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. Good morning, everyone, and thank you for joining us on the Q3 and 9M FY '22 Earnings Conference Call of TD Power Systems Limited. We have with us Mr. Nikhil Kumar, Managing Director; Mrs. 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 risk 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, Nikhil.

Good morning, everybody. Thank you once again for joining us today on our earnings call. I trust all of you who have received our results and investor presentation. Now I'd like to discuss the TDPS' financial performance for the quarter and 9 months ended 31 December 2021. Stand-alone, our total income on a stand-alone basis for 9 months was INR 5.13 billion versus INR 3.37 billion for the same period in the previous year. Profit after tax and comprehensive income for 9 months was INR 314 million versus a profit of INR 81 million for the same period in the previous year. Manufacturing revenues for 9 months was INR 4.93 billion versus INR 3.24 billion. Exports and deemed exports contributed 51% of manufacturing revenues. Our manufacturing order book, including our Turkey operations, stands at INR 10.01 billion, out of which INR 3.46 billion in regular manufacturing business, INR 6.39 million Railway business and INR 0.16 billion in the Turkey business. Exports and deemed exports, excluding the traction business is about 55%. Order inflow, we're very happy to report a big increase in the 9 months order inflow for TDPS India from INR 3.07 billion last year to INR 4.12 billion this year for 9 months, an increase of 34%. Order inflow from exports and deemed exports is INR 2.42 billion, about 60% of the total order inflow. Projects business revenue for 9 months is INR 0.13 billion versus INR 0.1 billion for the same period in the previous year. The order book for the projects business stands at INR 0.16 billion. Consolidated, our total income on a consol basis for 9 months was INR 5.86 billion versus RMB 4.38 billion for the same period in the previous year. Corporate after tax and comprehensive income for 9 months was INR 378 million versus a profit of INR 29 million. So it is obviously the profit of INR 295 million for the same period in the previous year. Profits have been impacted due to a foreign exchange translation loss of INR 6.93 crores, it's a notional loss from our foreign subsidiary, Turkey, due to a sharp depreciation of the Turkish lira to the Indian rupee from TRY 8.84 to Indian rupee at the beginning of the year to TRY 5.51 to Indian rupee at the end of this quarter, a drop of 38%. It is important to note that TDPS Turkey has an actual operation profit of INR 37.26 million. Our consol order book is INR 10.21 billion. We continue to maintain a strong cash position of INR 2.13 billion. Now I'll talk a little bit about the order book, market situation and guidance. The total order inflow up to end of Q3 was INR 412 crores versus INR 306 crores in the same period last year. Once again, in this previous quarter, we have seen strong order inflows in all segments of our business. In particular, we are seeing strong inflows from steel, gas engines and gas turbines. In the case of gas engines, we're also getting a good number of orders from our second major customer located in Germany. We're also happy to report another order from solar gas turbines for 2 more machines for the mobile power unit for the shale gas industry. In the case of hydro, we have finalized a number of large orders in the beginning of Q4, and these will help boost the numbers of our order book for Q4. Overall, the trend is positive and ensure that we will have a strong FY '23. In the case of new segments, there is a very active inquiry pipeline of about INR 2.25 billion synchronous motors and about INR 0.5 billion for large induction motors. We hope to get a good share and the very active in these segments. These orders will also boost the revenue for FY '23. Last quarter, we announced an order for the repair business in wind generators. We are pleased to report that we have successfully dispatched the machine, which had also been successfully commissioned. With this success, we are most certainly going to get a number of machines in this quarter, and we are in active negotiations with a number of customers. We have successfully tested the traction motors for Indian Railways, and we'd be calling for customers -- calling the customers final performance testing in March. This project still is on track. Market situation. Now I'd like to talk a little bit about pricing and the effect of raw material prices on our gross contribution. The worst part of the impact of raw material prices was in Q3. From Q4, we will see better gross contribution with the new prices filtering in. In Q3, we had some very good orders in the aftermarket business, which helped contain the impact to a large extent. The biggest impact that we have taken -- I guess, negative impact that we have taken in Q3 from the Indian market customers. But as mentioned, we will see a return to around 30% in Q4 and 31% to 32% by H1 next year. The market continues to be buoyant with a number of orders in the pipeline. So the main focus of the management is to improve the gross contribution to 32% or better. More aftermarket business in wind and repairs of our existing fleet can increase the gross contribution better. All our export customers have given us price increases effective from 1 Jan this year and the impact will be seen immediately. Other contracts are protected with price variation clauses and some of our customers have extended the release beyond the contract since some raw material price increases are not being reflected in the indices that the PVC clauses are based on. Guidance for this financial year. Manufacturing business, our top line guidance of INR 6.9 billion to INR 7 billion indicated in our previous calls, remains unchanged. However, we are happy to now improve our guidance for profitability with EBITDA margins ranging between 11.5% to 12%. And we're also happy to announce that we will be having a PBT on a consol basis, including exceptional income of minimum INR 720 million plus compared to INR 553 million last year, representing a growth of at least 30% in these typical times. TDPS Turkey, our top line would be around INR 0.8 billion. Total manufacturing top line between INR 7.7 billion to INR 7.8 billion. Projects business, we have a top line of INR 0.25 billion. All our subsidiary, they will be profitable, except the U.S. subsidiary, which will be breakeven on an EBITDA basis. We're also giving our first half guidance for next year. We'll have at least a 10% increase in the top line of TDPS India and improvement in the gross contribution to 31% to 32%, as mentioned earlier. This brings me to the end of my initial remarks. I'll now be happy to address any questions that you may have. Thank you.

[Operator Instructions] The first question is from the line of Himanshu Upadhyay from O3 Capital.

Congrats on good set of results, okay. So, yes, the first thing was on this Turkey business, okay? The loss what we have taken, the translation loss, it is on our -- in one of the older calls, we had stated that we have not brought back the money from Turkey, okay? So this translation loss is on our cash, what we were holding in that country or it is -- on the P&L side, the translation loss you are telling. Just can you elaborate on that part? And how much would be on the cash which we were having in that subsidiary, how much has been the translation loss? And what is the value of that cash currently?

Varalakshmi, I'll ask you to answer this question.

Actually, the translation loss is on the current assets of the company. And this translation loss is because we converted some Turkish lira to India rupee. But actually, all our contracts are in euros. So when we bring back the money it will be in euros and this loss will be wiped off.

Okay. Okay. And one thing, on the order book, when we see my -- or the current order book, let's say, this -- '21, okay? So consol is INR 1,020 crores, okay, versus December '20 was INR 1,067 crores. So there has been a decrease in domestic railways, which is okay. But we are not seeing a significant increase in the order book, okay, as of now versus last year, okay? The biggest jump is in the domestic from INR 93 crores to INR 150 crores, okay? So can you elaborate on what gives us confidence on the growth what we are having? Because the order book currently is not showing that remarkable improvement. So some idea of would be...

The Indian Railways -- the Railways business will be decreasing every year by about INR 100 crores. So if you look at the...

This will be -- the order book will decrease...

Yes, the order book will decrease because we are executing every year. So from the Railway business, we will have a decreasing order book because it's a fixed contract for 8 years. And so, the other part of our business, the manufacture -- the generator business that we are seeing an increase in the order book as I already mentioned of about 35%. So there is an increase in the overall executable orders in the generator business. As far as the Railway business is concerned, we will do what we are supposed to do. Every year, we're supposed to do INR 120 crores. We will do INR 120 crores on that.

Okay. Okay.

And that will keep decreasing. That will keep decreasing every year until we add a new customer, which we are in the process of adding a new -- Indian Railways as a new customer. So until we add this new customer, that large order will keep reducing in value year-on-year.

Okay. Okay. And one more thing in the order book, the exports, okay? In the deemed exports remain flattish, okay? So the major growth is -- and even Turkey has come down from INR 76 crores last year to INR 15 crores. So can you elaborate on outside India, what is happening? And how are you looking at the order book in -- outside India? Your domestic has done pretty well. But exports, how should we look at in Turkey, these 2 entities for FY '23?

The exports has been flat. A big increase was taken in the domestic market, that's correct. Turkey, as we told in the last call, there is a big decrease in the Turkish business, and we don't expect the Turkish business to contribute significantly in FY '23. So we had about INR 80 crores -- we had the INR 80 crores this year. Next year, it could be as low as INR 25 crores. So we don't expect a big change in the Turkish -- we don't -- because it's a big problem in the Turkish market due to the devaluation of the Turkish lira. Most of the power plants and projects that come up in Turkey are with euro funding or with dollar funding. And with the sharp depreciation with Turkish lira to the extent of almost 40%, it is very hard for borrowers to secure funding with the extent of depreciation which has taken place and then, therefore, that's impacting the projects in the Turkish market. So until we see some stability in the exchange rate or improvement in exchange rate and some stability in the Turkish market, we expect the business to be quite for some period.

Okay. And one small question, last, then I'll join back in the queue. So with the significant depreciation in lira of Turkey, how competitive is it for manufacturing base versus India currently now? Because from India, we were exporting to Europe and Turkey was -- basically manufacturing was for Turkey only. But with the significant reduction, have the -- do you think it becomes more interesting source of...

No. It's also -- they also have 20% inflation. So it's not possible to -- so you have increasing -- your increases in costs are going up at the rate of 20% per year. It's not possible. It compensates the drop in the exchange rate.

Okay. Okay. So that facility will have to be used only for Turkey. And whenever the revival in Turkey happens, then that facility becomes -- again the source of growth for us. So that way we need to understand.

Yes.

The next question is from the line of Nikhil Upadhyay from SIMPL.

Two, three questions, sir. If we look at it in the commentary you mentioned that this quarter our gross profit margin was around 30% versus Q2. And some of the repair business supported us in terms of having a better gross margin. And in the last call you had mentioned that once this billed orders retain, we are able to deliver, then probably the -- a large part of the market will get opened, which we were not playing earlier. So, if we add the orders which probably when can provide with the price increases and all, if you say 31%, 32% gross margin, it looks a bit weaker. So, do you think that the cost inflation could sustain at a lot higher rate than what price increases we have taken that's why the mix of it will keep it at 31%, 32%? Or how the price increase versus the commodity and the better margin order mix is playing out for us? Probably next year, this quarter is...

Yes. So, I've given tentative guidance, it could be viewed as being a little conservative. And are we happy to improve this guidance in the upcoming calls, as and when we see better visibility of the business, but yes, you're right, there is a lot of scope for improvement, and we are aware of that. And we are working towards, not just limiting the gross contribution towards 31%, 32%, but we are working towards increasing it, hoping it could be better than that. And I'll be happy to report better numbers in the quarters to come. At the moment, we are placing the numbers a little bit conservatively.

Okay. Secondly, sir, even in last quarter and even in -- if we look at our presentation, order breakup, the export orders have been -- have -- the export market still seems to be a bit weak and even in Q2, you mentioned that a lot of growth is coming from domestic and export. How is the inquiry pipeline shaping up in export market?

Actually, export market is quite good. We have a lot of good orders coming in from Q4 from the export business. December -- the month of December tends to be very quiet for the export markets due to Christmas, New Year and everything. So,we do see some slack in the export order book in Q3, which happens every year. But it can -- we have a good number of orders which we have picked up in Q4, and we will show a growth in export business by the end of the year. So that's for sure.

Okay. And last question, sir, in terms of the new initiatives like the traction motor and wind turbine repair, how is the business shaping up there? How -- you mentioned that the order pipeline is pretty good. But in terms of our references and everything, if you can just share how do you see the business shaping up?

I have mentioned that in the commentary a little bit, I have mentioned that we have a number of active negotiations with a number of customers who own these old wind generators. So, it's going well. We will pick up some orders for sure in the next couple of weeks. And for the synchronous motor business, we are -- there's a very active inquiry pipeline under negotiation of about INR 225 crores. We are actively involved in multiple negotiations with multiple customers. So we will get some success in this area, too. And in addition to that, about 0.5 -- INR 50 crores of business in the large induction motors, once again very active live inquiries and very active, and we will get a portion of that also. Now how much exactly we're going to get, I'm not going to be able to -- we should get a good share is all I can say, and we are very active and quite aggressive to pick up the order.

And any pricing competition? So how is the competition behaving in terms of pricing...

Competition is there. Competition is there, but we are also in this segment where there is a certain value given for the technology and for the technical ability of the players. So, it's not -- we don't have a situation where there are 20 players or 15 players in the market. There could be 2, 3 in every sector that they're working on. So competition to that extent is limited.

[Operator Instructions] The next question is from the line of Dhwanil Desai from Turtle Capital.

Congratulations for a very strong set of numbers. Nikhil, I wanted to understand one thing that you've guided for 10% growth on stand-alone. And at the same time, we have significant inquiry pipeline on new initiatives, aftermarket also will kick in, hydro also, from your opening remarks, seems to be coming back. So, is this all factored in, in your guidance?

As I said, I have given a very -- I've given initial guidance. It's a little bit -- there are a lot of things in the pipeline. There are a lot of initiatives that we have started. We are actively involved in a number of opportunities. And we're not targeting just a 10% increase in our top line for next year. We are saying that, as of today, that's the minimum increase that we're going to have compared to the previous year. We clicked on 2 big orders. We clicked something big. It could -- I'd be happy to report the huge increases. Potential is there. It's very, very -- it's very much there, but it's not yet on hand. And the moment they landed on hand, I'll be the first person to report it to the market. I'm very happy to do that also. What we're projecting right now is what we see as a very clear visibility of our -- as of today of our business for next year. But as we mentioned and as others also have mentioned, there is a scope for a much wider and much better growth potential.

Okay. Okay. Got it. Sir, second question is slightly more at the industry level [Technical Difficulty] you look at Europe, the way the power prices is going on there. And even the most ardent proponent of ESG, which is Europe is now turning to convention fuel. So in that context, how do you see that helping us? I mean, is this something like that happening in India? Do you see more demand for larger units because of those changes? Any thoughts on that?

Vinay, would you like to answer this question?

See, there was some problem with the line. Can you repeat that question, please?

Vinay, my question was that in Europe because of the power prices that is happening there, they are turning back to the conventional fuels. And is something like that happening -- is it having a rub-off effect in India, CL2 power prices are moving up? So are people thinking more about larger thermal capacity, more conventional power, more captive of larger capacity? Is that something that kind of dynamic shaping up in India?

No. Actually, as far as our knowledge is concerned, nobody is looking at some large conventional power plants, but many of them are shifting to biomass, garbage burning and gas engine business. So that is getting reflected in a big way in Europe also. And even in Russia, we are getting a lot of orders for the gas engine, which is not conventional. According to our information, more and more people are going away from the conventional power plants, what I mean is coal-based power plants.

Okay. Okay. Got it. Sir, my last question is on the new initiatives. So I think, Nikhil, you talked about the synchronous motor. This induction motor -- large induction motor thing, if you can give us some sense on what is the market -- end market, how large that is, who are the players, typically the dynamics of that industry end markets, that would be helpful?

Yes. We are basically in the induction motor business, we are looking at the size is around 3 to -- larger than 3 to 4 megawatts. We're not competing in sizes below 3 to 4 megawatts. So, in these larger sizes, there are -- the applications are, of course, industrial uses and large pumping stations for irrigation projects. And competition is again limited to 3, 4 major, I would say, major players, people like BHEL are definitely competitors in this market. So the markets that we are going after, the size could be around INR 200 crores.

Okay. Okay. And currently, the idea is that...

On the induction motor business. And approximately the same for the synchronous motor business. So together, you can say, they're addressing a market of about INR 400 crores.

Okay. And in both these businesses, currently, we will only tap the domestic market, right? I mean, international market is not on the radar? Hello?

At the moment, we are targeting the domestic market, but we have also started quoting for a few jobs in -- few jobs selectively in the international market. Let's see how it shapes up.

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

And my question, Nikhil, is basically on the new initiatives trend, so apart from the ones which we have mentioned like induction motors, synchronous motors, railway supply on the refurbishment of wind generators. Any other new -- are there any other new initiatives that we are looking to launch in next year or in FY '23?

Yes, there are a couple of more. We are working on a few more, but we -- I don't want to announce it until we get our first order. Let me say there are 2 more major initiatives that we are working on. And we are bidding for the market with the products and let's see. But we should get some success in the next couple of months, and we should be able to announce it soon after we do that. But there are 2 other major initiatives.

Okay. And approximately, how big can this initiative be, if you can just give us...

All this information will come later, please.

Sure, sir. And on the margin front, which is the kind of new products that we are launching on the refurbishment of wind, considering its contribution will be low, but it does seem that the competition in this space is relatively less. Do you -- and the demand also revolving in some of our major segments that we cater to. Structurally over the next 2, 3 years, if the demand remains strong and we get traction in the new initiatives, our gross margins then move to 34%, 35% in 2, 3 years?

That is definitely the goal of the management. That is one of our major goals to improve the product mix and to improve the pricing with the mix going after certain segments where technologically better -- prices are better. And aftermarket business, all put together, the goal of the management is to bring it to 35% in the next few years, which is not just a top line-oriented goal that we have, but we're also focusing a lot on how to improve the gross contribution.

Sure, sure. And last question on the steam side -- on domestic steam side. I think, if I remember correctly, during the last cycles for steam -- for captive steam market -- the market size is around INR 400 crores, INR 450 crores. Given what is happening currently on the power side and the inquiry pipeline we have, do you think we can surpass that the earlier period or it's still too far at this point of time?

Right. Vinay, go ahead.

Yes. See, basically, as we told in the last call also, there is a huge demand for the steam turbine generators, especially for the Indian market. As we told, mainly it is coming from the distilleries and waste heat recovery plant, garbage burning plants and these are all small in the rains nowadays, and it is not 40, 60 megawatts. And we have close to 95% market share. And definitely, we have a plan to reach INR 250 crores on the steam turbine generator business alone. So that is the market for another maybe close to 75 to 100 machines, which are below 2 megawatt, mainly low voltage, where we are not there. So that we are not considering.

No. But do you think the revival will happen across other industries as well for putting up more captive power plants, given how currently the situation is on the power side and which might actually get worse over the next year or so?

Yes, there are a lot of greenfield projects are also coming along with the brownfield projects. So a lot of expansions are also taking place in the steel and cement industries. So there is a good demand.

Okay.

We are seeing the domestic market very active and very vibrant, and we don't see -- we feel that it is -- there is a lot of momentum right now in India, and it's just going to continue. This expansion is going to continue. The market is in a situation -- it's in expansion mode right now.

The next question is from the line of Shivan Sarvaiya from JHP Securities.

A couple of questions. Sir, in the previous participant -- while answering to previous participant you said that there's a potential is very high for good inflows coming in, but these are not in hand currently and hence, the conservative stance. So, sir, is it that there are certain risks that you foresee that would result in these orders not coming our way and hence, the conservative stance?

No. That's not the way we look at it. We are -- to show the 10% growth, right? So if we are going to do 3%, we'll do, let's say, INR 700 crores this year, we're saying that we'll do, let's say, INR 775 crores minimum next year. We're factoring in some amount of business which is going to come from the new segments and go to the existing segment. That's already been factored in. Now beyond this 10% -- beyond this INR 775 crores, you're talking about INR 850 crores or INR 850 crores, which we are certainly targeting from the management point of view, we need to pick up -- there are some -- we need to pick up some more, we had [Technical Difficulty] some more success in some of the things that we are doing. And that is the on top of INR 775 crores on top of -- so that's what we have not yet got a clear visibility. But at the moment we do because we are actually bidding in a number of projects which could result in this kind of number. So that's the real situation. It's not like we have not factored in some business from these sectors. We have, and that's how we come to INR 775 crores.

Okay. Okay. And in terms of the capabilities to get into these newer segments, we currently possess them?

Yes, of course, we have the capability of making all these products and customers that -- the thing is that, we are going after the domestic market. So the sectors are once again steel, cement, sugar, fuel, chemical, fertilizer, all these customers, most of them, all of them, I would say, already have TDPS generator. Size could be 500 megawatts, it could be 30 megawatts, 40 megawatts. So it's a situation where the entire, let's say, entire steel plant or entire cement plant is running on the power of our generator. And now this power which is introduced our generator has to be used to drive some motors. And we say, okay, we want to make the motors also, people know that we can do it. Customers are technical people, they understand these things. So we don't see any obstacles from that point of view. There is a market, and we're going after it and we have a reputation in the market for producing large electrical machines and people understand that.

Correct. Correct, sir. Got it. Got it. And sir, the next question was, from a generator business perspective, could you just make us understand the addressable market size in India and the addressable market size that we could cater to from an export perspective?

Yes, that's a different question. It's complicated. They are different sectors, different -- so I think that's beyond the scope of an earnings call. We can talk about that separately.

Sure. I'll take that off-line, sir. Okay.

The next question is from the line of Rahul Jain from Credence Wealth.

Congratulations on a good set of numbers, sir. Sir, just one question with regards to the new initiatives. You had mentioned on the previous call about 10x of 15-megawatt generators being supplied for gas turbines for the U.S. shale gas market. So given the oil prices the way they have moved up in the last 1 quarter, do we see now increased pipeline and the expectation in the kind of momentum in terms of the way customers are approaching us?

We have got, Vinay, a total of what, 14 machines right now for this -- 14 machines for this shale gas business?

14 machines, yes.

So, yes, 14 machines or 15 megawatts side, it's a big chunk of business. We have a meeting with the top management in the next couple of weeks, and we'll get a good forecast of what the business situation is like, especially because of the CapEx revival in the oil industry also. I can't give you a clear answer right now. Probably next earnings call, we will be able to give you a better perspective.

The next question is from the line of Rohit Balakrishnan from ithought PMS.

Many congratulations on good numbers. Nikhil, just wanted to understand on this waste to energy in India, anything that you see any movement that is happening in -- a fact is that we've been doing, but I just wanted to get a sense from you how you are thinking about that space, which is something that, if not, next year, but probably even next couple of years something is going to happen there any moment? So that was my first question.

Vinay, would you like to answer this garbage burning plants?

Yes. So basically, it is happening. And yearly -- it's mainly coming in the capitals and yearly, there are 8 to 10 projects are coming, but it is not going in the same speed as other projects. It is slow, but there's a huge potential, you can say every district can produce a 5 megawatt minimum. So there are projects coming, people are investing, but it is not going so fast. So there is a huge potential in this segment. And it is going to continue for the next -- at least 5 to 10 years. There are a number of projects commissioned and running successfully in Telangana, Hyderabad, even Bangalore and Noida and Lucknow. So there are projects coming everywhere.

Okay. Got it. And, Nikhil, also, I mean, last year, I think you have got an order from Navy about INR 20-odd crores. I just wanted to understand, I mean, you had mentioned at that point of time, that's a repeat order and probably the size may also increase. So anything you would like to share, anything happening on that regard?

Yes, there are some models under negotiations, but nothing has come for announcement right now. There are some jobs in the negotiation with the Navy. We -- let's see, it's a little bit slow in terms -- it takes a little bit of time for them to finalize, but some active inquiries.

Right. And maybe last question in terms of slightly longer-term. You see, given that you mentioned in terms of buoyancy both here in domestic markets and export markets, you probably need to put up some marketing in the next maybe 12-odd months or...

We are not -- we are going to increase the capacity utilization in Bangalore, and we will continue to try to add incremental capacity with existing plants. We're not thinking of a new plant at this point of time. Let's see next year around this time if we need to do that. But at the moment, we're not thinking of a new plant.

The next question is from the line of Faisal Hawa from H.G. Hawa & Company.

Sir, how do you see orders coming up from the wind energy segment? Because there are a lot of wind energy installations which have -- which are now needing refurbishment also. And overall, with the old switch to renewables, do you see a whole lot of new orders coming up?

Yes, there is a big wind business in India. TDPS is not a major player in the wind business. We are -- we have tried to -- we are still in the process of trying to acquire 1 or 2 customers, which is still taking more time. But the wind business is also tends to be a fairly risky business in terms of big swings up and down. So, at the moment, it's really good in India. It also has a good potential. We're not in any position to report something exciting in this sector, although it's a big sector.

But there is a tailwind?

There is a big market for wind, yes, there is.

And there is a tailwind also?

We don't have the competitive product sometimes or we're not willing to take on some of the risks involved with the contracts. And that's the reason why we don't -- we've not been successful in this business.

And to add to this, some of the turbine manufacturers like Vestas or Gamesa -- Siemens Gamesa, they make their own generators.

Yes. And in the past, we've had a number of wind customers, and all the wind customers -- have all gone by...

I missed the last one which the other gentlemen made…

Yes, what I was -- I'll tell you is...

Vestas and Siemens Gamesa have their own generator manufacturing capability.

Okay. So maybe we can tie up only with people mix who do not have their own generator?

Suzlon also makes their own.

They make their own.

Okay. So that market is a little difficult to penetrate?

No. There are many people coming now like Adani wants to come. So there will be opportunities. But as Nikhil said, we are not really very aggressive. These are small machines, and we had not a good experience in the past with none of our wind customers.

Every single wind customer TDPS has hired in the past 10 years has become bankrupt.

Okay.

So it's not a very successful line of business for us.

We have a wind customer in Germany where we started supplying last year. So that 1 or 2 issues with the customers because we don't go behind everybody because there's huge risk.

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

It's really happy to see the performance. Nikhil, I have 3 questions. One is, was there some postponement of deliveries given that you were saying getting to INR 200 crores of quarterly revenues for the next quarter three and quarter fourth? So that is first question. Number two is, on other expense. I see that your other expense is, I think, INR 11 crores besides more employees. And historically, that we earn INR 14 crores to INR 15 crores. So any one-off items there because that has helped the margins? And the third question I had is on the competition in general. Given that Crompton has been acquired by the Murugappa and obviously, they have turned it around really well. Is there any -- are there any products which overlap to them and where there is a collateral competition because of that? These are 3 questions.

So there is no postponement of deliveries. We are still on track with our guidance what we have told you, quarter-on-quarter, there could be some spillover from one to the next. But overall, we are giving the guidance and we stick to our yearly numbers. Varalakshmi, can you answer this INR 11 crores because I'm not clever...

Very much in line with what we have registered. So INR 11 crores to INR 12 crores will be the other revenue expenses.

Okay. But, ma'am, all the previous 4 quarters, it's been INR 14 crores to INR 5 crores, but you take that by steady state number...

See, some quarters there could be a little spike if you have some out of state or something like that. But otherwise, it's very much in line.

Okay. And is it fair to assume that this entire employee cost and other expenses, entire bucket will grow at, say, low-single-digit? Is that fair assumption? Because given that there is so much of demand out there, are we seeing depreciation and, in general, inflation of other cost cycles? How do you see that?

See, there will be some 5% to 6% increase in the cost, which will be the inflationary part. And that's what carry-forward.

And you hire it -- will that add to any material increase in employee cost overall?

Yes, employee cost, we are not having too much. We have done a lot of automations and things like that. We are not having too much of employees also. So 5% to 7% inflationary cost is not depend with us.

Okay. Third question was on competition, particularly some...

Crompton Greaves is, they -- we see them sometimes on the smaller machines in hydro. We don't see them on the steam turbine side. They -- we will see them on the large induction motors, and we will also compete and they are a big player in the Indian Railways business.

Okay. So -- yes, so small hydro in industrial motors and Indian Railways, Tier 3 areas where there is an overlap. Is it correct?

Yes.

Okay. And given what we have been saying about our ambitions in these areas, is it factoring in the fact that CG is now run by a new promotor and run well versus the past?

Yes. I don't understand the question. I mean, we have respected them in the past for their product quality and everything, and we respect them now and they are a good company, and we have to compete against them.

Okay. Okay. If I can just squeeze in one more question, please. This 9 months, you said the order inflow is INR 412 crores. Is it correct?

Yes.

Okay. So which means that we -- for this quarter, it is around INR 120 crore, around that number?

Yes.

Okay. So may I know were there any issues with closing out for orders given that we were doing on the INR 160 crore sort of bookings every quarter. Just want to understand that?

Export tends to be a little bit slower in September -- in December, as mentioned earlier. So that's the only reason why Q3 tends to be a little bit lower. And we have a strong order inflow in January already, and we will deliver the numbers what we have projected.

[Operator Instructions] The next question is from the line of Alisha Mahawla from Envision Capital.

Sir, just wanted an update on the other in railway project that we were bidding for, for which I think we've done some test supplies that they were going to test in the locomotives. Is there an update on that?

The update is that we have -- we call the engineers for inspection sometime in March, and we will offer the motors to them. And after that, we will dispatch it. Then we have the motor on the locomotive and then there will be 6 months testing, after that we get -- if everything goes well, we get to be the approved supplier.

Okay. So the outcome of this will probably be in H2 of next year or maybe early '24, depending on the delays, et cetera?

By Q3 next year -- next financial year, we should get the approval.

Okay. Sure. And just also wanted to understand the order book that we have right now this is an indicative time line by when this has to be executable?

Except for the traction order, which is a long-term contract, all our orders we have executed within 12 to 14 months.

Okay. And sir, for repair, have we -- this is primarily for the steam generator, I believe that you were talking about last quarter. Have you started this repair and replacement business? Or is this something that will commence from, say, next quarter next year?

No, no. Repairs of our existing fleet is an ongoing business, which is -- obviously, we can repair our own generators. This has been going on for -- and I have been saying, this will be increasing trend of business because we have a large fleet, which is also aging. And every year, more and more machines come up for replacement and refurbishment. So this will continuously increasing business for us. The wind repair business, as mentioned, we had delivered on, and we are in negotiations for a number of new orders.

Sure. And just one last question. All the new initiatives that we've spoken about, whether it is with respect to wind or synchronized motor or the induction motor, most of which, which are, like you said, the pipeline is looking strong. If we do manage to [Technical Difficulty] some of it in Q4 or early [Technical Difficulty] in 1 or 2 quarters or then like what is the lead time?

Yes, it will be 6 to 8 months delivery time.

From the time we get it 6 to 8 months of delivery.

Yes.

The next question is from the line of Himanshu Upadhyay from o3 Capital.

My question was, as we are diversifying into different segments and more products, do we think we need to do some incremental CapEx in FY '23 or something? And earlier, we had mentioned that till our facility for INR 1,000 crores is feasible, okay? So we stand by that thing. And secondly, on employee, do we need to increase our employees? Or do you think -- again, the guidance remains the same, what was historical that INR 1,000 crores, we are fully cleared up with the existing facility and the employee base and everything? So just this thing.

CapEx will be between INR 20 crores to INR 25 crores per year. This would be upgradation of our facilities, debottlenecking, trying to improve the capacity utilization, trying to improve the capacity incrementally, all those -- automation, the combination of all these things. And yes, we stand by the earlier guidance that we have INR 1,000 crores and we're not adding any major CapEx or major employee cost.

Okay. So whatever incremental gross margin is coming, that's why we are coming to the higher EBITDA margin, which we -- I think around 13% or 13.5%, what we stated in the initial comments?

No. EBITDA was 11.5% to 12% for this financial year.

No. For the next year FY '23, what we were...

Yes, that completes a little bit better.

Okay. Okay. And see, the new businesses, what are -- we are coming with the traction motor and all those, so will it be that at some stage, once we cross an x amount, we need to have a dedicated line for that type of business? Or do you think whatever...

We already have.

Okay. So there is a dedicated setup already. So that's why the CapEx is not required. And this INR 20 crores to INR 25 crores is every year you are expecting or it is for FY '23?

Every year.

Okay. Okay. So from here on my CapEx will be higher than my depreciation in the next 2 years down...

Yes, approximately '22, INR 1 crores, INR 2 crores is not material.

Okay. Okay. And any inorganic opportunities in the business because today, we are saying that we are more diversifying into other sectors, okay? Is there some inorganic opportunities which you visualize for yourself and not just in India but let's say, outside India also? Or do you think you want to...

No. We are not. No.

And any specific reason why? Since why everything you want to do organic?

I think that is beyond the scope of the earnings call conversation. We can discuss it off-line.

We'll take one last question, which is from the line of Ankit Gupta from Bamboo Capital.

Nikhil, in your initial commentary, you talked about good traction on the gas side. So if you can tell us how the progress on -- how is the demand from both our customers, especially the new customers that you have bought?

Vinay, you take this question?

I didn't get -- what is that traction and...

What is the traction on the -- what is the business development side of the business progress on the gas engine side?

Yes. See, gas engine, you have 2 major customers, and there is a lot of curiosity, a lot of questions coming on the new business line. See, today, literally, we are in every electrical rotating vertical. So in our business, when we start making a new product in the market, offering the product in the market, it takes anywhere between 1 to 2 years. So these 2 customers, one is our major customer who is in Austria, and we are expecting an increase in the business in the range of around 20% to 25%. And one more major customer with whom we started the relationship last year, we are going to get a significant amount of business. And there is a big potential to grow. So these things take time. But in these 2 customers we were already established. But when talking to the new products, even though Nikhil told that every industry in India has our generators, but still when you go with a new product, then there are some EPCs, there are some approvals, factory audits and all those things. So we have done with many of those things, and now really in the market.

Sure. So given the traction that you are seeing with our large customers on that side and hopefully, the new customer also will see ramping up next year. Can we expect this business to touch INR 170 crores, INR 180 crores in FY '23?

INR 180 crores?

INR 170 crores, INR 180 crores, combined from both the customers?

Yes, yes, it should be in that range. Already with one customer, we are in the range of around INR 120 crores. So next year, we should be in that range.

Sure, sure. And last question on the hydro side. Nikhil, hydro in FY '20, you had raised around INR 160 crores, INR 165 crores of revenue contribution from hydro side in FY '21 and FY '22, you're a big company. So given the inquiry pipeline and orders in hand, do you think hydro can come back to INR 150 crores plus kind of revenue in FY '23?

Hydro, see, we'll see...

We will not give a definite number on each segment like that. It's a little bit too early. Hydro will definitely be above INR 120 crore. To what extent, we can't say right now, but more than INR 120 crores.

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

Yes. Thank you, everyone, for this earnings call. Thank you for joining our earnings call. If you have further questions, please feel free to get in touch with our Investor Relations team. We look forward to interacting with all of you once again at the end of the next quarter. Thank you.

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