Expansion: RVNL secured its first overseas project in the Maldives (UTF Harbour Project), with 30% overall progress, including completion of dredging and reclamation works. Projects have been awarded for one Rwanda transmission system, and solar PV projects in Uzbekistan and Saudi Arabia.
• PPP Model: RVNL has successfully commissioned five joint venture Special Purpose Vehicles (SPVs) for rail connectivity projects, demonstrating its capability in the PPP model.
• Navratna Status: The upgrade to ‘Navratna’ status in May 2023 signifies enhanced financial autonomy and operational freedom.

Risk Landscape Changes #

• Dependence on Ministry of Railways: RVNL’s operational performance is exposed to the assured availibilty of project expenditure, with MoR accounting for 86.49% of turnover in 2023-24. Revenue for projects secured through bidding have significantly increased as well.
• Project Execution Delays: Challenges related to land acquisition, clearances, and removal of hindrances, especially in projects like Kolkata Metro.

ESG Initiatives and Metrics #

• CSR Expenditure: RVNL spent ₹29.71 crore on CSR initiatives in 2023-24, exceeding 2% of PBT for the last three financial years. Focus areas include education, health, and sanitation.
• ISO Certifications: RVNL has received and maintained ISO 9001, ISO 14001, and ISO 45001 certifications, demonstrating a commitment to quality, environmental, and occupational health and safety management systems.
• Procurement from MSEs: RVNL exceeded targets for procurement from Micro and Small Enterprises (MSMEs), women entrepreneurs, and SC/ST vendors.

Management Outlook #

• RVNL’s taking of works through open bidding indicates a strategic shift towards greater independence and a broader infrastructure portfolio, moving towards “Global All Infra”.
• The focus on securing contracts through open bidding, with a total of 14,880 crore worth contracts, demonstrates its expanding project scope.
• The company has demonstrated commintment to upskilling the workforce by way of various trainings, including Tunnelling, GST-ITC, RCM, Litigation Handling, Auto Cad, BIM, and Primavera.
• The company is aiming to expand into international projects and has created two project units, one in Maldives and the other in Dubai.

Detailed Analysis #

Financial Analysis of Rail Vikas Nigam Limited (RVNL) #

Balance Sheet Analysis #

3-Year Comparative Analysis (Consolidated, in ₹ Crores) #

Significant Changes in Major Line Items (>10% YoY) #

• Other Equity: Increased significantly by 29.06% (₹1,499.48 Crores) from 2023 to 2024, primarily due to retained earnings growth from increased profit.
• Non-current liabilities: Decreased, by 5.53%.
• Investments in Joint Ventures/Associate (Equity Method) : Increased Signifcantly by 26.48%
• Current Liabilities: Increased by 2.95%, and non current liablities decreased by 5.53%
• Other Equity: Increase by 48.12% between FY 2022 to 2023.
• Current Liabilities : decreased by 21.79 %
• Non- Current liabilites: Increased by 7.85%
• Investments in Joint Ventures/Associate (Equity Method) Increased Significantly by 48.32%

Working Capital Trends #

• Current Assets: Increased by 7.74% between 2023 to 2024 and Decreased by 9.54% from 2022 to 2023.
• Current Liabilities: Increased by 2.95% between 2023 to 2024 and Decreased by 21.79% from 2022 to 2023.
• Analysis: The increase in current assets alongside a smaller increase in current liabilities in 2024 indicates a slight improvement in short-term liquidity.

Asset Quality Metrics #

• Trade Receivables: Decreased significantly(8.14%), in Current Financial Year 2024, that is due to increase in collection of bills.
• Project Work in Progress: Increased marginally indicating the construction work in Progress.

Debt Structure and Maturity Profile #

• Non-current Borrowings: The largest component, ₹5,515.77 Crores, is from Indian Railway Finance Corporation (IRFC), with repayments structured over 12 years after a 3-year moratorium.
• Current Maturities of Long-Term Debt (Borrowings): ₹471.99 Crores due within the next 12 months.
• Lease Liabilities: Exist, with both current (₹16.91 Crores) and non-current (₹27.85 Crores) portions.
• Debt Structure: Predominantly long-term, unsecured borrowings from IRFC. The repayment is structured to align with project cash flows, with Ministry of Railways support ensuring debt servicing.

Off-Balance Sheet Items #

• Contingent Liabilities: Claims against the company not acknowledged as debts amounted to ₹3,916.09 Crores.
• Letters of Credit/Bank Guarantees: ₹2475.78 Crores
• Income Tax Demand under dispute-: ₹1,241.86
• GST Demand under dispute- ₹ 124.38 Crore
• Uncalled liability on investment held in SPV- None

RVNL Financial Analysis: FY 2023-24 #

Revenue Breakdown by Segment/Geography #

• FY 2023-24: Railway segment: ₹21,068.77 crore (96.93% of total revenue); Highway: ₹75.15 crore (0.35%); Port: ₹440.77 crore (2.03%); Energy: ₹70.23 crore (0.32%); Others: ₹70.71 crore (0.33%). All Other segments excluding Railway is 3.03% of Total Revenue.
• Geographical: Domestic operations: ₹21,284.86 crore (97.94%); Foreign operations: ₹440.77 crore (2.03%).
• FY 2022-23: Railway Segment: ₹20,265.23 crore (99.92% of total revenue); Other: ₹13.14 crore (0.06% of total Revenue).
• Growth: Total revenue increased by 7.15%, from ₹20,281.57 crore (FY 2022-23) to ₹21,732.58 crore (FY 2023-24). Consolidated revenue in FY 2023-24 show an increase to ₹21,889.23 crore.

Cost Structure Analysis #

• FY 2023-24: Expenditure on Operations: ₹20,041.24 crore (92.22% of turnover); Employee Benefits Expense: ₹184.18 crore; Finance Costs: ₹568.49 crore; Depreciation, Amortization, and Impairment: ₹20.82 crore.
• FY 2022-23: Expenditure on Operations: ₹18,727.60 crore (92.33% of turnover).
• Standalone expenditure on operations: ₹20,041.24 crore; Consolidated expenditure on operations: ₹20,181.86 crore.

Margin Analysis #

• Net Profit Margin (FY 2023-24): 6.73% (Standalone), derived from a net profit of ₹1,462.95 crore on a turnover of ₹21,732.58 crore.
• Net Profit Margin (FY 2022-23): 6.25% (Standalone).
• Operating Income (FY 2023-24): ₹1,691.34 crore, excluding Other Income, with an 8.84% increase over the previous year.

EPS Analysis #

• FY 2023-24: Basic and Diluted EPS: ₹7.02 (Standalone).
• FY 2022-23: Basic and Diluted EPS: ₹6.08 (Standalone).
• Consolidated Basic and Diluted EPS: ₹7.55.

Strategic and Management Analysis of Rail Vikas Nigam Limited (RVNL) #

Long-Term Strategic Goals and Progress #

• RVNL has transitioned from solely executing ‘rail infra’ projects to encompassing all infrastructure domains (‘All Infra’), indicating a strategic shift towards broader market opportunities, locally and globally.
• The company’s operations have expanded beyond its initial mandate, securing projects through competitive bidding and expanding into new sectors like highways, energy, and port infrastructure.
• The company has been awarded with Navratna Status.

Competitive Advantages and Market Positioning #

• RVNL possesses significant experience in executing diverse railway infrastructure projects, making it a major player in the Indian rail sector.
• RVNL leverages Public-Private Partnership (PPP) models, establishing Special Purpose Vehicles (SPVs) for specific projects.

Innovation Initiatives and R&D Effectiveness #

• RVNL’s focus includes adopting new technologies, with the commissioning of Tunnel Boring Machines in Himalayan geology as a notable example of applying new tech.
• The company uses technology to improve efficiency and safety.

M&A Strategy and Execution #

• RVNL has incorporated new SPVs/JVs in India and abroad in various sectors.
• A significant increase in revenue from projects secured through bidding demonstrates a diversification of the company’s business strategy.

Management’s Track Record in Execution #

• RVNL has successfully completed 152 projects with 6187 km of doubling, 2120.36 km of gauge conversion, 615.19 km of new lines, 7317.05 km of pure Railway Electrification, 4347.19 RE as part of NL/GC/DL and 84.40 km of Metropolitan Transport Project (MTP) as of March 31, 2024
• The commissioning of 578.73 km of project length in FY 2023-24, along with the completion of major projects like the Banspani-Daitari-Tomka-Jakhapura doubling, demonstrates effective project execution.
• RVNL received the ‘Excellent’ rating by the Department of Public Enterprises for the 13th consecutive year.

Capital Allocation Strategy #

• A significant portion of RVNL’s turnover is assured by the Ministry of Railways, indicating a stable funding source.
• RVNL contributes equity to SPVs, leveraging partnerships and raising funds through financial institutions.
• Recommended Dividend of H 439.94 crore, showing an increase of 15.38 % over the previous year.

ESG Analysis #

Environmental Metrics and Targets #

• No specific quantified targets for reducing greenhouse gas emissions.
• Limited detailed data on waste generation and management practices.
• Water withdrawal for FY 2023-24 totaled 27,357 kiloliters, up from 22,207.20 kiloliters in FY 2022-23; no normalized water intensity data provided.

Social Responsibility Programs #

• INR 29.71 crores spent on CSR initiatives during 2023-24.
• CSR activities focus on education, healthcare, and sanitation.
• No reported data on worker diversity and inclusion.

Governance Structure and Effectiveness #

• Board comprises Nine Directors: five whole-time, two Government Nominee, and two Independent.
• Board met ten times during FY 2023-24, with high attendance rates.
• Established committees: Audit, CSR, Nomination and Remuneration, and Stakeholder Relationship.
• Board composition did not fully comply with SEBI LODR Regulations and DPE Guidelines due to a lack of the required number of Independent Directors, including a woman Independent Director.

Sustainability Investments and ROI #

• Data on specific sustainability investments and their financial returns not directly available.
• Now a Navratna, resulting in more independence, but the extent is unclear.
• Engages in open bidding for projects, but has not detailed ESG criteria.

Regulatory Compliance and Future Preparations #

• Compliance with all applicable laws and regulations, including the Companies Act, 2013, SEBI (LODR) Regulations, 2015.
• No instances of non-compliance, fines, penalties, or strictures related to capital markets in the last three years, except for a pending notice regarding the appointment of Independent Directors.
• Maintains a Whistle Blower Policy and an Internal Complaints Committee (“Vishaka Committee”).
• Created a separate “Business responsibility and Sustainability Reporting”.

RVNL Financial Analysis: A Forward Outlook #

Management Guidance and Assumptions #

• RVNL aims for timely project completion with high technical standards.
• Diversification beyond railway infrastructure into highways, energy, ports, and metro rail is a key focus.
• Revision of the management fee structure is under consideration, potentially decreasing from 8.5% to 6.62%.
• Emphasis on establishing project-specific Special Purpose Vehicles (SPVs) to mobilize extra-budgetary resources.

Market Growth #

• The Indian logistics market is valued at $200 billion with the potential to reduce logistics costs from 16% to 8%.

Planned Strategic Initiatives #

• Shift from a ‘rail infra’ to an ‘all infra’ approach, expanding into domestic and overseas projects.
• Active participation in open bidding across various infrastructure sectors.
• Continued use of the SPV model for project development and financing.
• Focus on human resource development, including training initiatives (e.g., tunneling, GST, project management software), and employee satisfaction surveys.
• Commitment to Corporate Social Responsibility (CSR) initiatives in education, health, and sanitation.
• ISO certifications (ISO 9001, ISO 14001 & ISO 45001) obtained to ensure quality.

Capital Expenditure Plans #

• Execution of various Railway Infrastructure works (New Line, Gauge Conversion, Doubling/3rd Line/4th Line, Railway Electrification, Workshops, Hill Railway Projects, Institutional Buildings, Metro Railway, Tunnels).
• Funding primarily from the Ministry of Railways.
• NBCC built-up area to be completed at a total cost of ₹ 539.99 crore.

Efficiency Improvement Targets #

• Aim to reduce the effective management fee from 8.5% to 6.62%.
• Upgrading to innovative technologies and collaborative practices.
• 100% procurement target through GeM exceeded, reaching 200.30%.
• MSME procurement at 35.18% against a target of 25%.
• Procurement from women entrepreneurs at 5.24% against a target of 3%.
• Procurement from SC/ST vendors at 4.40% against a target of 4%.

Potential Challenges and Opportunities #

Challenges #

• Land acquisition, clearances, and removal of hindrances and utilities by local authorities.
• Delays in securing approvals from Zonal Railways for project execution.
• Dependence on the Ministry of Railways for funding.
• Dependence on Indian Railways for traffic blocks for execution.

Opportunities #

• Expansion into the broader infrastructure sector (beyond railways) through open bidding.
• Potential for securing international infrastructure projects.
• Leveraging the ‘Navratna’ status for greater financial and operational autonomy.
• Participation in Hill Railway Projects, leveraging tunneling expertise.

Scenario Analysis and Sensitivity to Key Assumptions #

Delays in Land Acquisition or Clearances #

• Sensitivity: High
• Analysis: Delays can significantly impact project timelines and increase costs, affecting turnover and profitability. RVNL’s turnover is heavily dependent on project execution.

Successful Diversification into New Sectors #

• Sensitivity: High
• Analysis: Increased income and profitability are directly attributable to projects in new sectors.

Change in Funding from Ministry of Railways #

• Sensitivity: High
• Analysis: A reduction or delay in funding would directly impact RVNL’s ability to execute projects and achieve its turnover targets, impacting all financial performance metrics.

Fluctuation in Interest Rates #

• Sensitivity: Moderate
• Analysis: The interest is paid by the Ministry of Railways (MoR) as a pass-through entry in the books of RVNL, reducing direct risk.

Audit and Compliance Analysis #

Auditor’s Opinion and Qualifications #

• The Independent Auditor’s Report expresses an unmodified opinion on the standalone and consolidated financial statements, stating they present a true and fair view in conformity with Indian Accounting Standards (Ind AS).
• Emphasis of matter paragraphs highlight: significant receivables from Krishnapatnam Railway Company Limited (KRCL); non-raising of departmental charges on KRCL due to a pending Board decision; and pending confirmations/reconciliations of certain Trade Receivables, Other Assets, and Trade and Other Payable accounts.
• The Auditor Report references material uncertainty of receivables.

Key Accounting Policies and Changes #

• The financial statements are prepared under the historical cost convention and accrual basis, with certain exceptions for fair value measurement as required by Ind AS.
• Revenue from contracts with customers is recognized based on a five-step criteria per Ind AS 115.
• The input method is used to measure the progress of work for revenue recognition.
• For Cost Plus contracts, revenue is recognized based on costs incurred plus a specified margin.
• For Fixed Price contracts, revenue is recognized with reference to the percentage of completion.
• Amendments to Ind AS 1, 8, and 12, effective from April 1, 2023, were adopted, with no material impact reported.
• Material prior period errors are corrected retrospectively.

Internal Control Effectiveness #

• The auditor’s report states that the Company, in all material respects, maintains an adequate internal financial controls system over financial reporting and that such controls were operating effectively as of 31 March 2024.

Regulatory Compliance Status #

• The Company has complied with the Companies Act, 2013, Secretarial Standards, and SEBI (LODR) Regulations, 2015, with the exception of the appointment of the requisite number of Independent Directors, including a woman Independent Director, on its Board.
• The Company is not required to be registered under section 45-IA of the Reserve Bank of India Act, 1934.
• The Company has not accepted deposits or amounts deemed to be deposits.

Legal Proceedings and Their Potential Impact #

• The financial statements disclose the impact of pending litigations. Claims against the Company not acknowledged as debts total INR 3,364.10 crores. Cases pending in court amount to INR 551.99 crores.
• Income tax demands raised by the Income-tax department aggregate to INR 1,241.86 crores, which the Company has not accepted and has appealed.
• GST demands amount to INR 124.38 crore, which the Company has not accepted.

Related Party Transactions #

• The Company entered into related party transactions in the ordinary course of business and on an arm’s length basis.
• The transactions are mainly project execution with Joint venture companies, loans, and investments.
• Significant outstanding balances and transactions with related parties are disclosed in Note 42.6.
• RVNL (Holding Company) holds 100% of HSRC

Subsequent Events #

• Wholly owned Subsidiaries have been incorporated abroad for exploring new business opportunities.
  • RVNL Infra Middle East - Incorporated on 04.04.2024 in Sultanate of Oman
  • RVNL Middle East Contracting L.L.C. (Dubai) - Incorporated on 26.06.2024 in Dubai
  • Rail Vikas Nigam LLC - Incorporated on 01.08.2024 in Uzbekistan
• Board has recommended a final dividend of ₹ 2.11 per share subject to shareholder approval.

Analysis of Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality: The emphasis of matter in the auditor’s report regarding significant receivables from KRCL and non-raising of departmental charges indicate a potential area of concern regarding revenue recognition and recoverability, impacting the quality of earnings, however, management does not expect any material impact. The pending confirmation/reconciliation of balances also highlights an area that needs improvement in the Company’s accounting processes. The adoption of accounting policies consistent with Ind AS suggests a commitment to high-quality financial reporting.
• Regulatory Risk Assessment: The primary regulatory risk stems from the non-compliance with SEBI (LODR) Regulations regarding the composition of the Board of Directors. The ongoing legal and tax disputes represent a moderate regulatory risk, but the Company’s assertion that these claims are reimbursable by clients mitigates the immediate financial impact. The pending appeals and representations suggest the Company is actively managing these risks. The adherence to GeM procurement and MSE policies demonstrates compliance in these areas.
• The lack of a diversified Board of Directors represents regulatory risk.