Heads, A wins, tails, B loses. It must be nice to be A. Whatever happens, it wins. Whether there’s a pandemic or an economic slowdown or the fact that the government has just opened railway construction bids to private players. There’s one company that has been winning — RITES or ‘Rail India Technical and Economic Service’. Although the infrastructure and consultancy PSU saw its revenue decline 44% in Q2FY21, compared to Q2FY20, it has a lot going for itself. The company has largely managed to sustain its growth momentum even while dealing with delays in execution and payments from certain projects and clients. Between FY15 and FY20, its revenue grew 19% CAGR while net profit grew 14% CAGR (See: Runaway growth).
One of the key factors for RITES’ growth momentum is its well-diversified business. With four engines of growth — consultancy, leasing, exports and turnkey — the company is hedged against risks that come with any infrastructure business. Its core business, consultancy, got more than 40% of FY20 revenue, under which the company examines feasibility of projects, for various sectors including railways, roads and highways, ports, inland waterways, airports and more.
This segment is its biggest strength since, besides human capital, the company does not need heavy investment. “Consultancy is an asset-light yet high-margin business. And since RITES is a government-owned company, it is in pole position as far as winning orders is concerned,” says Pankaj Bobade, head-fundamental research, Axis Securities.
You don’t want to be left behind. Do you?
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