RITES Limited: Navigating Growth with Strategic Mix and Robust Order Book in Q2 FY26

RITES Limited, a prominent Schedule 'A' Enterprise under the Government of India, has announced its financial results for the second quarter of Fiscal Year 2026 (Q2 FY26), showcasing a period of strategic execution and robust profit growth despite a mixed top-line performance. The company reported a significant increase in its Profit After Tax (PAT) by 32.2% year-on-year and 20.0% quarter-on-quarter, reaching INR 109 crore. This strong bottom-line performance was complemented by a healthy rise in EBITDA and Profit Before Tax (PBT), which grew by 27.6% and 31.5% year-on-year, respectively. While the consolidated total revenue saw a modest increase of 3.0% year-on-year to INR 579 crore, the underlying segmental dynamics reveal a strategic shift towards higher-margin businesses.

The company's segmental performance, particularly on a standalone basis, highlights the drivers of this profitability. Consultancy continued to be the largest revenue contributor, bringing in INR 298 crore in Q2 FY26, an increase of 9.5% from the previous year. The export segment witnessed an extraordinary surge, growing by 2523.4% to INR 61 crore, primarily driven by the dispatch of locomotives to Mozambique. Leasing income also saw a healthy rise of 21.7% to INR 43 crore, attributed to an increase in the loco fleet. However, the turnkey segment experienced a significant decline of 43.8%, with revenue falling to INR 113 crore. This dip in turnkey revenue was largely due to the relatively young age of the current order book, with most projects still in their initial phases of execution. Other income contributed INR 47 crore, growing by 9.5%.

Strategic Initiatives and Future Outlook

Management's commentary emphasized a clear strategic roadmap focused on consistent order intake, expanding into new geographies, and maintaining healthy margins. RITES successfully maintained its 'one order a day' strike rate, securing over 150 projects totaling INR 850 crore in Q2 FY26. This consistent order acquisition has propelled the company's order book to an all-time high of INR 9,090 crore, with an ambitious target to reach INR 10,000 crore by the end of the current fiscal year. The company's commitment to securing one export order per quarter has also been consistently met, exemplified by the INR 160 crore order for 10 locomotives for South Africa.

Key strategic initiatives include business collaborations through MoUs, such as with NICC, Abu Dhabi, which has already facilitated expansion into the Middle-East with an office in the UAE and projects in Jordan. Another significant partnership with CMPDI aims to tap into the mining and renewable energy sectors, diversifying RITES' service portfolio. Furthermore, the company's joint venture with DNV, Italy, for Independent Safety Assessment (ISA) certification of Vande Bharat coaches, underscores its role in critical national infrastructure projects and strengthens its quality assurance vertical.

Operational Efficiency and Margin Sustainability

The improvement in profit margins is a direct result of a favorable segmental mix, with a higher proportion of revenue coming from consultancy and exports, which typically command better margins. While turnkey projects have lower margins (1-2%), the management clarified that their scope of work remains that of a consultant, even in turnkey projects, with the difference primarily being in the method of financial accounting. This distinction is crucial for understanding the company's core business model as a consultancy firm rather than a construction company.

The management also addressed the impact of employee superannuation, noting a large number of employees from the company's initial growth phase are nearing retirement. However, RITES is proactively inducting new talent, including project-based employees, to ensure a continuous increase in its overall workforce. This proactive approach aims to mitigate any potential impact on operational capabilities.

Conclusion: A Foundation for Sustained Growth

RITES Limited's Q2 FY26 performance reflects a company with strategic clarity and disciplined execution. Despite challenges in the turnkey segment, the focus on high-margin consultancy and rapidly growing exports has bolstered profitability. The robust order book, coupled with strategic partnerships and a commitment to consistent order intake, lays a strong foundation for sustained growth. Management's guidance for double-digit top-line growth and maintaining healthy margins, along with a consistent dividend payout, reinforces confidence in RITES' ability to deliver value to its stakeholders in the coming quarters and fiscal years. The recent Letter of Award from National Institute of Mental Health & Neuro Sciences for 'PMC for the construction of New Outpatient Department (OPD) building at NIMHANS Bangalore campus to be undertaken on turnkey basis' further exemplifies the company's continued success in securing significant projects.