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

Good morning, and thank you for joining us on this call to discuss Financial Performance of TD Power Systems Limited for the Quarter and Year Ended 31st March 2022. We have with us Mr. Nikhil Kumar, Managing Director; Mr. M. N. Varalakshmi, Chief Financial Officer; Mr. Vinay Hegde, Head of Global Sales and some other of their colleagues from the management team on this call. Before we begin, I would like to mention that some of the statements made in today's discussion may be forward-looking in nature and may involve risks and uncertainties. Documents relating to the company's financial performance have already been uploaded on the Stock Exchange and company's website. [Operator Instructions] Please note that this conference is being recorded. I now invite Mr. Nikhil Kumar, Managing Director for TD Power Systems Limited to provide key highlights of the company's performance for the year ended 31st March 2022. Thank you, and over to you, Mr. Kumar.

Good morning, everybody. Thank you once again for joining us today on our earnings call. I trust all of you would have received our results and investor presentation. Now I would like to discuss with TDPS's financial performance for the year ended 31st March 2022. Our full year total income on a stand-alone basis was INR 7.36 billion versus INR 5.12 billion for the same period in the previous year, an increase of 44%. Profit after tax and comprehensive income was INR532 million versus a profit of INR 179 million for the same period in the previous year, an increase of 197%. This is the highest profit for the manufacturing business since the inception of the company. We'd also like to point out, mention that the investment that we've been making in automation and productivity has given us good results, our operating costs have increased only by INR 36 million and the turnover has gone up by INR 22 billion. Clearly, we're seeing the benefits of the investments we made in increased productivity. Full year manufacturing revenues was INR 7.04 billion versus INR 4.85 billion. Exports and deemed exports contributed to 50% of manufacturing revenues with the railway business included and 61% if one only considers the generator business. Manufacturing order book, including Turkey operations, stands at INR 13.92 billion, out of which INR 3.77 billion is regular manufacturing business, INR 9.89 billion is railway business, which is executable over the next 6 years and INR 0.26 billion for the Turkey business. Export and deemed exports, excluding the railway business constitute around 59%. Order inflow. We are happy to report a big increase in the order inflow for TDPS India from INR 4.7 billion last year to INR 6.05 billion this year. That means from FY '21 to FY '22, an increase of 22%. Full year order inflow, including Turkey business is follows; TDPS India INR 6.05 billion, Turkey 0.35 billion, INR 6.4 billion, and the previous year was INR 4.7 billion for TDPS India, INR 0.69 billion for TDPS Turkey, giving a total of INR 5.39 billion. Order inflow from direct in these exports were INR 3.74 billion, which is 62% of the total order inflows which entered the business. Full year project business revenue was INR 173 million versus INR 203 million in the same period last year. Order book for the project business stands at INR 415 million. On a consolidated basis, our full year total income, including exceptional items is INR 8.22 billion versus INR 6.1 billion for the same period last year. Profit after tax, including comprehensive and exceptional income is INR 614 million including the write-back of DFPS versus a profit of INR 437 million for the same period in the previous year. Profits have been impacted due to the foreign exchange translation loss of INR 75.23 million, this is a notional loss from our Turkish subsidiary due to the sharp depreciation of the Turkish Lira to the Indian rupee from TRY8.84 at the beginning of the year to TRY5.16 at the end of the year, a drop of 42%. It is important to note that TDPS Turkey has an actual operational PAT of INR 39.52 million. Our consol order book is INR 14.34 billion. We continue to maintain a strong cash position of INR 1.81 billion. Order book, market situation and guidance. Order book. Despite the highly volatile situation in the global markets caused by the war in Ukraine, high inflation and consequent interest rate increases, we are seeing a huge increase in order inflow and pipeline in Q1 FY '23, the current year compared to any time in the past. The factors driving the order inflow are somewhat different in India compared to outside India. In India, we are definitely seeing a big upswing in the CapEx cycle. The sectors leading demand are steel, metals, distilleries, cement and other industrial sectors. In particular, there is no surplus part in India as a similar case of under-investment in the power sector, which has increased the reliance on capital power plants. Power prices are at an all-time high. And unless an industry has capital power plans, it is difficult to ensure reliability of operations. Another major area of investment by the government of India is in the railway. Huge investments are taking place in this sector. We are bidding for a number of projects with our OEM partners. And with our track record, we will capture a part of this market. Exports. The war in Ukraine has increased the focus on renewable power leads to energy, biomass, hydro and geothermal. We are well positioned to capture business in all these segments. At the moment, small gas engines and turbines are also very popular to avoid being current high power prices, especially in Europe. Industries are buying gas in the open market and installing small capital path to mitigate the high prices of power. In the end, it is about cost of power and depends on utilities that are driving the growth. In the US, the fracking industry is taking a big revival and we hope to get more orders from the mobile power unit. We're working with both the major gas turbine manufacturers in this segment. Hydro, the market is picking up. We have a current order book for FY '23, more than what we executed in FY '22. So we will most certainly grow the sales of hydro in FY '23. All hydro sales are 100% export. We'd also like to report that we have acquired a new OEM from Germany that has given us an order for 3 large vertical generators. The aftermarket business is also doing well for TDPS. Every year, more and more generators get older and needs spare parts and replacements. We are seeing a good number of orders already for H1. Market situation for the current financial year. We have, as mentioned earlier, extremely strong order inflow for the month of April and also for the month of May till date. Both exports and domestic markets are doing well with strong pipelines. We will also see the full effect of price increases that we negotiated last year in the gross contribution of the company in this financial year. In addition, we have hedged with euro for almost whole year's business at good rates. So we will not suffer any gross contribution loss due to the recent weakness of the euro. We have also purchased a significant amount of steel, copper and other materials to secure margins and derisk the raw material impact. Our railway customer has also increased the forecast for this current financial year. The management is focused on increasing the gross contribution by a combination of pricing, cost reduction and increased productivity by investments. This year, we will invest INR22 crores only on automation and other areas in the factory as well as in green office. Turning to guidance. We're giving an initial guidance for TDPS India for a top line of INR 8.2 billion plus. We will have fairly consistent quarter-on-quarter performance. But as always, Q2 and Q4 will be stronger compared to Q1 and Q3. TDPS Turkey will have approximate top line of INR 0.3 billion and the total manufacturing business will be giving an initial guidance of INR 8.5 billion plus. The project business will have a topline of around INR 0.4 billion. All our subsidiaries will be profitable in this financial year. This brings me to the end of my initial remarks. I'll now be happy to answer any questions and queries that you may have. Thank you.

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

Sir, you had talked about a significant increase in the overall inquiry pipeline for this year. You are seeing very good demand from the metal space and other sectors. Can you just quantify as to what would be the kind of increase in inquiry pipeline that we have seen in the domestic market and also the export market in terms of addressable market. How large is the employee pipeline has grown year-on-year.

It's a difficult question to answer, Ravi, because the inquiry increase in inquiry pipeline does not necessarily translate to increase in business. But at the moment, I can say it's about 30% more.

30% more?

Yes.

Got it, sir. So this is both in the domestic and the export side basically in terms of...

Yes. On an average, you can say. But I would also like to again caution that an increase in inquiry does not necessarily translate into increase of business.

Got it, sir. And see, last year -- my second question is with respect to the margins. Manufacturing margins, we had ended at the EBIT margin of around 12% in FY '22. Historically, if you are seeing we had even touched 14%, 15% kind of margins. Do you think that with good operating leverage and good growth, we might even be able to touch the historical margins of 14%, 15% going forward over the next 1, 2 years? Is that a possibility going forward?

The focus of the management is to increase the operating margins. And as I said in my speech, it's a combination going to come from combination of price, combination of cost reduction activities on the product and productivity increases when we count operating leverage. So as you have seen, we have seen operating leverage playing a role in last financial year, despite the fact that we had big raw material price increases and didn't have a big expansion of the gross contribution. So operating leverage, I think played a larger role last year compared to the increase in the gross contribution because we did not have a full pass-through of the raw material price increases in our margins last year and we had also given guidance to that effect during the conference call that we had last year. Now as I also mentioned that we will see pass-throughs starting to take place in Q4 of last year. And that we have seen, if you see the gross contribution level from Q4, you will see it is higher than the average of the -- higher than the average for the whole year. So that gives an indicator of what can be achieved, let me put it that way. And as I said, the management's focus is going to be in a combination of 3 factors; price, cost reductions, productivity increases.

And with respect to the railways business in the presentation, it was mentioned that a lot of spends are happening with respect to railways. Can you talk about that also in terms of opportunities, tariff supply to railways, et cetera you can and give some view on that.

Yes. There are basically 3 opportunities. One is an expansion of our existing contract itself that is under negotiation with Indian Railways. Then there is another tender, which has been announced for another project, which is exactly similar to what our customer has one with the Indian Railways. So similar size, similar machine. Then there is all the high-speed trains we're talking about and our OEM partner has won some number of machines, some number of trains for the high-speed trains. So there are a number of opportunities where we're seeing big, big emphasis on investment in the railways. And of course, we will definitely get a part of this business. And I think that the scope is huge because the amount of investment and amount of machines it need is just enormous.

Sorry to interrupt you, Ravi. I will request you to come back in the question queue for a follow-up question. I request all the participants restrict to 2 questions per participant. The next question is from the line of [ Ankit ] from Bamboo Capital.

Yes. Thanks for the opportunity and congratulations team for very good set of numbers. Nikhil, if you can talk about some of our new initiatives and how are they shaping up on the motor side, the wind power refurbishment and the other initiatives that we were planning to disclose to investors in upcoming calls, if you can talk about this initiative, how are these selling up?

There are number of negotiations going on. Let me put it that way. I would say that the scope of the business and the growth in the business presented is intact. We hope to report something to the market in the next earnings call. We are in a number of final negotiations. So I can't say anything more.

That is helpful. And Nikhil, on the margin trend, we have seen some improvement on the gross margin side with the gross margin touching 29%, 30% in Q3 and Q4. So with the price revision kicking in and the raw material hedging done for the entire year, along with Europe, you think for the full year of FY '23, gross margin can come back to 31%, 32%?

That is the goal of the management is to increase the gross margins to 31%, 32%, what you said, okay? That's the goal of the management. So eventually, we will see the EBITDA margins expanding due to combination of operating leverage, 1% or 2% increase in the gross contribution and also trying to keep the fixed cost under control. These are the 3 factors which are going to play out way. Now what is it going to be in the end. I think we will definitely be happy to give you accurate guidance in the upcoming quarters. But definitely, we will improve -- our goal is to definitely improve the gross contribution, but just EBITDA margins compared to what we achieved last year.

The next question is from the line of Himanshu Upadhyay from O3 Capital.

Yes. Congrats Nikhil, on good set of numbers.

Thank you, Himanshu.

There is one thing only, which is slightly troubling. Our trade receivables on the consol has increased to INR241 crores, okay, which is on INR800 crores, which is 30% of it, so nearly 120 days of receivables. Can you explain what are we doing? Because of that particular line, the cash flows have got impacted, okay? Operating cash...

I will ask Varalakshmi to answer this question.

Yes. The trade receivables are generally high at the end of the quarter or at the end of the year because of the high volume of pay, which happened at the end of the month or during the month of March, but this will start -- no problem.

Okay. So if I look at the consolidated numbers now the cash flows I'm talking about operating okay? So this year, even whenever growth has been pretty strong, the operating cash flow is INR10 crores, okay. And last year, it was negative, okay. So is this something which can do to reduce this receivable part or is 4 months is a pretty long period, okay, even if we pay. So what are the trade terms we give to the customers. Can you just elaborate on that part, it will be helpful.

The trade term is between 45 days to 90 days or 100 days. But generally, you see that most of the billing happens in the month of March and that's why you see that the receivables are mounting, very high. And we have done almost INR200 crores of manufacturing business in Q4 and we also have the sales from our subsidiary. So this is normal in our line of business.

I think the answer is a bunching effect. And that is the reason why you see a spike in the receivables towards the end of the year, particularly.

Okay. But how many of the customers would be paying within 90 days for us?

More than 75% will pay.

And one small thing. Out of our manufacturing revenue, what would be because of coal-powered plants are the generators for coal-based power plants.

I don't have the exact number right now.

Okay. And are we seeing correction on the coal-based power plant in the captive power plant and do we expect we can reach back to the previous 2011-2012 high on captive power, especially in India. And what would be -- is the CapEx on captive power plants happening outside India also? And can we target that market.

Vinay, can you answer this question?

Yes. Can you once again repeat your question?

Yes. So my question was on captive power plant, both in India and outside India. So in India, we have a very strong market share in captive power plant for small generators, okay. But are we seeing a similar growth of captive power plants outside India also because power shortage seems across the globe prevalent. And what would be our strategy to gain market share in captive power plants outside India?

See, India, of course, there is a big investment going on in the captive power plant. Outside India, it is mainly the small gas-based power plant and some great energy, there are a lot of big projects coming in the countries like Germany and UK. But it is not the same as in India.

Okay. And who would be our competitors for those products in developed markets?

Developed markets, we have competitors like ABB, Siemens, Bosch.

The next question is from one of Dhwanil Desai from Turtle Capital.

Congratulations for a very good set of numbers. So Nikhil, the first question is our railway order book has increased significantly. And you said that the sale is executable over 6 years. So does it mean that the INR100 crores run rate even now grew to INR150 crores. Is that a right way to think?

Yes, that's correct.

Okay. So is it because the number of machines that we are going to supply has increased.

Yes, there are 2 factors. One is the number of machines has increased. And second factor is that there is a price variation clause and there is also an increase of the price of each product or each motor that they supply to them. So it's a combination of both.

Okay. Got it. And this is for the INR100 crore opportunity on a railway tender remains, right, for which we had applied some trial orders.

No, see, there are a number of business segments within the railway business. So as I said, the Indian railways, this is being supplied to a multinational company who's a joint venture partner with the Indian Railways where they're manufacturing these 12,000 horsepower freight locomotives, right? These are the products that we are supplying right now. In addition to that, we are qualifying ourselves for the traction motors for the -- directly with the Indian Railways, which are used both in freight and passenger locomotives, electric locomotives. That is, as I said, INR1,000 crore market proximity and is growing. And for that -- in that, we hope to get around a 10% market share.

Okay. But I think we had supplied some trial orders for that, right?

Yes, we have produced the motors. They're under inspection with the Indian Railways and they will be soon dispatched and the mounted on the locomotive. There'll be a 6-month trial period and then we will be qualified.

Okay. Great. And anything specific on this wind [ R&M ], any development there?

As I said earlier to an earlier question, there are number of contracts under negotiation. We hope to report in the next earnings call, more specific order wins, but there are a number of active jobs under final negotiations.

Great. Thanks. That is it from my side.

The next question is from the of Riya Mehta from Aequitas Investors.

Thank you for the opportunity. My first question was you mentioned that you stocked up on copper, steel, et cetera. So just wanted to understand that how much inventory do we usually keep and how much have we increased this to at this point in time?

So we have normally the -- if you say specifically normal language, let's say, 3 crisis, okay, let's say, we would not have more than 3 months of inventory. But we would have copper bookings, not necessarily inventory, extending maybe up to 6 to 9 months. So right now, we have almost 9 months of inventory.

Okay. And my next question was that sometimes like a couple of quarters back, we had mentioned that at full capacity or optimum capacity, our revenue potential would be at about INR800 crores. And given the price rise and given we've already touched that in FY '22, where does the revenue potential stand with current capacity as we speak?

Yes. I think in the last call, I had mentioned that we have moved that number now to around INR1,000, INR1,100 crores. And that's where it stands as of now. And we'll keep pushing it to the extent possible year-on-year by increasing investments in automation and productivity and trying to extract more and more from the current resources. We're not planning any new greenfield projects at this point of time.

The next question is from the line of Mohit Khanna from Banyan Capital Advisors.

Hello sir and congratulations on a very strong set of numbers here. I have 2 set of questions, sir. First of all, if you could just help me understand the employee expense line that has moved considerably in the last few quarters. So right now, this quarter of INR20 crores at a higher revenue level and year-over-year, it was INR22.6 crores if I get it right. So what exactly is the nature of this movement? Why this happens is my first question? And then I'll come back for the second one, sir.

I'll ask Varalakshmi answer this question. Could you -- we're talking about the employee-related expenses, employee benefit expenses.

Employee expenses on the consol P&L.

It is INR20 crores for this quarter. And on an annual basis, it is INR80 crores versus INR79 crores last year.

No. I was trying to understand that even with the higher revenues, this has come down, which has improved our EBITDA margin. So what is the nature of these expenses?

No, with this basically what we have done is we have not taken replacement of...

These may show expenses as employee related salaries...

Salaries and employee benefit.

Is it going to come back next quarter.

Provident fund contribution, and the normal employee-related expenses.

No. I mean, is it going to come back the next quarter because we have had a good traction due to lower expenses on margins this quarter?

No, it will be almost the same. Only you will see the inflationary cost, which will get added as well.

See, there are -- we give salary increases every year. And there will be a salary increase, which will also give -- which we've already given for FY '23 to our management. And it is in line with the industry, to say salary increases. But we will offset these increases with increase in productivity and with the expansion of the business. So as we did last year, we will increase our sales significantly without a corresponding can say, a proportional increase in the fixed cost. That's how we're going to increase our -- one of the areas how we're going to increase our EBITDA through operating leverage.

Fair enough. So that was more helpful. And when you just spoke about the automation piece of that INR22 crores investment that we're going to make. So is it the total CapEx that we are targeting for this year or do you have more...

No, it's a total CapEx, and it will be directed towards automation, both on the factory side, also on the management side. Automating process is within the management framework.

What is the expected cost savings that you are targeting internally with this?

I can't disclose this information. I'm sorry.

Fair enough, sir. And just last piece, a question. So for the fourth quarter, what was the growth in the domestic and the export side of the business on the revenue.

We don't have this information. It's easy for us to get it, we will get back to you on that.

The next question is from the line of Amber Singhania from Nippon India Mutual Fund.

Congratulations on good set of numbers. Sir, I have 2 questions. First is on the capacity side. As you mentioned that you are not planning any greenfield, we are all at INR 900 crores or maybe a year with this current growth rate, we will be reaching the current capacity which you mentioned. So what is the further room by brownfield or debottlenecking we can grow this capacity? And if at all, we need to go for greenfield, how long it takes for the capacity to come on stream. So I just wanted to understand by when we need to plan if we are seeing this current growth rate continuing? And what is the further room we have there? That's first question. And secondly, just wanted your view on the export market, given the current fluctuations in European geographies given the current geopolitical situation. How you see the demand getting impacted in the future? Are you seeing any color or are we anticipating any slowdown in the export market potential as such. Yes. 2 questions from my side.

Yes. The first question I'll answer, then second question, I'll leave it to my colleague, Vinay to answer. First question about greenfield. So we have spare land also with us. We are not going to utilize it. So if we really have to put up a factory and up and running in a branch, we can do it within 7 to 8 months. So we don't have to really start literally from zero to start buying land, we have land. But there is a lot that we can do within the existing 2 factories that we have. Those who have visited us, you can see that we have a lot of space and there's still room to grow. So I'm not set on putting up a greenfield at this point of time. We will keep pushing the limit on flogging the existing assets and getting operating leverage. I think that is the focus of the management at this point of time. And when we really run out of capacity, as I said, we can -- we have land, we can put up another plant. So the second question about the export market and the position where we are and how the growth is going to take place. Vinay, can you please answer that question?

Yes. So export market, see, because of this Ukraine-Russia war, we have not seen any impact on our business. And rather it is going up because now customers they want to be independent of Russian gas, mainly in Europe and there are a lot of new power plants are coming up. And there is no negative impact. Definitely in India, there are a lot of projects coming. So there is zero effect in Indian market because of the war, but we see a positive impact due to this war.

So we are seeing basically there is a move that people want to get independent from the larger utility side, gas power plants, which are dependent on Russian gas and things like that. There is a lot of discussion taking place and how -- if we don't buy Russian gas, how are we going to generate power for. And so there will be -- of course, it's not immediately started, but there will be investment, more and more investments taking place on renewables, more and more investments taking place on biomass, on garbage burning plants, on wastage recovery. They cannot hydro. They cannot do this entire replacement of the fossil fuel or the gas-based, large gas-based utility power plant. It cannot replace entirely to solar and wind, it's not at all possible. So there will be a large proportion of this replacement coming through the steam turbines, and we're also seeing a lot of industries in Europe, in general, trying to become independent visibility and putting up captive power plants. So this is a trend, general trend, because things can change tomorrow. But ask me the question today, this is what we're hearing from the market.

Just one small clarification, if I may. You mentioned the FY '23 revenue guidance of roughly around INR 8.5 billion versus INR8.1 billion, which we have already done this year. That [indiscernible] single-digit kind of growth.

No, it's not INR 8.1 billion. The manufacturing revenue is INR 7 billion, and we will, TDPS India, and that will be INR 8.2 billion, INR 7 billion will move to INR 8.2 billion. And then Turkey will have INR 0.3 billion. So it's INR 8.2 billion plus INR 0.3 billion, INR 8.5 billion.

The next question is from the line of [indiscernible].

Sir, I have a clarification question for the guidance. You gave the guidance of INR 8.5 million of manufacturing revenue for this year, right? Total manufacturing? And the current year on the consol level, it's around 8.8%. So are we seeing any degrowth in this or am I missing something?

Yes. You're missing something. Varalakshmi will take it.

So what you're seeing is on the result elimination of inter-segment between the companies. So what we are talking is 8 points Yes. So if you take the inter-company elimination, the manufacturing revenue will be 782.

782, okay. Total manufacturing. Okay. Understood, ma'am. And guidance is INR 40 crores from our project business, right?

Yes, correct.

Okay, thanks. And my other question is on CapEx. Just wanted to understand what is the CapEx target for FY '23?

I think I have answered this question a number of times, but I'll say it again, it's around INR22 crores.

INR 22 crores this year.

The next question is from the line of V.P. Rajesh from Banyan Capital.

Congratulations Nikhil on fantastic kind of numbers.

Yes, Rajesh. Thank you.

Yes, wonderful. On the macro side, what's your take on where we are in the CapEx cycle? I think your comments on what's happening in Europe are very helpful. But if you can just also give a sense that are we in the first sealing second meeting of long games or there how you're seeing the CapEx cycle evolve there?

I think in India, it is -- we're hardly one year into this expansion of 1.5, one, 1.5 years into this reliable of the CapEx factors, right? So I mean, I think I hope we will have a 10-year expansion. I mean there's lot of space to grow in our country. So we should think of this thing lasting for a while.

Right. Okay. So in that context, Nikhil, do you think you will be starting to expand your capacity in fiscal year '24 because as you said, you will be hitting INR 11 million of revenues to the current capacity? And with sort of the growth that you are talking about for fiscal year 2023, it seems by fiscal year '23 you'd like to start expanding. Am I directionally...

Rajesh, look, we're pushing where we are going to plot the existing assets. Maybe we can answer this question in a better way next year around this time. And we have land. If we have to do it, we can do it in a tranche. So there's a sudden massive increase in the market, and unexpectedly we are seeing lot of orders coming, we have to produce quickly. We can put up a factory very quickly because we have land. We have lands in neighboring. We actually have some buildings within our existing complex, which are not fully utilized too. So we can also use some of that. There's absolutely no problem that in states where there is a sudden expansion of demand, we have the space, we have the capacity to put it up very quickly, and we will not lose any opportunities.

Wonderful. And my second question was on Turkey. So what's your sense about long term? Like I know you gave the guidance [indiscernible], but do you think if this Ukraine war has become more important to have that location? Just trying to understand how it is in over the long term?

Turkey is going to be -- temporarily, it's a market which is under some level of stress because of the financial situation of the country as a whole when there's a sharp devaluation of the local Turkish lira versus the euro and dollar and also very, very high inflation. But it is an energy there is -- they need to invest in energy, they have energy shortage in the country, power shortage in the country, they will keep investing. And the market will revise. -- we are seeing -- so there will be a combination of locally produced generators, which we will produce from our factory over there. And because of our last 2, 3 years, where we have been the dominant player in the market below 50 megawatt, we have an extremely good acceptance of our brand and a very good penetration in the market with all the major power producers. Any business that does not require a Turkey generator, they're often the made in India generator. And so we will be able to get -- when the market provides, we are well positioned to get both parts of either made in Turkey or made in India.

Thank you. So I shall request you to come back in the question queue for a follow-up question. I request all the participants, please restrict to 2 questions per participant. The next question is from the line of Rohit Balakrishnan from iThought PMS.

I'm good Nikhil. Many congratulations on very good numbers. Nikhil, just a couple of questions. You mentioned in your opening commentary that you've acquired a new OEM from Germany. Can you just talk a bit about that?

Yes. It's a hydro turbine manufacturer based in Germany and they do a number of projects internationally. We have got the first big order from them for 3 vertical machines. So it's a good start with them, I can say.

Okay. Got it. Any sense in terms of what can it be in terms of size or a bit too early to say?

They do a number of projects. And it could be -- I'm not going to give a number right now, Rohit. We would like to execute the projects and then we can talk about it. But it would grow the hydro business in general for us.

Sure. The other question is slightly more on -- I mean there are so many disruption and so many other headwinds that you keep reading these days. And we have sort of -- our outlook seems very strong. So just for you -- from your perspective, from your vantage point, what are the risks that you are seeing right now? So just if you could -- I mean, so that we can also sort of have a look on those. What are the risks that you see at this point of time from your business perspective?

So I would say there is a short-term risk and that would, let's say, we will just talk about medium-term basis, okay? So short term, I mean the current financial year, maybe a couple of quarters into next year. So as far as this current financial year is concerned, as I have mentioned, Vinay has also mentioned strong inflows and strong pipeline. We are very confident that we don't see any short-term risk in terms of the numbers and projections what we are giving to the market at this point of time. So the momentum will definitely carry-out as far as the short-term risk is concerned. Medium-term, I mean, it's really difficult to say because are these interest rate increases going to cause big [indiscernible] investment? Is there going to be -- is war going to spill-over, is going to draw in other Europe and America in a bigger way? Is it going to lead to a larger conflict. We don't -- I can't answer all these questions. So how is it going to impact business. Very, very difficult to talk about the medium-term risk. We will have to adapt ourselves to whatever situation comes, but we are well positioned in number of markets. And what we have right now and what we didn't have in the past is we have a very strong domestic market. And that, I think, will have a big cushioning effect in case something happens internationally.

The next question is from the line of [ Jatin Kumar from Alpha Capital ].

Hello sir. Thank you for taking my question and very good set of numbers. Sir, my question is on margins. So as you were saying that Q4 will have better margins because we have taken price rise, but have prices risen more in January, February and March. And so are we confident that margins have kind of bottomed?

Price increases what we have got, we have taken care of the price increases that we have seen on the raw material side up to date. So the pass-through, we do not feel the pass-through completely in Q4, we felt it partially. So we will see better situation emerging in the next few quarters and we will be happy to report the next earnings call, we'll give you a definite or more accurate guidance of what the EBITDA margin for the year is going to be.

Thank you. The next question is from the line of Alisha Mahawla from Envision Capital.

Hi sir, good afternoon. Thank you for taking my question. My first question is with respect to synchronized motors order inquiry of INR 250 crores of the pipeline. Has there been any conversion there or what is the update?

The update, as I said earlier, is that we have a number of final negotiations and should close some orders soon. So we will keep the market informed as and when we are able to do that.

What is the kind of competition we're facing in this segment?

Primarily, we compete against BHEL.

Okay. Understood. And with respect to the replacement demand, you were quite bullish about it in early part of this year, especially in the wind turbine segment. Are we seeing traction there?

We are seeing traction there. We will increase our overall spares and replacement business this financial year. And I also mentioned in my earnings calls that we're seeing, we're already seeing a good order book for H1. So it's going as per our plan. We're not revising it downwards or upwards, it is going as for plan right now.

So is it possible to quantify what is the current contribution from the replacement market?

No, I don't want to give breakups of the individual components of our business like that. But it's increasing.

Okay. Thanks. Just one last question. Any plans to exit the Turkey business?

No. At this point of time, no.

We are expecting some revival maybe end of this year, next year.

We are definitely expecting a revival. And there is going to be a revival. This market cannot be as I said, it's a market is -- they have a power shortage and they need to put-up power plants and they will.

Thank you. Next question is from the line of Anurag Patil from Roha Asset Managers.

Thank you for the opportunity. So are we able to include escalation clauses for all the new orders we are booking now?

In general, we have an escalation clause with many of our customers, but we also have -- I mean, in the sense that if there is a variation of raw material prices beyond a certain point, we will get back to the negotiating table and talk. We have that with all our major customers.

Okay. So I mean still what portion of this current order book can be exposed to commodity risk.

Very little. I don't know the exact calculation, but we have covered the risk largely by hedging by stocking material. So we don't see a risk in terms of price increases impacting us at this point of time in a major way.

Okay. And second question is on the guidance. So does this revenue guidance excludes the revenue possibility from these new initiatives you're currently discussing orders, et cetera, with the customers.

Our revenue guidance is a combination of everything. And if we are successful in picking up some big orders, we'll be happy to report any changes in the revenue guidance in the upcoming quarters when we talk to all of now. As of now, this is what we see. We always want to give a number which we can achieve. And when we can achieve something better, we'll be happy to report that to you.

The next question is from the line of Aditya Mongia from Kotak Securities.

Thanks for the opportunity and congratulations on a good set of numbers. Sir, the question that I had was, firstly, given the backlog where it is, what kind of manufacturing top line can you -- any which we can do out of that in FY '23 from a manufacturing perspective?

Aditya, we have said that we'll do INR 820 crores from INR 8.2 billion from India and INR 0.3 billion from Turkey. So totally INR 8.5 billion in the manufacturing business.

Understood. I just thought of getting a sense of the business dependent on -- Sure. Understood. The second question that I wanted to ask you was from a motors perspective, do you see the motors portfolio becoming a reasonably large share of your overall revenues over the next, let's say 3 years or so.

Yes. Large synchronous motor business can end-up being a big segment. So as I mentioned in a number of calls in the past, the market size is around INR200 crores, INR250 crores. And we hope to get at least, I don't know, 30%, 40% of that market can become -- that's the size that we can hope to get. The business is there for sure and we're seeing the inquiry pipeline between the projects, business is definitely there.

Understood. And just to get it slightly clearer, let's say 3 years from now, if generators, motors and services would be 3 separate segments, would motor be number 2 or number 3 as things stand right now.

Two, three years from now...

You were suggesting that you were reasonable.

Motors in number 2 and service is number 3 for sure.

Thank you very much. As there are no further questions, I will now hand the conference over to Mr. Nikhil Kumar for closing comments.

Thank you all for joining our conference call. If you have any further questions, please feel free to get in touch with Varalakshmi or Vinay. We look forward to interacting with all of you into the next quarter. Thank you.

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