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

Ladies and gentlemen, good day, 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.

Thank you, Inba. Good morning, everyone, and thank you for joining us on the Q2 and H1 FY '21 Earnings Conference Call of TD Power Systems Limited. We have with us Mr. Nikhil Kumar, Managing Director; Ms. M. N. Varalakshmi, Chief Financial Officer; and some of their colleagues in the management team on this call. We will begin the call with brief opening remarks from the management, following which we will have the forum open for an interactive Q&A session. Before we begin, I would like to mention that some of the statements made in today's discussions may be forward-looking in nature and may involve risks and uncertainties. Documents related to the company's financial performance have already been e-mailed to all of you earlier. I would now like to invite Mr. Nikhil Kumar to make his opening remarks. Thank you, and over to you, sir.

Thank you. Good morning, everybody. Thank you once again for joining us today on our earnings call. I hope all of you would have received our results and investor presentation. I will now discuss with you TDPS' financial performance for the quarter and half year ended 30th September 2020. First, stand-alone. Our total income on a stand-alone basis for 6 months was INR 213 crores versus INR 228 crores H1 last year. Profit after tax and comprehensive income for 6 months is INR 1.5 crores versus a profit of INR 4.9 crores same period last year. Profit for the current quarter is INR 11.2 crores. Manufacturing revenues for 6 months is INR 201 crore versus INR 218 crore. Exports and deemed exports contributed to 64% of manufacturing revenues. Our manufacturing order book, including our Turkey operations, stands at INR 1,080 crores. That's INR 287 crores of TDPS India, INR 711 crores of railway business and INR 82 crores is our TDPS Turkey pending order. Order inflow for 6 months has been -- including TDPS Turkey, has been INR 248 crores versus INR 233 crores in the manufacturing business. Order inflow from direct and deemed exports is INR 110 crores. Projects business revenue for 6 months is INR 5 crores flat versus INR 5 crores same period last year. The order book for the projects business stands at INR 26 crores. On a consol basis, our total income is INR 261 crores versus INR 235 crores the same period last year. Profit after tax and comprehensive income for 6 months is INR 8.8 crores versus a profit of INR 4.2 crores same period last year. Profit for the current quarter is INR 18.6 crores. Our consol order book is INR 1,105 crores, breakup is as follows: manufacturing business, total of INR 1,080 crores, as already explained earlier; and we have a projects business pending order of INR 26 crores. We continue to maintain our strong cash position of INR 171 crores. Let me quickly come on to the guidance for this financial year, FY '21. We continue to hold on to the guidance of FY '21, as indicated in our previous calls. So the manufacturing business, TDPS India, will deliver a top line of INR 475 crores to INR 480 crores with an EBITDA margin ranging between 10% to 11%. We expect to do INR 130 crores in Q3, which is the current quarter, and we will do INR 150 crores in Q4. TDPS Turkey, we continue to hold the top line guidance, as mentioned earlier, of INR 100 crores with an EBITDA of 15% to 16%. We expect to do around INR 35 crores in Q3, the current quarter, and INR 10 crores in Q4. As you can see over here, second half revenues for TDPS Turkey, most of it will happen in this quarter and less of it will happen in Q4. Our total manufacturing revenues will, therefore, then be a summation of both TDPS Turkey and TDPS India, which will be between INR 575 crores and INR 580 crores. Our projects business will have a top line of INR 35 crores. All our subsidiaries are going to be profitable except for the U.S. subsidiary, which will break even on an EBITDA basis. Now let me talk a little bit about the operations, order book and market conditions. In TDPS, we have been investing continuously right through the COVID-19 time in robotics and automation. We have also been negotiating with our union for a new productivity agreement. And we have been successful to get them to increase productivity by 20% with the combination of automation as well as reduction of idle time. We expect it to have a significant impact on our efforts of cost control. On a stand-alone basis, our revenue expenses have reduced by INR 5 crores in comparison to previous period last year. Traveling costs have reduced dramatically. And while we see increase in the future, I believe it can never go back to the old days since the ways of doing business have changed forever. We believe that the travel -- that we will travel -- or we need to travel for new customer acquisition, but I don't think travel will be as much as before to maintain existing relationships since expectations have changed. During the last earnings call, we had mentioned that the order book would catch up to the numbers of last year. Including Turkey, which is an integral part of our manufacturing business, our order book for manufacturing has crossed last year, INR 248 crores versus INR 233 crores. Now let me discuss the business segment -- the business scenario segment-wise. And my discussion of the business scenario will be focused mainly looking at the FY '22 business. Steel. So far, the order inflows have been depressed in India. But we have received a good number of orders for end use in Germany, U.K. and the U.S. And these have kept our numbers intact so far. We see the domestic market improving rapidly from now, especially in steel, cement, distilleries and chemicals. This, we believe, will lead to strong order inflows over the next 6 to 8 months, which will impact our business for FY '22. Engine business. We supplied a large number of engines to our main engine customer based in Austria. Next year, demand is expected to remain flat with this engine customer. But we expect good orders from the new engine customers that we have developed based in Germany. Their product qualifications are progressing well. We have also successfully delivered all the 9 units of the 9-megawatt generators for the desalination plant to this engine customer. The engine business, in general, is a [indiscernible] type of business. And you can expect orders all the way to 3 months before the year ending. So we have a lot of time to report on the progress of the business for the next -- for FY '22. We believe there'll definitely be an increase of engine business in FY '22 compared to FY '21. Hydro. Except for Turkey, the overall business will be down for hydro next year. This segment requires travel. And without travel, it will be hard to finalize orders. We expect this business, other than Turkey, to reduce by 20%. Wind. We have added one German customer. The generator has been dispatched. And after reaching Germany, it will go through qualifications. We expect some volume of business from this customer in FY '22. Our strong railway business, progression of segment is as per original plan. Next year's revenues are on track to cross INR 100 crores. Turkey, we have record order book for Q1 FY '22 in Turkey at almost EUR 6 million. And we are really bullish about the future in this market. We have delivered 30 generators to geothermal, hydro, biomass applications and we have commissioned 25 machines already. The products are well accepted in the market. And they're regarded as high quality -- and we are regarded as a high-quality supplier. At this point of time, we are the single largest player in the market. And at the moment, we see no competition. I can give a rough guidance for next year at this point of time. FY '22 will be better than FY '21 for TDPS India. We are not projecting a huge growth at this time, but we have a very positive outlook based on the current scenario. If the COVID vaccine works, the world will come back very -- will come back to normal very quickly. And there will be a release of pent-up demand. TDPS Turkey has a EUR 6 million pending order for execution in Q1 FY '22. And we expect incentives to be renewed based on discussions that we've been having with senior Turkish officials of the government. And based on that, we believe we will do well in Turkey again next year. This brings me to the end of my initial remarks. I'll be happy to address any questions that you may have. Thank you.

[Operator Instructions] Our first question is from the line of Himanshu Upadhyay from PGIM Mutual Fund.

Congratulations on good set of numbers. My first question was, in last quarter, we had stated about defense orders, especially from Navy and all that side. What is the progress on that? And are we getting any new orders? Or how is the outlook on that segment? And what can be the potential size of that business in the future, the way you look at it?

So I have -- so we are due to execute this order either by the end of March, if possible, this year. But definitely, it will happen in Q1 next year. We are still -- there are still some inspections to be done. And if we can manage to do it this year, we will do it this year. Otherwise, it's going to go to next year in April. As mentioned earlier, it's something like -- it could be a INR 20 crore consistent business per year.

Okay. And one more question was, from the time when we got listed till today, our nature or our business has changed, okay? But I would say we are more into the -- at that point of time, thermal was a bigger proportion. Today, other businesses have become a bigger proportion of our revenue. How is the margin profile in the various segments where we are operating? Are these better margin profile businesses or the margin profile remains the same? And how is the -- can you give some guidance on that side? Or -- because we are more into now railway engines and which will be a bigger proportion. And again, at that point of time, Turkey was not there. Now today, Turkey is also there. So just some thoughts on how the gross margins are there in the various segments where you are present? And again, geographically also, if you can give some idea, it would be helpful.

Yes. It's a little complicated question to answer in a simple way. Basically, in 2000, after the IPO, we were mainly making steam turbine generators and mainly domestic -- domestically. And we had very good margins, EBITDA margin, in the region of, I would say, 16%, 18%. But we also expanded our capacity. We expected the market to grow and double that capacity based on the money that we raised through the IPO, increasing our cost quite significantly. And then the market really didn't -- the domestic market didn't really take off as we expected, in fact, it collapsed. So we have spent quite a bit in the past 6, 7 years developing new markets, new products and developing our business in different geographies all over the world. And it's taken time. All I can say is that it's taken time. Now we are -- we -- if we are able to load the factory at this level or at a higher level, we will see that the EBITDA margins will improve. So it's an operational efficiency thing, and you need to load the factory to INR 600 crores, INR 700 crores in India and then you will see the margins coming back to where it was in 2011, 2012. TDPS Turkey is a profitable business for us. We're making extremely complicated machines over there. And technically, very complicated machines, so we are able to get the price that we want and keep a good margin profile because of the nature of the product.

Okay. And one question more, then I'll join back the queue. Over the last few years, we have added many segments, okay, from where we were at the point of 5, 6 years back. Is there any other opportunities you think which can be bigger? Or -- not just geographically, in the product segment, I'm more focused on, my question is more on the product segment.

Yes. That's -- we are actually -- we are -- as -- although I have not mentioned this a lot in the past, we are actively working on developing the Indian Railways business for traction motors. We see a big vacuum over there in the market right now. And it's a large business. It's about a -- regularly, on an annual basis, it's INR 500 crores, INR 600 crores business. And we are entering this business quite aggressively. And it may take a year or 2 to develop. But we want this to be a INR 100 crore segment for our business in the future, Indian Railways. And it's possible to do it.

And my last question, sorry. Generally, in capital goods, the steadier business or margins contribution is always payers and services, okay? And in the traditional business of generators, the spares and services was very minimal, okay? And the life of the product was very long. But the newer segments where we are entering, do you think the ability to have more spares or services would be higher? Or you think it would remain as it used to be there in earlier -- or the actual older product was this? Just some thoughts on that. So when you enter traction motors or newer businesses, do you think that the spares and services business can be a bigger proportion over a period of time? Or do you think it will remain as it is?

Yes. It will remain as it is because the product is basically the same and the expectations of reliability are the same. And we have to build machines that last for minimum 15, 20 years. So that's the expectation from the customer and we have to deliver on that.

[Operator Instructions] Our next question is from the line of Vivek Kumar, an individual investor.

Nikhil, can you throw more light on this Indian locomotive business that you're talking about? Is it about government's plan to electrify everything? And what is the -- at what stage is that business for us? Are we -- can you throw more light?

It's in early stage, Vivek. It's -- yes, it is part of the Indian government's plan to electricity -- to have electrification and they're only -- right now, Indian Railways is only building electric locomotives. And they stopped -- more or less stopped manufacturing diesel locomotives. So this is -- the motor business for the Indian Railways is fairly large, it's a INR 600 crore business annually. We wanted to understand this business completely before we got into it. We also wanted to have some experience in making these products before we jump into it. But now that we have good experience with these products, we are confident that we can enter the business. It's quite competitive, let me say, it's not that there's a big vacuum or there's a shortage of suppliers. It's quite a competitive segment. But we believe that with our manufacturing technology and with our cost, we'll be able to do well in this segment and get a good share. So far, the business is dominated by Crompton Greaves and BHEL. There are a lot of other smaller companies that one doesn't -- we do not really know their names. But there are a number of smaller companies that do this business. But it's an attractive, regular, steady year-on-year business. And it's going to keep growing. So we want to enter this segment and become one of the major players in this segment. It may take, as I said, 2, 3 years. But we have already made a beginning.

So you're confident that you'll get some X -- one of the 4 or 5, 3 players...

Yes. My target is to get it to INR 100 crores business. That's the clear, let's put it that way.

Okay. And outlook, can you throw more outlook on steam engine? Both -- okay, domestically, anyway you have spoken about. But any outlook on steam, how are you looking at exports?

Yes. It's good, as I said in the opening speech that we have got some good orders for end use in Germany, U.K., U.S. And so far, those have kept our numbers intact. But the major volume business really comes from the domestic market and from our domestic OEMs for steam turbines. And I see their business increasing rapidly in the next 6 to 8 months. And consequently, we will also get the benefit of that.

Yes. I've seen this Telangana government putting up waste-to-energy plants and they are planning about more. Are you seeing any other state governments doing that? Any talks or any movement in that direction by other governments, waste-to-energy? Or you're not aware of anything?

I think every municipality is supposed to in the whole country. It should be -- these things take time in India. But yes, eventually, it will -- there will be a strong waste-to-energy -- this will be a strong part of the domestic portfolio, steam turbine business in the future. It's really hard to put a time line on that. Sometimes -- some states move faster than the others.

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

Just to carry on, on the steam generator business, so Nikhil, just like globally, we have seen the large power plant -- critical -- supercritical power plant, the overall demand for large power plants has been coming down. But at least on the smaller and mid-size, there has been some consistent demand. So if you want to take a 3- to 5-year perspective, how do you see this smaller power plant business doing? And what are the key growth drivers of the sustenance of the demand coming from? If you can just give a perspective on that.

So you're right, Manish. The utility, large coal-fired power plant is a dying business worldwide. Probably a dying business also in our country. So there is a -- I think worldwide, people are not going to put up these large coal-fired power plants, except maybe China is the only country where they're still doing it. But for the smaller units, let's say, between 25 megawatt and, let's say, 75 megawatt or 100 megawatt. There are 2 major segments of this part of this business. One is captive and -- captive and process industry, which requires steam as a part of the process. And I would say even waste heat recovery. So these are -- this is all the -- basically the 3 major users, which come from the industrial side. And then of course, you have biomass, garbage incineration, which is the -- on the -- coming on the -- coming -- classified as renewable. So both these segments will not die out. Both these segments actually are growing segments. And especially in India, we're not going to see a big catch-up or not going to see the massive addition of solar and wind, which can replace a captive power plant. It's simply not possible for that to happen, if you're talking about a 3- to 5-year time line. Even a 10-year time line, it's not possible for it to happen. And so this business, steam turbine, will contribute at least up to 100-megawatt or 75-megawatt, will continue in my opinion at least for 1 decade. Then -- I mean -- but if a massive change in technology that takes place, then that could be mainly the battery segment. But that will affect, I think, the automobile industry first before it moves to the power side, because that's where we will see most of the capacity for battery technology being used, being deployed first. That will completely radically change the oil market and it will cause a big upheaval in the whole oil business first, then it may come to power generation next.

Right. Okay. So ideally, I do appreciate that, sir. At least, I believe that for process cogen, where there is a parallel demand for the steam as well as for the power. And the economic does improve a lot for some of the large industries, like steel and cement, to use wastage recovery, so that market definitely. But would it be possible to kind of break up like how much of the market demand is coming from such process cogen-related? And how much would be say biomass renewable based? And how do you see individual segment growth?

It depends on the country. So if we take most of the Western countries, where we're doing business, 90% would be in the segment of -- is coming under the classification of renewables. That means it's biomass or garbage incineration. 10% would be, let's say, process. If we're talking about India, it's the reverse.

Okay. Got it. And Nikhil, one more question on how is the competitive dynamics changing globally? Because we have been seeing that, at least in large power plant, GE and Siemens have announced their exit. And -- so like for you, as a generator player, are you seeing consolidation, like what globally things are changing? And is it improving prospects for you and increase market share?

There is definitely a huge capacity rationalization, which is taking place in this -- in the power business globally. So -- of course GE has been the first to, I would say, get affected by this, let's put it that way. And they have dramatically reduced capacity, but that's mainly on the larger gas and larger steam side. Siemens is now the -- so Siemens is the second larger -- the largest player in the market right now. And they have spun off the energy division into a separate company, it's no longer a part of Siemens AG. And we are hearing that they are sitting on a lot of excess capacity. And they will also have to do something about it, and they will probably do something about it because now they are a separate listed entity, and they will have to provide this on their own P&L. So I see that they will definitely -- my opinion that they will also go through very big changes in their rationalization of capacity. While they do that, I believe that the smaller sizes, you see, let's say, 10-megawatt to 50-megawatt or 60 megawatt, they may take a decision that is no longer profitable for them to make these machines, and then that opens up the market further for us. So I believe these changes will take place in the next 1 year to 2 years. It takes a little bit of time for these large companies to take big decisions like this. But eventually, it's going to take place.

We'll take our next question from the line of Ravi Swaminathan from Spark Capital.

Congrats on a good set of numbers. My first question, I joined a bit late, so if you could give an outlook on the domestic market, what is the current size of the generator market? How has that grown the first half compared to last year? And which are the pockets with cash?

Okay. So I've done some quick estimation. I've also -- so for me, this is -- this was a INR 1,000 crore -- 1,000 megawatt business, which dropped to something like half, to 500-megawatt, after COVID, and I think it's going to get back to 1,000. So -- it will get back to its -- it will get back to 1,000 pretty soon. And the segments are steel, cement, distilleries, ethanol, chemicals.

Okay. Sir, the metals pack, are they seeing -- showing growth, sir? Any encouragement -- encouraging signs of growth from those things?

Yes, I think it's on the recovery path. You see the prices of all metals have fallen dramatically during this COVID time. And they have all taken a big hit. But all metal prices are on the way up dramatically and subsequently -- and it's leading to recovery in these -- in those industries. Now they may wait for a few more months before they take decisions to start investing once again. But I think if this trend continues, they will start.

Got it, sir. Got it. Got it. And with respect to the metal prices going up, so just wanted -- my second question is with respect to -- many of the companies with whom we speak to, they're saying, metal prices have started going up, commodity prices have started going up, and that might have put some pressure on margins. How is it for TD Power? So basically, will it impact margins a bit? Or do we have enough room -- headroom for increasing prices going forward?

We have some headroom to increase prices. I mean there is going to -- first of all, there is going to be an impact of this raw material prices on our margins, for sure, okay? So it's now a question of how much we can -- what we can do to offset it. And I believe that we can offset it by price increases. We're also lucky that the euro -- the rupee depreciation has been quite significant against the euro. So -- and large part of our exports is going to -- is coming through euro. So we will see quite a good amount of money coming from -- additional money coming next year from the depreciation of the rupee versus the euro. And I think that both these things will offset -- more than offset the increase in raw material prices or costs.

Our next question is from the line of Rohit Balakrishnan from Vrddhi Capital.

Am I audible?

Hi, Rohit.

So Nikhil, just a very broad question first up. So based on what you see right now, do you see like FY '22 being better than FY '21 for us overall?

So this year is the -- we said we'll do INR 480 crores in the manufacturing business in India, and we have INR 100 crores plus coming from Turkey, so something like INR 575 crore or so. We will be somewhere close to that next year, or -- but as I said, in India, we will definitely be a little better than what we did this year. So maybe some growth this year from India. And Turkey, they have a very strong first quarter, but the incentives run out in the end of the first quarter. And -- but I believe that they -- they have been talking to the Turkish government officials and they said they will extend the incentives, although with different conditions. But in whichever way that they extend the incentives, I think it's fine as long as they extend it. And the market, it's a good market to be in. So we believe it will be a steady-state around EUR 10 million to EUR 12 million market for us. So close to INR 100 crores once again. And -- so I'm cautiously optimistic about -- that we're definitely going to grow, right? And we're definitely going to also have an improvement in the margin profile next year. But how much of growth, I can tell you probably -- I can give you a better idea when we talk next at the end of the next quarter.

And -- I mean typically in Turkey, like how does the ordering typically -- I mean typically what is the order cycle like? I mean -- so the incentives run out, I think, in December -- as of now. So bookings -- I mean so order booking should ideally -- you already have a robust Q1. So it's -- so you -- I mean do you expect that if, let's say, in a scenario that incentives run out in -- or incentives renewed in 2021, do you expect a surge in the next couple of quarters or that is difficult to -- I mean are you hearing anything of that sort?

No, there are -- see there are -- so there was the first deadline which was October this year, which -- and then they gave 2 additional deadlines. They gave December. So people who commissioned by December this year, they will get the incentives starting from '22. And then people who commissioned by June will get the incentives starting from '23 for 10 years. So this -- when this announcement came out, there were only a limited number of projects that could actually be completed and generate power by June next year, because you have to -- it's not just the generator but you also have to build a power plant and get the turbines and other -- along with equipment. So it's not only about the generator lead time. So only a certain number of projects have been able to -- are taking the risk to order equipment and try to meet the deadline of June. And that, as I said, has resulted in business for about EUR 6 million for us for Q1. But there is a lot of other stuff in the pipeline which cannot catch this deadline, but nevertheless, still in the pipeline. And it's a really good market for hydro and for geothermal, very strong renewable energy market. It's probably one of the largest markets in the world for hydro and probably one of the largest markets in the world for -- it's the largest market in the world for geothermal.

So right now, let's say this year in FY '21, how much of the hydro business would be from Turkey, Nikhil?

I don't have that number off the top of my head right now, Rohit. You can -- I will revert back to you.

Okay. Got it. And just one bookkeeping question. So in the cash flows, there is this other receivables which has gone up by about INR 16 crores. Can you just explain what is that, INR 17 crores, there is an increase in other receivables? So if you can -- I couldn't really place that in the balance sheet. So can you just help me with that number?

Yes. Varalakshmi, could you please explain that?

Yes, sir. Actually, the sales have been high in Q2. So that is why the receivables have also gone up.

Ma'am, actually, if I look at your trade receivables, that number actually has reduced in the balance sheet from INR 173 crores in March to about INR 160 crores, so that's a reduction. This is also alluded in the cash flow statement, which says that there is a decrease in trade receivables of about INR 5 crores. But just below that, there is a number which is INR 17 crore. So I just wanted to understand that.

Okay, sir. I'll come back to you after this call.

Our next question is from the line of Himanshu Upadhyay from PGIM Mutual Fund.

Yes. On the Turkey business, what we are doing in Turkey is majorly waste heat recovery and those machines only? And what is the thought process from here on? Means how large is that market? And is it catering mainly to Europe market or also some exports outside Europe also in the Turkey business?

We are making the machines exclusively for the Turkish market. It's mainly hydro and geothermal. And to a smaller extent, it is waste heat recovery and biomass. And it is the domestic market. It is a -- as I said, it could be EUR 10 million to EUR 12 million market per year for us.

Okay. But not across the Europe, means this is -- is there any challenge to -- means cater to the whole Europe market?

No, it is cheaper for us to manufacture in India and export our machines from India to Europe. Turkey is definitely a higher cost country compared to India.

Turkey is a higher cost country? Okay, okay.

We'll take our next question from the line of Abhibrat Sharma, an individual investor.

The last con call, you mentioned that you were doing some business with the Indian Navy. So what is the update on that?

I have already given an update. So we are on the process. We should deliver this machine by end of March, or definitely early April. We -- so the project is on a fast track, and it will be completed by -- definitely by early April.

Our next question is from the line of Deepak Poddar from Sapphire Capital.

Sir, I just wanted to understand -- like we have seen a big jump in our EBITDA margin. What are the 1 to 3 key reason for that? Because your gross margin remains the same largely. Is it the operating leverage advantage that we got?

Yes, operating leverage. We also reduced our revenue expenses quite a lot and you'll also see that Turkey has added a good -- a decent amount of -- almost 40% of the margins coming from Turkey. So that will be our main reasons.

But you don't expect...

When we do INR 130 crores, INR 140 crores manufacturing business from Bangalore, we make -- we will -- we make these kind of margins.

Right, right. So you don't expect such margin to continue, right? Because your mix will change going forward in terms of your turnover.

No, why do you say that? I have already given you a clear guidance that we are going to continue the same level of business in Q3, in Q4. I've already given the guidance for Turkey, it's going to go all the way up to Q1. So why do you say that it's not going to -- it's definitely going to -- the next 3 quarters, definitely we see a clear signal that this is going to be our margin profile, at least next 3 quarters.

Okay. And no -- so sir, the reason I asked was because in the India manufacturing, you're still seeing about 10% to 11%. So if you kind of have combined India with Turkey, so your margin profile will decline from current 15%?

Sorry, I didn't understand. Could you repeat the question, please?

No, no -- so for India manufacturing, you already mentioned we are still looking at about 10% to 11% EBITDA margin, right?

Yes. On a -- at the end of the year, yes.

Yes. So if you combine India and Turkey, you still will be having less than 15% margin because India is your -- like 80% of your...

Correct. Correct. Correct.

Yes, yes. So that's what I wanted to know. This 15% margin is not -- is sustainable, That's what you're saying?

No, we have told 15%...

15% is not sustainable. The current level of margin what we made -- done in this quarter, in Q2, it's not a one-off. We can -- we have sufficient business to perform at the same level for the next 3 quarters. This is what I meant to say.

Our next question is from the line of Adit Shah from Vibrant Securities.

Nikhil, my first question is on the gross margin. On the -- over the last 2 quarters, we have delivered 32%, which is on the higher side of our historical ranges. So going forward, do you want to hazard a guess on the gross margins? Number two, on the operating expenses, considering that we have negotiated a higher productivity with the current workforce and also some automation. So earlier, you had guided that we can see if we assume that OpEx should not grow at more than 5% to 6%. So should we assume the same guidance?

So the gross -- first question of gross margin, 32% would be a very, very sweet spot for us. And that's the goal of the management to get to that on a consistent basis. So we -- all our actions in terms of the price increases or cost reductions or -- on the product side as well as, let's say, getting some benefit from the exchange rates, we should definitely be around 32%, let's -- let me be a little conservative in saying that, 31%, 32% is where we should be by the end of the year. Coming to the second question about cost and productivity. 5%, 6% per year is on the higher side. We would definitely like to control it within, let's say, 3% to 4%.

That is heartening to know. Can I just follow-up with 2 more questions?

Yes.

On the export side, what are the general receivable days for us? And #2 is, are we -- I just read about, in U.K., there is, I think, their first geothermal project. So did we bid for that? Or did we have business there in U.K.? Or are we trying to look at new markets for geothermal?

Yes. So I don't know about the project in U.K. But geothermal, we work through -- once again, we work through OEMs. And there are 2 or 3 companies in the world that dominate the geothermal business. One is a company called -- Israeli company called Ormat. And we have just started working with Ormat, so all our -- many of our projects in Turkey are with Ormat. And we will start working with them globally. They have said after about -- they want to see the performance of the machine for 6 months, then they will roll us out globally. So we will get to a global stage with -- on geothermal with -- through Ormat, I would say, sometime next year. We need to...

What was the size of the geothermal globally? Opportunity, annual?

See, Ormat does about, I think -- so it's about 600 to 700 megawatts per year globally, out of which I think Ormat by itself does about 400 megawatts.

Got it. And what is that number for Turkey within that set?

Turkey itself will be 150-megawatt to 200-megawatt market.

Got it. Got it. So that's, I think, more than 30%. Got it. And what about the receivable days within exports? Is it like 4 to 5 months? Is it safe to assume it will remain that?

So it is -- for some customers, it is 45 days, but with our long-term marquee customers, it is between 90 days and 120 days -- even 120 days.

So you don't expect the working capital position to improve or should remain at these levels, right? 35%, 40% of revenues?

Receivables will not -- we can -- what we can do is we can improve operational efficiency and reduce our inventory.

Got it. And any opportunities...

[indiscernible] about the receivables.

Okay. Nikhil, one more thing, any opportunity for us in oil and gas drive sort of turbine-driven generators?

No, drive turbine, those -- I mean drive turbines are turbines that are driving -- instead of driving a generator, they're driving a compressor or driving -- they're driving something else, they're not driving a generator. So that's why it's called a drive turbine. It's not for power generation. We have still not made a big inroad into the oil and gas market. We have just started some business with solar gas turbines, which is a big player in the oil and gas market for turbines below 25 megawatts. But it's a long, slow process. And we have not yet made that big breakthrough to work with Exxon or with Shell or -- we still haven't made those breakthroughs as yet. But those guys control all the business. So we have to get into one of those large companies and then we can get into the oil and gas market. But it's really, really hard to crack into that. We still have not been able to do that.

[Operator Instructions] Our next question is from the line of Anish Jobalia from Banyan Capital Advisors.

At the start of the year, with the kind of patterns that we were seeing in the order inflows, we kind of thought that FY '22 could look better and probably would cross even INR 700 crores. Our order inflow in the first 3 months in Q1 was nearly INR 99 crores, which is INR 32 crores per month. And then that further got increased to nearly INR 50 crores in Q2. So -- and we are also expecting to do only INR 55 crores in the railway business for the entire year and INR 100 crores in the next year, so there is an incremental INR 45 crores opportunity. And our customers in India are just looking about good pickup in the inquiry levels in the domestic market for steam turbines. So -- and which you also kind of alluded to that we could see this order inflow in the next 6 to 9 months. So just to understand, like, why are we this cautiously optimistic for FY '22? And if you could help me to understand what am I missing?

Well, Anish, you're right. One could be bullish. I think we are aggressive, but we're being -- we're being aggressive but we're being cautious in giving the projections out here. Because I think from TDPS's side, the management side, from my side, we want to deliver consistent results quarter-on-quarter. And we want to deliver as good results as we had done in Q2 for the upcoming quarters. And we will now do that for the next upcoming quarters. It is -- we are aggressive in pursuing more business. And as and when we're successful, we will report it to the market. But whatever is happening nowadays is a rapidly changing situation. So today, it is something. Tomorrow, it is something else. And we don't want to go out and make really bullish projections and then fall flat on our face. It's as simple as that.

Okay. And just a follow-up, is there any other positive development in terms of any new orders that we could prospectively get going forward?

There are a lot of -- we have put our fingers in lots of pies all over the world. So it's hard to answer that question specifically, but there's a lot of things that we are doing right now in every segment. So let's hope that we will be lucky and win some big orders. And we will win some, but it's a question of -- sometimes you win one big one and then that changes the numbers completely.

Our next question is from the line of Rohit Balakrishnan from Vrddhi Capital.

Yes...

Sorry to interrupt. Mr. Balakrishnan, if you're speaking on a hands-free mode, can you switch to handset, please? We can't hear you...

Yes. Is it better now?

Thank you.

Yes. So just in terms of just geothermal, Nikhil, do you -- so you said that this Israeli company, Ormat, they will sort of see for us -- see us for the next -- for 6 months. So this 6 months ends when exactly?

It is not going to be like a cutoff date. I think around March next year, we will start talking to them. And then they will start including our name in some of the projects that they are bidding on, and then those negotiations will take some time. But this whole -- we are in the Ormat system, okay? So we have delivered now 5 large machines to them, 30-megawatt size approximately. And they're all commissioned, working in Turkey. So touchwood, everything should go well and they will be impressed and then they will use us in the other markets all over the world. They will, we are definitely cost-competitive compared to the existing supplier. The machines are performing really well so far, touchwood. And there is -- we have to be patient and wait.

Sure. Sure. And on the engine side, the new customer that you were -- that we supplied the desalination engine. So how is that progressing? You were expecting them to be a good customer.

So they were delivered. Now they have to be commissioned and they have to run. And everything in the end comes down to the performance of the machine. So probably by next quarter, we'll have some results to report to you.

Got it. And just to understand, Nikhil, so in terms of -- so once this -- once these machines are delivered and hopefully, the performance should also -- there should not be any surprises there. But once -- so -- I mean once these go through them, is there a negotiation cycle? Or -- I mean -- because you've mentioned in the past that you expect them to be INR 90 crore, INR 100 crore kind of customer for you. So -- I mean obviously -- so just want to understand how this will ramp up? And any thoughts on that?

I don't -- it should -- I have an idea of what it should be like for next year, but I will give clarity at the end of next quarter what it could be. I can't give you a number right now.

Got it. And just one more question. You mentioned hydro being a bit challenged because of travel restrictions. Has that incrementally improved as traveling -- travel restrictions sort of have incrementally been eased out or -- and then that continues? So has that improved? And do you expect sometime, maybe not for next year, but order inflow for the next -- order inflow during the next year or the subsequent year, that -- could that come back? Or do you see that also in early discussions right now, not sort of recovering?

I don't see travel really -- it's better than what it was during March, April, May, but it's still not -- people can't freely travel in other countries without crazy quarantine restrictions and things like that. So it's not really back to normal. And even if you step out of India, you come back, you get into a 14-day quarantine. So it's not normal. And to answer your question about whether the hydro business will come back, yes, it will come back. But if you ask me when exactly, it's hard to say. I think next year is going to be affected, and we hope that next year things will improve dramatically and life will get back to normal, and we should see a good business back to normal in '23 -- FY '23.

We'll take our next question from the line of V.P. Rajesh from Banyan Capital.

Congratulations on a good set of numbers. Just a question on...

Mr. Rajesh, you're not clearly audible. If you're in a hands-free mode, please switch it to a handset.

Okay. [Technical Difficulty] Hello?

I think his mobile signal is not good. I'm not able to -- your voice is breaking up.

Let me come back in with you.

Mr. V.P. Rajesh, we request you to take this question off-line. I now hand the conference back to the management for closing comments. That was the last question, sir. You may please go ahead.

Yes, thank you for this extensive interaction everybody. We are -- we're really happy to discuss our numbers with you, and we're looking forward to another good quarter, and we will talk to you once again after 3 months. Thank you very much.

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