TD Power Systems Limited (533553) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning. And welcome to the TD Power Systems Limited Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Devrishi Singh of CDR India. Thank you and over to you, sir.

Good morning. And thank you for joining us on this call to discuss financial results of TD Power Systems Limited for the quarter and year ended March 31, 2020. We have with us Mr. Nikhil Kumar, Managing Director; and Mrs. M. N. Varalakshmi, Chief Financial Officer from the management team on this call. Before we begin, I would like to mention that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Documents relating to the company's financial performance have already been e-mailed to all of you earlier. I now invite Mr. Nikhil Kumar to provide key highlights of the company's performance for the year ended 31 March 2020. Thank you, and over to you, sir.

Thank you. Good morning, everyone. Thank you once again for joining us today on our earnings call. Let me start by discussing TDPS's financial performance for the year ended 31 March 2020. Stand-alone. On a stand-alone basis, our full year total income was INR 494 crores versus INR 456 crores the previous year. Profit after tax and other comprehensive income was INR 16.9 crores versus INR 6.97 crores. Full year manufacturing revenues is INR 455 crores versus INR 408 crores, an increase of 12%. Exports and deemed exports contributed 65% of manufacturing revenues without the railway business, and it was 59% including the railway business. Unfortunately, we lost around INR 30 crores of manufacturing revenues due to COVID-19 lockdowns and inability to get inspectors to come to India or inspectors from India to come to Bangalore, starting from around March 10. After that, we had trouble finish -- to ship out our finished goods. And then when the eventual lockdown started on 22nd of March, we had to close down our factory, and everything came to a grinding halt. Manufacturing order book, including Turkey operations stands today at INR 1,107 crores; INR 306 crore is our manufacturing business, generator business; INR 715 crores is our railway business; and INR 86 crores is our Turkey business. Exports and deemed exports, excluding the railway business, is around 66%. Order inflow. The order inflow for TDPS India for the current year was INR 468 crores for the manufacturing business. For Turkey, we had INR 88 crores. So our total order inflow for the manufacturing business for the year ended March 2020 was INR 556 crores versus last year -- the year before, sorry, of INR 484 crores. Our projects business. Our full year projects business revenue was INR 32 crores versus INR 43 crores the previous year. The pending order for this segment is INR 22 crores. Consolidated. On a consol basis, full year total income, including exceptional items, was INR 542 crores versus INR 468 crores. Profit after tax, including comprehensive and exceptional income, was INR 28.85 crores versus a profit of INR 2.9 crores the previous year. During the year, the company wrote back payables of around INR 12 crores in our subsidiary company, DF Power Systems. Our consolidated order book is INR 1,129 crores, which is, manufacturing business, as I said to you earlier, was INR 306 crores; railway business is INR 715 crores; Turkey business is INR 86 crores; and projects business is INR 22 crores. Now I'd like to talk a little bit about the market situation. So ever since the COVID-19 lockdown started and we've had, I would say, disruption in the entire business cycle across the country and also in the world, we have been trying to analyze the market and our position in the market more in terms of just 2 questions: what will be the impact of all this on the company's business for the current fiscal, that is FY '21? And then what will be the impact on the company's business beyond FY '21? Let me answer the first part of the question -- or first question out of the 2 questions about this year's fiscal. So looking into the pending order of FY '21, we were blessed with a very strong order inflow last financial year. We also had a spillover from last year due to the COVID-19 lockdowns of around INR 30 crores. But correspondingly, we have also seen after the lockdowns have been lifted that we have postponements up to approximately the same amount as the spillover that took place from last year. At the moment, we have no order cancellations. We have also observed that most of the postponements are from the Indian market, and we have negligible postponement from outside India. The good news is that our railway business for the Indian market is totally intact with the original projections, which were there pre-COVID-19. So overall, we see that our business for FY '21 is still stable at this time, and we still expect FY '21 to be a very good year for the company. Of course, there is an impact from COVID-19. Since FY '21 actually was on track to be an exceptional year with greater than 25% growth, but now we firmly revised that growth to be around 16% to 18% over last year, including our business from TDPS Turkey. Regarding projections for FY '22, we have seen that we still have some momentum from pre-COVID, and we have seen fairly strong order inflows in April and May. At the moment, we don't see much disruption from our business from international market, and most of the pipeline that was there pre-COVID-19, most of the pipeline we see is still intact. However, some of the sectors are really hammered like the shale oil business, but lower oil prices means that we're seeing more engine business, and we're seeing more gas turbine business. Overall, the net effect is positive for TDPS. We're also confident that Indian market will bounce back eventually, and it is not a question of all doom and gloom. We're also expecting that Indian Railways will expect the number of locomotives required by around 10% to 15% for FY '22. Over and above that, our development and progress with new customers is still very much on track, and we will see good inflows from newly developed customers in FY '22. In summary, we are overall very positive about FY '22, but I also want to convey that we are still cautious about FY '22, but at the same time, we are cautious, but we are very optimistic. As I mentioned earlier, FY '21, we are extremely confident about hitting our numbers. So the guidance for FY '21 will be -- guidance for FY '21, manufacturing business, TDPS India, top line INR 480 crores to INR 500 crores with EBITDA of around 10% to 11%; TDPS Turkey, top line around INR 85 crores; and the total manufacturing business will be between INR 565 crores to INR 585 crores for FY '21. The projects business will give a top line of around INR 35 crores. I would also like to say that in terms of the quarterly performance, Q1 in this financial year will be a washout, since we have lost around 6 weeks. We were really able to restart operations only around May 15, and it's only now that we see that the operations are in full swing once again. So effectively, we have lost 2 months. So Q1 will definitely be a washout. However, we are working around the clock to catch up, and we will -- we are very hopeful that we will catch up with our numbers by the end of H1. So we are projecting something like INR 65 crores business only in Q1, but we hope that -- we are pretty sure that we will catch up with numbers by the end of H1 somewhat similar to where we were last year. And then we see the real growth taking place in H2 where we have the pending orders. This brings me to the end of my initial remarks. I'll now be happy to address any query that you may have. Thank you.

[Operator Instructions] The first question is from the line of Kirthi Jain from Sundaram Mutual Fund.

Sir, first is, like, you have highlighted that FY '22 also you are being cautiously positive. What is the rationale behind it? Sorry, sir, the voice got a little bit muted around that level. I missed your commentary, actually.

No, what I said was that things are a little unclear. It's going to need -- I said that on the international side, we are not seeing any slowing down of the pipeline. But definitely, on the domestic side, we we will need some -- a little bit of time for the domestic market to pick up, but we are -- I'm confident that the domestic market will pick up, and I'm confident that the economy will get back on track. It may take a little bit of time, but it will get back on track. So the cautiousness is just due to the fact that we don't see the clear visibility, but there is an overall confidence.

Sir, just if you can highlight in April-May, how has been -- any order got finalized for us? Or how has been the order flow for April and May, sir? Anything you can highlight?

Yes. April and May, as I said to you on the speech, there's been -- we have had a really good, strong order inflow.

Okay. Sir, in terms of the manufacturing activity, how has been -- like, now it has been a state government subject. How has been our throughput, sir, now in terms of the factory utilization? Or are we getting labor support? How have been the things at our factory shops, sir?

We shut down the factory around -- on March 22, along with the rest of the country. And then on April 22, we were able to get the permission from the state government to reopen the factory. We opened -- reopened, but unfortunately, at that time, we were not allowed to bring in workmen from neighboring districts where -- since we are on the -- our factory is located at the edge of Bangalore district and Tumkur district. Most of our workmen and most of our employees live in Tumkur. Unfortunately, we could not get the permission for the people movement, although we had permission for the factory to open. So we ran the factory initially until May 3 or May 4 only with around 25% manpower, but we started the factory. Also, we were not able to get permissions for our suppliers to open. So anyway, we opened. We were able to push out some finished goods, and we were able to start some movement of some manufacturing activity. Things really picked up, I think, from 3rd of May, but even then, it was -- it's been a slow and gradual, I would say, return to normalcy. And now you can say around this time, end of the month -- end May, we have been able to ramp it back to 100%.

Okay. Sir, like earlier, if you see our capacity was, say, 60% kind of -- 50%, 60% kind of utilization. So now factory utilization would have been at the full throughput, right, sir, to compensate for the lost output?

Yes. Basically, we had to produce in 10 months what was the plan for 12 months. Correct. So in that sense, yes, and we're also saying that we are going to grow the business. So overall will be -- manufacturing turnover, including TDPS Turkey, will be up 16% to 18%, we are saying. Yes, so we have -- we are fully -- we're going to be running flat out for the next 10 months.

Sir, Turkey, you didn't give the margins, sir. Turkey is also similar in margin, sir?

Yes. Maybe Turkey will be a little bit more margin compared to India. Definitely.

So basically, we should say, around INR 60 crores kind of EBITDA you're looking at, at least on a base case.

Yes.

Sir, in the cash flows, when we see, sir, we have seen a very good cash flow improvement in FY '20. Given the situation, will we be able to maintain such a momentum in FY '21 also, sir?

There will be an impact of having 0 sales from March 22 to maybe around 15th of May because we -- that's almost, you can say, 60 days of 0 sales. So down the line, 60 days later, which is, say, July -- around middle July to middle August, we are going to suddenly find that -- we are going to find that the receivables are -- I mean, there's no collectibles. We have to keep the factory running, and that's the time when we're also going to be having a maximum ramp-up of production. So we have made funding arrangements. So I think we will talk to our customers, and we will try to improve the advances a little bit. We have some increased bank borrowings. We have our deposits. So we have INR 178 crores of deposits. So financially, I don't think we're going to have any problems to fund our production. And we will do -- we will keep the things moving.

Good, sir. Good to hear, sir. Congratulations for a great year, sir.

Thank you. Thank you, Kirthi.

The next question is from the line of Ankit Gupta from Bamboo Capital.

Sir, FY '21 because we already have good orders in hand, you seem to be pretty optimistic that FY '21 will be good. But from your commentary, it also seems that FY '22, there will also be decent growth. So any view on how -- what gives you that confidence that FY '22 will also be good for us, apart from the locomotive business that we have? We already have good order book for it.

So as I -- firstly, we are not so dependent on the domestic market. So if you look at -- about 35% of our business comes from domestic, pure domestic and, say -- 30%, you can say. We don't -- so even if that shrinks by 30%, the overall business will not be so much badly impacted. We are pretty confident that our export business will hold up, sustain and grow. So we are not so dependent on India for our business. And that's why I have this optimism about FY '22. But I'm not so pessimistic about India also. I think there is time, and markets will recover and consumption will return because we have no choice in our country, but we have to get back to work, and we're getting back to work. And eventually in about 2 or 3 months' time, I think people are going to forget COVID-19, and there's no way forward for our country. We have to get back to work. We can't have one more lockdown. So that's why I'm really confident that we will -- the country will bounce back and maybe it could be -- some effect could be there, but overall, I think we may not lose much business from domestic side also for next year.

Okay, okay, okay. And sir, coming to the segment-wise performance, we -- I think, as you had highlighted in last year also that hydro will bounce back in FY '20, and it has bounced back to FY '18 kind of levels. And diesel and gas have also performed pretty well for us. So any -- how will -- which segments will be driving growth for us in FY '21 and FY '22? If you can just share your thoughts on that.

FY '21, this current year, it is definitely the gas engine business, it is hydro, it is the railway business, and it is gas turbine business. And we're having -- we may have -- we will have a reduction on the steam turbine business mainly because there's going to be a contraction coming from India. Next year, it is going to be -- we're going to see a revival of steam turbine, and we will see -- the hydro business is still going to be very, very strong. Gas engine and other things is very short cycle, so should remain stable, but I can't give such a definite projection about it at this moment.

Okay, okay, okay. And sir, we -- for the traction motor segment, we have also highlighted that we are also in talks with more contracts for -- from that segment from our existing customers as well as from other customers. So any development on that front?

Talks are on. Negotiations are on. That's all I can say. It's just been -- everything has been interrupted by -- from March 15, everything has been put on hold. So there's no progress to report from last time.

Okay, okay. But the order size for this segment can be in line or less than what we currently have for that segment of INR 750 crores?

Some of them are large. I think it's too early to talk about it. Negotiations are going on.

[Operator Instructions] The next question is from the line of Ravi Swaminathan from Spark Capital.

Congrats on a good set of numbers -- given the challenging times, congrats on the good set of numbers. My first question is regarding -- which are the sectors from which you are seeing inquiries, both in domestic and international markets?

I think it's the same old sectors. International business is still -- it is biomass, garbage-burning plants and things like that -- or steam turbine. And we are seeing the gas engine business particularly is quite strong this year, and we also hope it will continue in the next year. Domestic side, as I said, domestic side is where we are seeing a lot of holes, postponements and things like that, mainly because one is that we see that the Indian -- because of the lockdown, many of our customers who may have had projects under construction and projects which -- all those construction activities would have come to a grinding halt and for them to restart with all these migrant labor problems and things like that. It's really an issue where they have not been able to get the things back on track. So naturally, we are seeing postponement from the Indian side. But it will come back. Sectors in India, steel, cement, paper, chemicals. So it's all there, intact, but it will take a little bit of time to recover.

Got it. So the inquiries from international markets even during the lockdown phase, the past 2 months phase has largely remained intact, and it's just that...

Inquiries -- negotiations have been taking place over phone and e-mail and video conference. And main thing is more -- all our international customers, all our turbine makers or all our international turbine makers or engine makers, none of them closed -- had to go through a lockdown. None of them shut down. They were all running. They were all running maybe, say, between 70% to 90% capacity. It is only in our country that we had this thing about this lockdown and this complete shutdown.

And in terms of pricing of orders, has it seen an improvement year-on-year or over the past couple of years? Has there been any...

Past couple of years, yes, there's been an improvement. But at the moment, I don't think that anyone is going to -- we can't go into the market demanding higher prices. So whatever benefits we get from the exchange rates and whatever benefit we get from the dip in the raw material prices that took place during the COVID-19, that benefit company will get.

The next question is from the line of Dhwanil Desai from Turtle Capital.

Are you able to hear me?

Yes, loud and clear. Thank you.

Yes. So 2 questions. So one is on the gas engine side. I think we had got into -- got entry into 2 new accounts in the last 1.5, 2 years in gas engines. So how is the trial order going and ramp-up? And what is their feedback? If you can elaborate on that. And second question is on Turkey. So I think you did quite well in Turkey this year. We are -- we did around INR 86 crore business in Turkey. So on that base, how does the order book and pipeline look like? And do we anticipate any growth or at least maintaining this number on the Turkey side? These are the 2 questions.

Yes. So Turkey, we have a really good year, but I don't think that we will be able to sustain that volume of business for FY '22. Probably it may drop by about 25%. So it is still very much an incentive-driven market. So there is a regime of incentives which expire in this year, and the government has to extend the incentives. If the government extends the incentives, we will see maybe around 70% of the business in FY '22. If the government does not extend the incentives, then we may see around 50% of the business because we still have a grip on the market and most of our customers will continue with projects, and they will buy our machines, whether we make them in Turkey or don't make them in Turkey. On the engine side, the development is very much in -- we have to deliver the first machine next month -- actually, this month June end. And its development is going on. Its -- we have 4 more engine types to supply by September. We will do that. I think by the end of the year, all our machines will be qualified, and then they will start quoting all their projects, and we will see the business coming in next year.

Okay. Sir, FY '22 may see the outcome of whatever that we supplied this year in terms of either ramp up happens and how fast, right? So is that a fair assumption?

Yes, yes, yes.

The next question is from the line of Manoj Dua from MD Investments.

I missed the initial part of the commentary. What is the target for this year and for the next year? What is the guidance for the sales for this year and next year?

Yes. So manufacturing business, top line from India, TDPS India, INR 480 crores to INR 500 crores; TDPS Turkey, INR 85 crores. So total manufacturing top line is INR 565 crores to INR 585 crores. And projects business is INR 35 crores.

Okay. And you've given guidance for the next year also, FY '21-'22?

No, no, no.

Okay. My second question is regarding waste to energy. Yesterday, I was reading one news that NTPC has signed with EDMC for the waste disposable in Ghaziabad landfill, actually. I know this is a government thing. What do you think is the long-term solution for this? And if the opportunity arises in this, are we in a segment which will apply to this segment? Are they below 50 megawatt?

Yes, it is all below 50 megawatt. And if this segment really grows the way that we expect it to grow, there could be 500 turbines required. So it will be a big business for us and for Siemens and for Triveni.

Okay. So what do you see in this? Because I live near Noida, and the Ghaziabad is near my [ region ], it has become bigger than the Qutub Minar, the landfill. So how much time this municipality corporation can ignore this problem? And what do you see feedback you are getting from municipality -- or from Triveni regarding this?

We are all expecting this business to grow, but execution at the ground level is -- your guess is as good as mine.

The next question is from the line of Nilesh Kumar from Blue Fin Capital.

My questions are done.

The next question is from the line of Anubhav Mukherjee from Prescient Capital.

Am I audible?

Yes, very much.

Sir, the receivable absolute amount and also in terms of days of sales has improved drastically. So is this a trend that will continue? Because working capital had been an issue earlier. So has that trend reversed? Or is there some change in that?

No, the moment -- see, our marketing group has done a phenomenal job last year in collecting money and making sure that the cash flow for the company has improved a lot. So what we're seeing is the result of their effort pre-COVID days. There could be some temporary disruption in that effort for some time, but the -- but overall, I think, the -- we are still putting a lot of effort to make sure that our collections and our receivables are under control for this year. They're doing a -- I'm sure they will succeed, and I'm sure that we will keep things under control for this year. There's a certain amount of uncertainty for sure because, overall, liquidity position is poor at least in India. But from the international side, we'll get our money on time. So I'm not worried about that.

Okay. And sir, if I look at the manufacturing revenue breakup, sir, even this year, the domestic revenue was almost half of the sales. So firstly, like, given the domestic scenario, does it pose a challenge for growth going forward? And secondly...

No, you have to break it up -- take out the railway business from that and then you will see that it is around 35%.

Okay, okay. How much was railway this year?

INR 45 crores.

And sir, what is it expected in FY '21 and maybe possibly '22?

Around INR 90 crores.

And '22 at the same level or will it grow from there?

It should grow.

[Operator Instructions] The next question is from the line of Manish Goyal from Enam Holdings.

Nikhil, just a bit on steam business. I a bit need more clarity on the outlook. You said in international, you expect steam business to be a little lower? You meant for the revenue side or even on the order inflow side? And -- as well as the domestic also, if you can give a perspective for the steam business.

Revenue side, definitely lower this year compared to last year. And order inflow side, we expect the recovery to take place. But all the steel business as we book right now will go for next year because there's about 8 to 9 months lead time, and it will start getting into next year deliveries. But -- the outlook is not bad, but for this year, we lost some -- we lost the momentum on the steam side.

Yes. Sure. Definitely. So if you can break it up between international and domestic. So international, you mentioned that biomass and municipal solid waste will continue to do well.

Yes.

Okay. And in domestic, ideally, probably due to slowdown, you may probably see deferments or slowdown...

It should pick up again, Manish. But initially -- I mean, right now, there is definitely some slowing down, but we expect it to pick up and get back on track in a couple of months, 3 months -- 2, 3 months from now.

Okay. And these first 2 months, you said order inflow was good. So was it largely from the international market?

Yes.

And you had inflows from steam as well?

I have not checked the breakup of that. Some inflows, yes, from steam.

Okay. And on the gas engine and gas turbine-related generator business is also looking fine for the current year.

Yes, it's looking very good for this year.

So ideally, this gas engines and turbines is ideally -- the demand is coming from the combined-cycle power plants or how is it?

Combined-cycle power plants, also greenhouses, also -- greenhouses in cold countries, then there is emergency power, then there is backup power -- yes, yes, backup power. Nobody burns diesel anymore. So all gas engines.

Right. And just -- sorry, I have not kept a track of it, but are you making gas engines or it's generators for -- along with engines?

No, we make only generators for gas engines. We don't make engines. We don't make any prime mover.

The next question is from the line of Kirthi Jain from Sundaram Mutual Fund.

Sir, on hydro, how you see the FY '21, sir, in terms of order flows and inquiries?

Hydro will still -- this year will be a very good year. We -- as I said, FY '21 will -- we have a very strong order book already on hand, and we still can book some smaller machines for the rest of the year. And there's a good pipeline for next year.

Okay, okay. Sir, how has been -- any new customer has been added in this segment? Or how has been our [ share movement ] with the customer?

Yes, we have added -- so we have come out of the [indiscernible] agreement, and we are now free to work with all customers all over the world. So we have added a lot of new customers, and we have a lot of space to grow now in this business.

Ladies and gentlemen, that was the last question. I now hand the conference over to the management for their closing comments.

Yes, thank you very much for joining us on this conference call. It's been a pleasure to interact with all of you. If you have any further questions, please feel free to get in touch with me or my management team. We look forward to interacting with all of you again at the end of next quarter. Thank you.

Thank you. Ladies and gentlemen, on behalf of TD Power Systems Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.