RailTel’s Q1FY25 Results: What is behind the Numbers?

RailTel Corporation of India (RailTel) delivered a good performance for Q1FY25 with a net profit that increased by 27% YoY to reach Rs 48.7 crore, within the company’s growth guidance of 25–30%. However, despite sound financials, opportunities and challenges are on the horizon as RailTel focuses on an extensive project pipeline and ambitious growth targets to be achieved.

Telecom Revenue Steady Amidst Volatility

Telecom services remain a key focus area for RailTel, with a 12.4% increase in revenues to Rs 330 crore YoY. The EBIT for this segment grew strongly at 29.3% YoY to touch Rs 65.8 crore with an EBIT margin of 20.1%. However, after the reclassification of ECL provisioning (Rs 17.5 crore), the adjusted margin dropped to 14.7%, translating into a slight decline. 

The contributors leading this growth include RailWire’s steady subscriber base, the commissioning of a third data centre, and a significant increase in revenues from NLD, ISP, and IP-1 segments. Data centre revenue jumped from Rs 10 crore in Q1FY24 to Rs 23 crore in Q1FY25, highlighting the rapid increase in data-related services within RailTel’s portfolio.

Project Execution: Double-edged Sword

The company witnessed an annual rise in project revenue of 31% to reach Rs 2,300 crore, though it dropped by 54% QoQ due to seasonality in project execution. The company has a strong order book of Rs 4,800 crore, with Railway and non-railway projects accounting for 22% and 78%, respectively. However, the project’s EBIT margin was under pressure, reducing from 5.4% in FY24 to 4.2%, primarily due to the aggressive bidding strategies.

RailTel’s strategic move towards implementing the Kavach anti-collision system is a significant development. If implemented, this project could add Rs 4,000–5,000 crore to RailTel’s order book, a crucial safety infrastructure for Indian Railways. However, margins on these projects are likely to be initially modest.

Strategic Initiatives and Future Prospects

RailTel has made significant strides in expanding its data centre footprint, primarily through edge data centre rollout. Techno Electric & Engineering Company has been awarded Phase-I, allowing them to meet the entire capex. RailTel will earn a commission of between 12% and 13% while acting as their marketing and technical support partner. The initiative has the potential for significant cross-selling of connectivity services for RailTel, contributing significantly to growth.

Additionally, RailTel’s capex estimate for FY25 stands at Rs 250 crore, supporting its overall growth plan. The company remains confident of achieving 25–30% revenue growth targets within FY25. 

Challenges Ahead

Despite a positive outlook for RailTel, there could be downside risks; margins may continue being eroded by aggressive bidding patterns in railway projects, while any slippages in implementing Kavach could have implications for revenue recognition. Additionally, fluctuations in telecom segment performance arising from unallocated expenses volatility may jeopardise continued profitability.

It is a sensitive time for RailTel, with strong Q1FY25 results that have set the tone for a hopeful fiscal year. Despite RailTel’s large project pipeline and margin pressures from now on, the company must balance them carefully to maintain its growth trajectory. 

In particular, as RailTel moves ahead with its ambitious plans in telecom and project execution, industry stakeholders would like to see if it can manage growth without killing profit.

Thomas George, Managing Editor of Voice&Data, is an ICT expert renowned for his sharp industry insights, analysis, and strategic foresight. He seamlessly blends his industry knowledge with business insights to share his point of view.