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

Thank you. Good morning, everyone, and thank you for joining us on the Q3 and 9M 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 call 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.

Good morning, everybody. Thank you once again for joining us today on our earnings call. I would like to now discuss with you TDPS' financial performance for the 9 months ended December 31, 2020. First standalone, our total income on a standalone basis for 9 months was INR 337 crores versus INR 346 crores for the same period last year. Profit after tax, including comprehensive income for 9 months, is INR 8.12 crores versus a profit of INR 9.24 crores for the same period last year. Previous years, PAT included an exceptional income of INR 2.16 crores from the sale of land. Manufacturing revenues for 9 months was INR 324 crores versus INR 328 crores in the previous year. Exports and deemed exports contributed to 61% of our manufacturing revenues. Manufacturing order book, including our Turkey operations, stands at INR 1,045 crores, INR 276 crores from our generator business, INR 692 crores from our railway business and INR 77 crores from our Turkey business. Exports and deemed exports, including Turkey, excluding the railway business is 73%. Order inflow, 9 months order inflow, including our Turkey operations, stands at INR 372 crores versus INR 419 crores from last year. Project business revenue for 9 months is planned at INR 10 crores versus INR 10 crores last year. Order book for the projects business stands at INR 22 crores. Consolidated, our total income on consol basis is INR 432 crores versus INR 375 crores for the same period of the previous year, an increase of 15%. Profit after tax, including comprehensive and exceptional income is INR 30 crores, including INR 6 crores coming from the write-back of payables during the quarter from our subsidiary DFPS versus a profit of INR 11 crores in the same period of last year. The previous period of last year, included an exceptional income of INR 2.16 crores in sale of land, as discussed earlier. Order book on consol basis stands at INR 1,067 crores. We continue to maintain a strong cash balance of INR 170 crores. Order book, market situation and guidance. Steam turbine business, we see a strong recovery and demand coming from the domestic market. We expect a long CapEx cycle to begin, especially with the recent announcements on the budget from the Government of India and vast allocations for infrastructure spending. We expect metals, cement, chemicals as the key areas where we expect robust demand. Our export orders have also been very strong, especially from Europe. We have won a number of projects in the steam turbine segment from European OEMs for end use both in Europe and outside. Hydro, this segment will lag compared to FY '21. But over the past 2 months, we have seen a rapid recovery of the pipeline and many order finalization. We expect good recovery of this segment in FY '22 and a full recovery in FY '23. Most of the business that we're currently getting is in Nepal and Vietnam, and we are well placed in these markets. Engine business, we continue to get steady and growing business from our customer base in Austria. We have got some nonbinding forecast from our new engine customer, these look really good at the moment but are not firm. However, it is on track, and this customer will surely give us good orders in FY '22. Railways, our major customer has increased the offtake for FY '22 by 10% and is negotiating for more business with the Indian Railways for an increased contractual quantity. Further, we are bidding with this customer for the new upcoming private trains tender, and we expect this will also be a big business for TDPS in years to come. We're happy to announce that we got the first order from Indian Railways, and there are at least 2 more trial orders that we are expecting to win in the next few months. We have to supply these machines by the end of H1 FY '22, and then there will be a 6-month qualification period. Once we have qualified, we can expect this segment to be at least INR 75 crores per year and growing since the Indian Railways has ambitious plan for growth and also the Government of India has allocated huge funds for expansion of railways. Wind, we have delivered our first trial generator to a customer in Germany. It's under qualification. We will keep you updated on the potential volumes and the update on this development. Turkey, the new incentives that have been -- sorry, the new incentives have been announced by the government. And while it is lower than before, it is still very lucrative for the power plant owners to buy a local generator. We have a full Q1 for FY '22, and we also see, after the announcement of these incentives, Q2 is also filling up. Their new local content is 70%, and we will have to make investments to make the complete generator in Turkey, and we have already started our actions to make the full generator in Turkey and keep our market leadership in this market. Overall, we are expanding our product range and geography in the core generator business, and we are moving rapidly to create our railway business to become a big part of our company sales in the future. Let me now move to the guidance. Manufacturing business, we expect to end the year with a top line of INR 600 crores, including Turkey, up by about 5% from our initial guidance, which we had given earlier, which was INR 575 crores to INR 580 crores, including our Turkey subsidiary. All other subsidiaries are going to be profitable, except for the U.S. subsidiary, which will make a small loss due to some postponement of deliveries. I would also like to give my first guidance on FY '22. Based on the current order book and visibility, we expect the manufacturing revenues to be between INR 640 crores and INR 650 crores, including our Turkey business. This brings me to the end of my initial remarks. I'll now be happy to answer any questions that you have. Thank you.

[Operator Instructions] The first question is from the line of Ankit from Bamboo Capital.

Nikhil, in your guidance for next year, what are the major assumptions that the growth that we are expecting from INR 600 crores to INR 640 crores in FY '20? Is it primarily driven by the exports or you are seeing some uptick in domestic market also compared to, let's say, what you were expecting 3, 4 months back? If you can just give some brief update on how we're looking at next year from perspective of both domestic and export markets?

So the INR 600 crores this year includes a substantial portion from Turkey, which is around INR 120 crores. And the Turkey business has -- this year is definitely a peak because many of the power plant owners and incentive -- investors wanted to cash the incentives, which are very high currently. So there was a peak demand, which we saw this year. And this -- the -- with the new incentive regime in place, we don't expect it to be at this level that we experienced this year. So there will be a drop-off in Turkey. Probably the Turkey business will be somewhere between INR 90 crores to INR 100 crores. So the growth then will come from the other parts of the business, and we are seeing that one is railway business and also domestic stream turbine will also increase. And we're also seeing that the export steam turbine, like I mentioned to you earlier, engine business will increase. So it's a mixture of everything. It's not -- we have made some estimates based on the current situation, and we have a pretty firm guidance what we've given to you in terms of the overall number. It could be shifting of numbers from one segment to the other segment, depending on how the things pan out finally for the year, but the number that we put on the table is a fairly firm guidance.

Sure. And on the margin side, with our expectation of around 7%, 8% growth in revenues next year, do you think our margins will also inch towards, let's say, 14%, 15% despite significant increase in the commodity prices?

Yes. So the commodity prices will have an impact, but we are -- we have been working on increasing our margin profile for quite a while now. It's been about 6 months, and we have been getting price increases from customers across the board. We believe that the increase in realizations will more than offset the increase in the raw material prices so -- by a small amount, but not a big amount. But definitely, we will not have a negative situation coming from that. So while there has been a dramatic increase in raw material prices, based on the work we've been doing with the past 6 months, we expect overall the company to be net 0, 0 on this situation.

And so I think this kind of run rate of, let's say, INR 630 crores, INR 640 crores of revenues, at least, let's say, a broad range of 13% to 15% EBITDA margin is possible next year?

We are -- this year, we will end with EBITDA 11 plus. And so we're not going to be adding a significant amount of cost in terms of new capacities and change of that. So there could be -- and even though we have to definitely increase salaries and there will be some fixed cost expenses, which will go up because we have not done very much this year, and people have worked hard and we have to do something for them next year. But if we increase our business -- our increase in business will be definitely more compared to the increase in the fixed costs. So there will be an improvement in the EBITDA margins.

Sure. And just last question on the railway side, you had mentioned over the past few con calls, you have been talking about engagement with the railways for supplies directly. And this quarter in the con call you have mentioned about INR 75 crores of order inflow from them in the medium term...

No, I didn't say it is a INR 75 crores order inflow. I said this is a potential -- we said we got small trial orders, and this can become a INR 75 crores business in the years to come, probably starting from after we did the qualification.

Sure. Sure. So is it -- you had mentioned in the earlier con calls that this business has been largely concentrated with few companies, and we are looking to something, is it that we're displacing an existing supplier or the order inflow itself on railways has increased significantly, and we are getting some market share?

Yes, a bit of both.

Okay. Okay. And the margin profile of this business also will be in line with our existing business?

Yes. Once we are qualified, it will be good.

Okay. Okay. And one thing on the Navy side, we have been talking about it for past few con calls, any update on that? Any significant wins? And how are you seeing that business shaping up for us?

So Navy business, we will deliver the first set of machines in April '21. And there are new tenders in the market, which will take some time for it to materialize. Right now, we are focused on delivering the first set of machines to Navy in April and then they will be installed on the ships. And I think the business -- we don't see big business coming in FY '22. But this can -- after the machines are installed, we will definitely push for more business from the Navy. So let's just wait and see until all the machines are installed. Navy also needs to see -- so the first time they're buying the machine from us, they need to also get some experience. And then I'm sure once they are satisfied with the product, this business will go up for us.

[Operator Instructions] The next question is from the line of Himanshu Upadhyay from PGIM.

Congrats on good set of numbers. A lot of hard work of the company now is showing results of diversification and everything. Really appreciate the things which have happened. My first question was on the locomotive side of Indian Railways, what business we have, what is the opportunity to grow outside Indian Railways also or, let's say, global railways or locomotives? And how competitive is that scenario? And what is -- can we think of that business coming up in next 3 years type of time frame or how are you looking at that business scale up geography...

Right now we are looking only the domestic opportunity and the domestic opportunity is large. This is -- we are not yet in the stage where we can roll this out globally, and we are focusing on the domestic right now. And as I said, it's a large market. We have a lot of space to grow. There's a lot of work to do also. But we have started the journey, and we can -- I'm pretty sure that we will deliver good results from this. But to answer your question, the -- our focus is domestic.

Okay. One more question. We had stated in one of the -- last previous call that it's INR 600 crores to INR 700 crores market in India, and the opportunity size for us is INR 75 crores, okay or what is the scenario...

I'm taking 10% market share, which I feel we can get, okay? I think it will be to be -- once we get there, we can, of course, we can think of expanding the market share. But I'm putting a 10%, conservative 10% market share on the table, which I believe TDPS with its ability and technology and quality can deliver. Of course scope to grow is much more, 10% is not a big market share.

So my question was, do we have the technology for all -- I mean, the INR 700 crores is the market size, let us say theoretically. But do we have a product or the presence across products that we can cater to all INR 700 crores or, let's say 30%, 40%...

Yes, that's a good question. This will -- see the basic technology is available, but to get qualified for different locomotive types and with different divisions of Indian Railways, whether it is in CLW or DLW or Patiala, it takes time. So that's why we are not -- I'm not being overambitious in saying that we will have all the products rolled out in the next 12 months. 3, 4 product types, which we expect to win some trial orders this year. Those, we are going to focus on those, and that's how we will deliver the first set of numbers. But we are going to continuously keep penetrating and trying to get qualified across the whole range. It takes -- it will take its own time. It will take 2 years, 3 years, but we just want to keep going at it.

Okay. Okay. And one last question from my side, this thing the -- you said that there is consolidation which is happening, okay, across -- Siemens and GE and everybody is trying to consolidate on the turbine side. Do you think the pricing is also going to get better from here on or what is the situation right now? Just your thoughts of their consolidation in the new orders, how are they panning out? Is pricing coming back or the cutthroat competitive pricing still remains globally and domestic market also?

Well, contracting the capacity has definitely taken place. One first round has taken place. And we have increased our penetration in the market, but -- and the prices that are existing in the market are attractive for us at this moment. So I have no idea what they are planning next. And I think as you take -- in this size, below 50 as we keep increasing or putting more and more machines in the market, it becomes difficult for the big brands to justify the increased price level or the premiums. So that's all I can say at this point in time. We're just steadily increasing our market share.

The next question is from the line of Dhiral Shah from PhillipCapital.

Sir, with this renewed thrust on capital expenditure by the Government of India, do we have enough capacity to cater the incremental demand?

Yes. Answer is yes. So the intentions of the government are very good, and they've allocated a huge sum of money towards infrastructure spending. And we have to see -- I mean, everyone is expecting now immediate results, but I think the deployment of money and capital into projects and then ordering that whole cycle will start. And once it builds momentum, there'll be a huge demand. It should be a huge demand. It's hard to say. I mean, we are -- we have a capacity of around INR 700 crores for the manufacturing business, and we are now coming to something like INR 550 crores, INR 560 crores next year, and we have plans to get into different segments to take it to INR 700 crores. So the domestic infrastructure spending is really extremely high and demand goes through the roof. We'll see at that point in time. We have options to incrementally increase our capacity without going for major investments in the existing plants.

Okay. So with this existing capacity, we can touch INR 700 crores kind of manufacturing revenues?

Yes, from India.

Okay. Okay. And sir, this new INR 75 crores of business, should we expect this would start kicking in from FY '23?

Yes. Kicking in, yes, FY '23.

Okay. Okay. And sir, there has been a substantial rise in inventory, so if you can explain what has led to this rise, if I see the balance sheet, sir?

We have a very heavy Q4. We have heavy dispatches planned in Q4, almost coming to INR 160 crores plus for the India business alone. And in anticipation of this large production and sale, there's been a buildup of inventory.

Okay. Okay. And sir, lastly, let's say, for next 3 to 5 years, what, according to you, will be a key growth driver for your company? And what kind of top line and margins we would like to achieve, let's say, next 4 to 5 years?

I think that's a hard question to answer on this call. So you can definitely do rather call offline and we can get into those details. It's hard to answer this question talking about 4-, 5-year horizon.

Sure. Sure. And sir, and for the incremental revenue, let's say, we can do around INR 700 crores kind of revenue. Let's say, if we want to achieve INR 1,000 crore kind of revenue, what kind of CapEx will need to incur to touch that kind of a mark?

These are hard questions to put to an earnings call. Let's focus on the earnings than these long-term things.

I'll touch back to you, sir.

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

Congratulations for a very good set of numbers. 2 -- 3 questions. So the first one is your guidance of INR 640 crores, INR 650 crores, I mean, you mentioned 2, 3, one is, of course, you are seeing very strong pipeline from...

Sorry to interrupt. Mr. Desai, your voice is breaking up.

Okay. Is it better?

Much better.

Yes. So Nikhil, in your guidance INR 640 crores to INR 650 crores next year, you referred to 2, 3 things. One is that strong sentiment and revival in domestic market. Second is some nonbinding indication from a new customer and third is FY '22 offtake by our railway customer including that. So are you building in all those things in your guidance or there are some parts which you are saying that benefit is not from to kept it out?

I have given a guidance, which I am pretty sure to achieve, okay? So let me say, I'm not going to put something on the table and go down on that number. There's only an upside potential, and we will get back to you. And once we see clarity on the upside potential.

So this nonbinding order you won't be counting in, right? That's comparing to a...

As I just said, it's really, really hard for me to address customer-specific questions. We take all permutations and combinations when we arrive at a guidance. So we take a best-case situation, worst-case situation, then we come up with a set of numbers, which we are pretty confident to achieve. And that's the number which we put on the table today. And as I said, we expect an upside potential, and we will be happy to share that with you as the time goes by.

Okay. Great. Sir, second question is on Turkey. So I think you indicated that this year is the peak year in terms of the revenue for Turkey, but how should we -- and next year also maybe reasonably good, but how should we think about Turkey business on a steady state base? I mean, any thoughts on that?

I believe the Turkish market is between INR 90 crores to INR 100 crores for us on a steady state basis.

Okay. Okay. That's helpful. And last question, Nikhil, is on we are sitting still on a very reasonably good amount of cash. So any thoughts on buybacks or whether you need any capital to be deployed, any initiative on that side can throw some light?

The share buyback is definitely the #1 preferred option for excess cash, and if there are no opportunities for investments and investment into a regular business for large capacity expansions. So that's all I want to say at this point of time. We are just watching the market a little bit, if some of those large capacity expansion things don't happen, then the first preferred option is to use the excess capital -- excess money for buybacks.

Okay. So does it mean that you have some things on the table, which you may be evaluating for the large expansion kind of a thing?

There are some things which are in the air, let us see. I don't want to talk about it right now, but we -- there's always some opportunities that come up, and we need to see where it goes. And we'll wait another 2, 3 months. And if it doesn't happen, then we'll definitely deploy the cash into buybacks.

The next question is from the line of Dhruvesh Sanghvi from Prospero Tree.

Congratulations for the phenomenal set of numbers. One further follow-up on the consolidation piece. I mean, broadly over the last 3, 4 years, what happened is some units -- some large units got shut, your OEM partnership increased. And there seems to be the sectoral economics, which is helping us with India base, your technology. Will this trend incrementally continue? I mean, you can see more traction towards this type of opportunity where OEMs start looking to completely outsource their small generator businesses to companies like TD Power?

We are not in this outsourcing game of [indiscernible] saying that we can make generators for you and you put your brand name on it and sell it. We are out of that game completely.

Sorry, when I say outsourcing, I'm saying, I'm not talking about not using TD Power's brand name, but yes, I'm saying from an angle that why don't you use TD Power's generator instead of...

No we are not pursuing that business model at all anymore. It is unstable, it is unpredictable and it is one sided. And we end up getting into a situation where we don't really create a base for ourselves, which ensures steady business as well as margins. So when it suits them, they come to us. And when it doesn't suit them, they drop us. So we have stopped that business model a long time ago, and we have pursued the market with our own brand name and with our own products. And this is a longer and harder road, but it is giving results now.

Right. Right. Fair enough. Second is a little bit longer term, I mean, maybe 5, 7 years because every alternate day, we keep hearing something about batteries, and we really don't understand. I mean, what these technologies are, how much time they will take. Some of your thoughts on -- and I understand it's an evolving situation. Nobody can say, for sure, anything about how fast batteries will come up, but your -- some of your personal thoughts will probably help. And how are you thinking about your business from 7, 8 years from this battery perspective?

7, 8 years, I don't have any thoughts for 7, 8 years. I think 7, 8 years is too short of time for batteries to really impact the power generation business. Thing is battery technology really gets to the point where it really becomes first is electric vehicles. And that we will see the big shift in electric vehicles in the next 8 to 10 years. We're already seeing it, right. But large-scale batteries for storage of electricity and completely depending on renewables and moving away from fossil, we -- I personally do not think that this is going to happen in the next 10 years. So if your investment horizon is more than 10 years in TDPS and is meaningful to ask this question, but I think from a short-term perspective, I'm not seeing any threats.

Next question is from the line of [ Arun Garage ] an Investor.

Congratulations on a good set of numbers. I have 2, 3 questions. One is about the railways which you gave 3 things. So I just wanted a clarification. One is 10% extra order quantity on the existing what order we have with the railways, if that is correct?

This is 10% additional volume for the year.

So we were to do around INR 100 crores for FY '22, so it will become INR 110 crores, that is what you're saying?

Yes.

Okay. Then in the same -- railways, we are also going to take part in the private train tender process with our partner, that is a second opportunity, correct?

Yes.

And other than this, the third one, which you talked about is, receiving the order from railways, which is around INR 75 crores potential, is that understanding is correct?

Yes.

Okay. My next question is about the EBITDA margin for the TDPS India to reach Turkey's level of 15%, what should be the quarter revenue it should be?

INR 800 crores.

INR 800 crores, so that would be INR 200 crores per quarter?

Yes, sir.

Okay. The second thing, I think the CFO had informed that there is no more write-off in the whatever till date we have done, and we have written back some INR 5.8 crores during this quarter. Is there any more such write-back options or opportunities are there?

Yes, some small amounts are still pending. And we will -- at the appropriate time, we will reverse those. It's not meaningful. It could be INR 1 crores or INR 2 crores more.

Okay. And lastly, the project business is -- we are not making any money. I believe we were running it keeping some obligations in mind. When you -- is there any plan or timeline to close this division?

No. It's not losing money. It's making a small margin. And at the moment, we don't have any plans to -- there are just a few people left, and they're managing it. And we will -- we get INR 20 crores of top line and some decent bottom line, and we will continue this business. I don't see any reason to completely shut it down, the manpower is just a few people. So it will run.

The next question is from the line of [ Manoj Dua ] an Investor.

Congratulations, Nikhil. All your hard work is paying now. And can you throw some color on the wind side, any new opportunity developing on wind side, how it is going in Europe?

So I have just mentioned in the earnings piece that we are -- we have delivered one generator to a German customer. It's under qualification. They're going to mount it, put it on the windmill and do some testing and get local certifications from the German authorities. We'll talk about some volumes after that, but we are -- there are large domestic -- there's a large domestic market, and there are 2 or 3 major companies in the large domestic market. So we are evaluating whether we should again re-enter the space and develop the products for these people and -- but it's a low margin, high-risk business. It continues to be a low margin, high-risk business. So we are not going full -- we're not putting 100% effort into going into this business because just the risk levels are extremely high and demand also has a big variation. So you can put big capacity and in some years you will have it really good and then some years, you could have just 50% or even 30% of capacity utilization. And that also is the risk factor for us. So at the moment, Manoj, it is only this one customer, and we're talking to other people, but it's not something, I want to highlight to the investment community.

Okay. In last con call, we were talking about our Turkey customer taking us to more geographies going forward, any development on that?

We are still waiting for the 6 months -- for the first few generators to run 6 months. The first one was commissioned in October. So we'll -- as soon as the 6-month expiry is over, we'll be sitting on their heads. So we'll keep you informed.

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

Congratulations on the stellar quarter. So Nikhil, just n a few questions. So you mentioned on hydro, you are seeing a recovery. So I mean, what do you think about FY '22? Will it be still a runoff from FY '21? And if so, if you can broadly sort of ride how much? And you're saying FY '23, you expect a full recovery by what you're seeing today?

Yes. That's what I said.

And so this is on the base of FY '20?

On the base of FY '21.

On the base of FY '21? So just on this hydro, Nikhil, FY '21 would be how much lower than FY '20 broadly?

It's about flat.

Okay. Got it. So FY '21 and FY '20 would be broadly similar, and you would expect this to sort of come back in FY '23?

Correct.

And in terms of -- so next year, broadly, what kind of runoff are you looking at in hydro based on what you're seeing today?

Rohit, I don't want to put a number for the specific segments right now because I don't have -- I mean, I have a number internally, but I don't want to share this number because it can change.

Sure. Not an issue. I understand. And I mean, to an earlier question around margins, I mean -- so if you do -- if you're saying next year, INR 650-odd crores, so I mean, just looking at our number and taking some cost increases, I mean, it seems that we can do 12%, 13% -- between 12%, 13% EBITDA, Nikhil. I mean, is that a fair estimate in your mind?

I think 12% is a fair estimate, and we are constantly striving for more. But I think 12% is a fair estimate.

Right. Right. And this quarter, obviously, we had 35% gross margin. So I mean, was there any one-off in this like some inventory or do you think this -- maybe we can be -- we can touch 33%, 34% kind of gross margin going forward as well?

No. No. This was a one-off. We had one very large export order, which we got some great prices. And we had also done -- taken the currency in euros, and we had got INR 90 to the euro for that order where we had estimated much lower euro realization at the time of taking the order. So it was a bumper. I think steady state, you can expect 30%, 31% gross margin, and we are pushing -- we're trying to hit something like 32% next year. But for calculations, you can take 30%, 31%.

Right. And just one clarification, Nikhil. So when you're broadly saying INR 640 crores, INR 650 crores for next year, so you're looking at probably INR 550 crores to INR 560 crores in TDPS India.

Yes, exactly right.

Got it. So we still have...

Around INR 550 crores -- INR 540 crores, INR 550 crores from TDPS India and the rest from Turkey.

Right. Right. So got it. So I mean, this question, when you talked about INR 700 crores being peak capacity, so I think we've come to a situation where people are now asking are we going to put CapEx? So just wanted to think from -- I may ask from your perspective, how are you thinking about that? I mean, you still want to sort of wait out, you see a year or so to see if the revival comes or how are you thinking?

We, first, as I said, we'll tend to make incremental investments and we can increase the capacity output from INR 700 crores, maybe INR 800 crores. We also have that large generator 2 pole facility, which is still totally not used and that space is fully available. So if I have to -- if I get further demand and if I want to make some products over there, I mean, I have a large building, I just have to put machines and people and start production. So I don't need to start from a greenfield situation. I have -- we have a long way to go before we can think of big capacity greenfield. We're still some ways from that.

Just one last question, and then I'll be back in queue.

[Operator Instructions]

I'll take Rohit's last question and then we'll move ahead.

So in Turkey, I mean, you mentioned you need to put up some investment, what would be the quantum of that?

It's about EUR 1 million.

The next question is from the line of [ Hardik Shah ] from Vibrant Securities.

My question is that this year, how much railway revenue are you budgeting for as of FY 21'? I think INR 140-odd crores was the number you mentioned earlier, is that the number which will be ending this year?

Yes. Around INR 60 crores.

INR 60 crores for railways this year?

Yes.

And this will go to INR 110 crores next year?

Yes.

Got it. And Turkey will go down from INR 120 crores to around INR 80 crores to INR 90 crores?

INR 90 crores, yes, around EUR 10 million.

Okay. Okay. So if I broadly exclude these 2 segments, if I look at the core business -- I mean, not the core business, but excluding Turkey and Railways, basically we are budgeting pretty conservative, I think less than 10% growth, if I'm not wrong?

Yes. It's conservative. I've admitted that. And happy to -- we're very, very happy to declare the upside as and when it develops and gets confirmed.

Okay. Sure. Second question, Nikhil, is on the OpEx side, I see that this quarter was at least a bit higher than generally the run rate, which was around INR 30 crores to INR 31 crores a quarter. This quarter was around INR 34 crores. So was there something which was nonrecurring in nature?

Yes. There were some expenses, which we had to incur during the quarter like under the revenue expenses. These are kind of onetime. If you see the overall annual budget, it will get offset in Q4.

Got it. My third question is, I think you have said that gross margin for next year, we should assume anywhere between 30% to 31%. So if my understanding is correct with our current cost structure, making 12% on that gross margin will sort of be a bit tricky, right? I mean, 12%, don't you think that gross margin need to be a bit higher than 30-odd percent?

31%, so what is your question?

So my question is that do you see a downside risk to your EBITDA margin guidance of 12%? That's my question basically.

No. As I said, we will have -- cost increases will be lower than the growth in the business, and we will be -- we will not have an impact of the raw material price increases on the gross contribution level. So we will be able to expand the EBITDA margin by around 1%.

Okay. I guess, for the year then that because on gross margin levels, that railway thing will go down. Because this year, I think, we have been doing more than 32% at least, 10-month basis, it's more than 32%. So on one side you are saying, that might go down but you're saying that will be more than compensated by decreasing the OpEx much lower than the revenue increase, right? That's what you're saying?

Members of the management team? Hello.

Did we lose them by any chance?

No. No. No. We are here. So your question is that the gross margins are at a lower, you said?

Yes. For the next year, the guidance you have given it implies that they it will go down versus this year, right?

One second. Yes. We will -- if you give us a call after this earnings call, we will answer your question.

The next question is from the line of Anish Jobalia from Banyan Capital Advisors.

First of all, a great performance on the guidance and also great to see the much better order book outlook. So just one question, which I would like to understand, in terms of our FY '22, you have mentioned INR 650 crores. So one thing that I would like to understand in that INR 650 crores, is that like now a very steady revenue base to look at on which we'll be building up all these positives that have been happening, you mentioned in the initial comments. Like how are we thinking about that in terms of the steadiness of the order book?

Yes. So there are 3 components of the INR 650 crores. I mean I think there is a generator business, there's a railway business and there's a Turkey business. These are the 3 -- if you, at a very fundamental level, we can divide our generator -- our total manufacturing business into these 3 parts. And we see the railway business, at the current level, steady, the long-term contract and it's going to grow with additional opportunities that we've been working on. Turkey business, I said, it's a steady state, INR 1,900 crores business. I don't expect big growth over there but it will be steady. And the generator business, the remaining generator business will grow because we have opportunities on the engine side, steam turbine side. Domestic is definitely going to grow. And also, we said hydro is going to be not a very good year for the upcoming year, but it's going to get back to where it was. So yes. I think the INR 650 crores is definitely steady state number and there's only upside potential from there.

So, Nikhil, just follow-up in terms of upside potential. Now in terms of the CapEx coming into these commodities and metals, I mean, how should one think about this in terms of the upside potential? I mean, how would you think about it? I mean, without maybe talking about specific numbers, but can this itself be a big opportunity with order inflows translating into FY '22 and the infusion happening over FY'23.

Look we are going after everything, and we're not letting anyone -- anything just pass us by. So we are in many segments. We are in many geographies in many verticals. And as I said, I put a number on the table, which I'm pretty sure I can achieve. And I've been conservative so there's scope for growth. And I'll be happy to share that with you as the time goes by as we get into next financial year. That's all I can say right now. I mean, I really can't say anything further than that.

Okay. So my second question in terms of the capital allocation, so with the kind of cash that we have on the books, so do you think returning back to the shareholders is a better proportion versus -- I mean, in terms of understanding the opportunity, let's say, about inorganic growth also as a countercyclical move before things start happening better. So is there a scope for that? And before you get into the tailwinds of growth coming back, we can actually become more robust in terms of product capacity or, let's say, the overall ability of the company.

First priority would be to invest in the business, right? And second priority would be return money to the shareholders. The first priority is invest in the business and invest in robust opportunities, which have clear visibility of giving returns over a long-term period. So once those come up, money will go there first.

Sorry, but are we evaluating those opportunities because the kind of cash that we have, I think...

Yes, we are. I'm not in a position to share these with you at the moment. There are a few, but they have to pan out before I can share news with you. All I can say is that we are not in a position to take a decision on the second option of share buyback because the first option of investing in the business is not yet come to the stage where we say, okay, this is not going to happen. So it's still an ongoing conversation.

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

Yes. Thank you very much for joining us on this call. There are a few unanswered questions, and we'd be happy to go offline and talk to individual investors in more detail about those unanswered question. We look forward to interacting with all of you once again at the end of next quarter. Thank you for your time today.