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

Ladies and gentlemen, good day, and welcome to TD Power Systems Limited Q1 FY '27 Earnings Conference Call. Before we begin, I would like to point out that this conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nikhil Kumar, Managing Director of TD Power Systems Limited. Thank you, and over to you, Mr. Kumar.

Good morning, and thank you for joining us on this call today to discuss the financial results of TD Power Systems Limited for the quarter ended 30th June 2026. I trust all of you would have received our results and investor presentation. Now I'll start with the -- discuss with you the financial performance of TDPS for this quarter ended 30th June. Stand-alone, our total income for Q1 on a stand-alone basis was INR 6.3 billion versus INR 3.63 billion over the same period in the previous year, an increase of 74%. EBITDA for the quarter is 19.34%, including other income, excluding exceptional and treasury income versus 18.7% over the same period in the previous year. Profit after tax and comprehensive income for the quarter is INR 853 million versus the profit of INR 471 million for the same period in the previous year, an increase of 81%. Order book for the Manufacturing segment is INR 22.08 billion, out of which INR 19.29 billion is the generator and motor manufacturing business, INR 2.11 billion is railway business, spares and aftermarket is INR 0.22 billion and INR 0.46 billion is the Turkey business. Export and deemed exports, excluding railway order for both domestic and exports is 57%. Order inflow statistics. Order inflow during the quarter is INR 7.34 billion, an increase of 87% on a Q-on-Q basis. Order inflow from direct and deemed exports is INR 6.84 billion compared to INR 2.57 billion, 93% of our quarterly order inflows, exports by 7% is domestic. Consolidated, our total consol performance for Q1 is sales of INR 6.43 billion versus INR 3.76 billion, increase of 71%, and profit after tax and other comprehensive income for the quarter is INR 860 million versus a profit of INR 500 million, increase of 72%. We continue to maintain a strong cash position of INR 2.4 billion. Coming to the order book, market situation and guidance -- market conditions and guidance. In general, we see a very buoyant market for TDPS in all segments of business. The basic factors that are driving growth continue to play out, AI data centers, grid stabilization, basic power generation push towards renewables, which drives demand for geothermal, hydro, waste-to-energy, et cetera. With all sectors in full force, we see strong order inflow -- the strong order inflow situation continuing and the focus is still heavily on execution. Despite differing views on the sustainability of this buoyancy in the media, the ground reality is that there is a tremendous shortage of power generation equipment, specifically in gas turbines, gas engines, transformers and generators. The forecast of demand at the moment are very strong and TDPS is taking the position to maximize the order inflow. And on the capacity side, we are focusing on efficiency as well as debottlenecking to increase output for FY '28. We will most likely go in for another round of capacity addition for generators below 100 megawatt [indiscernible] design. We'll inform the market about these investments and plans in the next earnings call since we are still in the process of assessing which products and which capacities need to be enhanced. As mentioned above, at the moment, we have sufficient capacity for FY '28 around INR 32 billion. And we will -- although we will do some debottlenecking with investments around INR 500 million. Next, we're looking at what we should be doing for FY '29 and FY '30 to move the capacity to INR 40 billion and above. Regarding the opportunity in the large generator segment, we are close to signing agreements with the relevant parties, and we will inform the market growth probably in the month of August about these unique opportunities. These opportunities are over and above the current business of the company, which is generators below 100 megawatt. Now let me come to the segments one by one. The steam turbine market continues to grow at the rate we predicted with no surprises on the upside or downside. The market is steady with around 10% to 12% growth taking place in the captive power plant business, biomass, waste to heat recovery. Gas engines and gas turbines. This growth is -- still continues to be massive and rolls on without pause. As mentioned in the investor presentation, we're getting large volume orders and forecast for the next year continue to show strong upward growth. Hydro, we have a busy year ahead of us. This year will be one of the highest for TDPS in hydro. TDPS is very active in the refurbishment business in India and abroad. This segment will result in some high-value orders for TDPS in this quarter. Motors, remains a key area of our business and teams are working on increasing the footprint. In railways, we are not taking any fresh orders in this segment, and we will review the sustainability of this segment at the end of this year. Once the Indian railway contract is completed, the production spacing capacity that we have will be used for generator and motor products. Guidance, we revised our guidance for FY '27 at INR 2,600 crores with a small chance that we may even cross this number. This brings me to the end of my initial remarks. I'll now be happy to address any queries that you may have. Thank you.

[Operator Instructions] The first question comes from the line of Mohit Surana with Monarch Networth Capital.

Sir, first of all, congratulations on the great set of numbers. You continue to out beat the Street expectations. Sir, my first question is with respect to the peak revenue potential without incurring any new growth CapEx. Last time you mentioned we can reach somewhere around INR 3,000 crores of top line. At this point, do you think we can exceed that using our current base? That's my first question.

I would rather look at it how we are gearing up to meet the demands of the market from -- I mean, matching our capacities on a year-on-year basis, which we expected demand from the market. So as I mentioned in my earnings call speech a few minutes ago, we expect we are building our capacity with some debottlenecking for INR 32 billion next year. That's the capacity we would like to have plus/minus. And then we certainly need to make another round of capacity additions for FY '29 and '30. And that would -- then we'll be looking at how do we create the capacity beyond INR 40 billion. But for that, we would -- we said that we would provide more details in the next earnings call. But this is the direction in which we are going in right now. And we need to be careful about which products, which capacities, what kind of capacity, how to make them fungible across different businesses that we have. And so there's the details, a lot of analysis going on right now. We need another 3 months' time to finalize our plans. But as I said, this is the direction in which we are going. And we are aligning our capacities with the market demand.

Understood, sir. Sir, just one more question as a follow-up. So the larger capacity generator manufacturing, can you give us some understanding of the TAM of this market, say, beyond 100 megawatts compared to what we are currently, below 100 megawatt? So just in case, I mean, how big is that compared to the current segment that we are in currently?

No, it's a very large segment. I mean, I don't have the exact market size information now with me, but it's a very large segment. It's dominated by very large players. And I can't give you any further information right now. As I said in the earnings call speech, we will be announcing something in the month of August. And once we make the announcement, obviously, at that time, I will have to answer all these questions. And then once the details of these things are out in the market, we will definitely provide more information.

[Operator Instructions] Next question comes from the line of [ Nishita ] with Sapphire Capital.

Yes. So my question is on the order book. So we've had a very good order book growth Y-o-Y in Q1. So just wanted to understand what will our closing order book look like? What sort of growth can we expect in the order book for the full year?

Yes, we are expecting around INR 700 crores per quarter. So we will be somewhere in between...

Okay. Per quarter order inflow...

Yes, something like INR 2,800 crores plus we'll have for the whole year, order inflow.

Okay. Understood. And my next question is on that earlier you mentioned that by doing the debottlenecking of around like -- which will require CapEx of around INR 100 crores, we can reach the revenue potential of INR 32 billion in FY '28?

Yes.

So when we expect to incur this CapEx? Like have you already started the CapEx?

Yes. That's an ongoing process.

Okay. So what sort of total CapEx do we anticipate in FY '27?

INR 50 crores.

INR 50 crores. Okay. And with this debottlenecking, like, do we expect in FY '28 we'll have around INR 32 billion of revenue? Or can we see some upside potential to that also?

Yes. I mean, it's not a hard and fast number. If there is an upside potential, we will have to find ways to make it happen and we'll make it happen. So it's not written in stone that it is 3200 and it ends over there. If it goes to 33, then we do 33. It goes to 34, we do 34, but it's around that number.

Okay. Okay. Understood. And my last question would be on you mentioned that in FY '29, we'll do fresh capacity expansion, which will take our capacities to around INR 40 billion. So do we expect -- like, when can we reach that INR 40 billion number?

Look, Nishita...

Are we going to start that...

I've tried to make this as simple and clear as possible. So I've said that we are going to invest INR 50 crores to have a capacity of around INR 32 billion for FY '28. And I've said that in 3 months' time when we have the next earnings call, we will give an indication what kind of investments we need to gear up for the -- to meet the demand for FY '29 and FY '30, which would be -- we would be looking at taking the number to around INR 40 billion-plus. Now which specific year is going to happen and I can't say that right now. But that's the direction in which we are going in. We can't write anything. It's a dynamic situation. We're looking at things which are going to happen 2, 3 years from now, right? So we have to have flexibility in the plan. And so we have to be open to see how the market develops, which kind of products are going to be dominating the demand situation, align ourselves to that and be flexible. Nothing can be written in stone about what's going to happen in '29 and '30 in FY '26. That's not how it works.

[Operator Instructions] Next question comes from the line of Soumil Jain with Lucky.

Sir, I wanted to understand, you spoke about pricing increase last quarter. Have those been put in place this quarter already?

We have contracts with our customers where we have price variation clauses and wherever we have price variation clauses, we are -- those have been -- those are implemented, yes.

Okay. Okay. So last quarter's gross margin, I mean, we see improvement from the last quarter's gross margin that is reflective of the pricing uptick that -- or the price clauses that you're talking about, right?

Look, I can't tell you -- we have guided in the last call that we will maintain our approximately plus/minus 1% here and there, we maintain the gross contribution margin for the company. So part of it will come from price increases, part of it will come from cost reductions, part of it will come from product mix. Part of it will come from exchange rate gains. So I can't give you the exact breakup of how much is the contributing factor from each of these things. But overall, the company will be able to maintain plus/minus within a certain tolerable range, the gross contribution margin which we have guided in the market.

Understood. Okay. On the revenue guidance for the full year, does that include any revenue from large turbine generators?

No. Just for your information, it takes within 18 to 20 months to make a large generator like that, okay? So there's no way it's going to happen in 6 months from now.

Next question comes from the line of Gazal Gupta with ASK Wealth Advisors.

Firstly, congratulations on good set of numbers. I just have one question on the margin front. So we have always guided for 18% to 19% EBITDA margin. And in such a global situation as well, firstly, I wanted to understand how are we able to manage and maintain our margins. As I understand that there would be some impact, which would be coming from the increase in logistic cost, et cetera, which is probably getting offset by higher-margin export orders. So what would be the quantum of these 2? Just wanted to understand that if the situation improves, can we expect any inch-up on the margin front? So that is my question.

I cannot commit to that any [Technical Difficulty] range. [Technical Difficulty] How we hit, I have already kind of answered in the last question. There are a number of factors that drive margins. One is pricing, one is cost reductions, one is exchange rates, raw material prices, and then there's also EBITDA margins, also dependent on the factory loading capacity utilization. So there are a number of factors that drive this. And as a management, we need to have certain levers that we can work on to achieve the numbers that we commit to the market. Now how much of it is going to contribute to each of these things, sorry, I'm not in a good position to answer that.

Next question comes from the line of Alisha Mahawla with TRUST Mutual Fund.

Congratulations on great set of numbers. Just wanted to refer to something you mentioned in the opening commentary that while demand is exceedingly buoyant, on ground, there is a shortage of our equipment and there are some delays. Also considering the current geopolitical issues, there is a little bit of supply chain disruption. So are we seeing the impact of that in any segment, any market? And any steps you are taking to ensure that it doesn't delay us? While you're sounding very confident to achieve the guidance, it would be helpful to get some qualitative color also.

Yes. We don't see any disruption in the -- in our order inflow. From the market side also, we see no letup in the demand situation. It's -- the forecast that we have from our customers is still extraordinarily strong, continues to be so. We are always in very, very close contact with all our customers since there's huge amounts of codependency that we have with each other. So it's very important that we stay very deeply connected with them. And deliveries and capacities is always the #1 and #2 topics on the agenda when we meet these customers. At the moment, whatever guidances that I have provided to the market are guidances that we will be able to achieve. And upside potential or whatever will be announced as and when we see that actually materializing. So I have not yet given the guidance for next year, for FY '28. I only said we're building up a capacity for that. And I have not yet given the guidance for FY '29 and '30. I've only said we're building up the capacity in that direction. But I think when we take certain decisions to add capacity, and when we gear ourselves up to a certain capacity number, it provides an indication of which direction we are going in. I think more than that, I can't really say.

But really segment or order is probably facing any kind of slowdown because of this shortage or because of shipping-related delays, because there are projects...

No, I don't know how shipping delays will cause disruptions in the demand situation. So...

No. No. The question is that while the demand is there, and I think we've spoken excessively about it, there is delayed execution on-ground projects are getting delayed, and what I'm trying to understand is, are we seeing a slowdown from execution perspective in any of our segments, in any of our markets?

All our customers are -- all our products are just going straight from factory gate, straight on to ships and getting -- going to the U.S. Now they may not be commissioned immediately. It could be execution delays, but all customers are taking the product as ordered. It is not that all the generators or all the turbines or all the engines are going into only one single customer, one single project who is not able to digest, and then he then starts holding back shipments because he's not -- these are going to multiple sites, multiple data centers, multiple customers. And everyone is taking delivery. So I don't see a problem with this at the moment. Let's move on to the next question.

Ms. Mahawla, are you done with your question?

Yes.

Next question comes from the line of Kunal with 360 ONE Capital.

Sir, my first question is, would you be able to share out of the current order book, how much actually is contributed by data centers for both gas engines and gas turbines?

No, we don't give that order -- we don't give that split-up of applications with our order inflows.

Okay. Sure. And sir, my second question is around as data center campuses move to higher 50, 100-megawatt kind of a configuration, are you seeing customers increasingly talking about combined cycles? And if yes, does that meaningfully increase the TAM for TD Power?

There are noises about combined cycles for sure. And I think there will come a point of time when all the open cycle gas turbines will start moving towards combined cycle. But as Alisha pointed out a little bit earlier, there are execution delays on the data center side. So by the time that these projects are actually go on stream and projects running with open cycle and then they start planning combined cycle, then it gets installed, it could be years from now. It will happen, but my opinion it's not going to happen immediately. It's going to take some time, but it's going to happen.

And if and when that happens, is the understanding correct that that will improve the opportunity size for TD Power?

Yes, naturally. I mean, we work with all the major steam turbine companies in the world. So we are well connected with them, and we will get a certain proportion of that business for sure.

Next question comes from the line of Mythili Balakrishnan with Alchemy Capital Management Private Limited.

I just wanted to get a sense of the market share which we now command in the export market. How many -- how much have we increased our wallet share with our OEM customers? And also any client additions or anything else that you want to point out in that direction?

Yes, Mythili, we don't have that number where we can pinpoint that this is our market share. We don't have that number.

And in terms of client addition?

We don't have any major client additions at the moment. We have a couple of smaller client additions which in the pipeline, which we are hopeful to close in this quarter. And not -- of course, all the major clients, major engine makers, major turbine makers, we're already working with them very closely. So we don't see a big opportunity to increase client addition, which can dramatically change the business outlook. It's more about cutting deeper with them and more about the market itself having and growing. So that's where our biggest opportunity is going to be.

Got it. And in terms of the Turkey subsidiary, could you just indicate what is that thought process on it currently? And what are we sort of going to do about it?

We have about EUR 3 million, EUR 3.5 million worth of orders for execution this year, and we will execute that EUR 3.5 million this year. We don't see a big pipeline for business for next year right now, but the Turkey facility still continues to be like an insurance facility in case we have to do major client for service. And for insurance, you have to pay a certain amount to keep it alive, and it will probably be used still playing that role even next year.

Next question comes from the line of Salil Desai with Marcellus Investment Managers.

I think 6 months back on one of the calls, you mentioned that you guys are looking at the refurbishment opportunity in India. So if there's been any progress on that, if you could update on that, please?

Yes. We have won a few hydro refurbishment orders. It's already in the order book for in the last quarter, Q1, and there are a few more jobs in the pipeline for Q2 and Q3, and we are very active in the hydro refurbishment market in India.

Great. And any plans of when will you be in a position to take it global?

At the moment, we're not looking at taking it global.

Understood. Second question is going back on some questions on demand. Now in your experience, if you could just kind of give some picture on how elastic is demand to prices or costs given that commodity prices are increasing, metal prices are up, freight costs are up, plus there is a shortage of all equipment in the power value chain and prices are going up there too of the base product? So when you talk to your customers, do you sense that there could be a point where they might kind of start rethinking the scale of projects or the timing of projects or something like that?

The power plant forms a very, very small percentage of the overall project cost. If you look at data centers and things like that, it is less than 5%. So it's the demand elasticity is very high. They need electricity, and there's no choice. They have to buy -- they have to have these -- they need to have behind-the-meter power generation equipment and they have to pay for it if the commodity prices go up. That market is -- there's no choice. They need electricity to run the data centers. It's not just data centers, it's also grid stabilization. You need to have equipment for grid stabilization. There is a push towards renewables. There is a certain mix that all utilities have to have in terms of renewables. So these are all factors that are driving compulsive buying power. You have to do it.

Next question comes from the line of Amit Anwani with PL Capital.

Congrats for the very strong set of numbers. My first question, again, on this service business. Since the installations are growing so rapidly for you, what's the service revenue contribution? And can it scale up in next 2, 3 years? And if so, probably that can aid your EBITDA margin higher. So why are we still guiding that 18%, 19% if the installations have gone up and probably we have a better service revenue also apart from the product demand?

Electric generators don't require service for the first 10 years or should not require service, let me put it this way, for the first 10 years of the operation, if they are well good manufactured, high-quality machines and they are reasonably well maintained, there is almost 0 service potential from -- in the first 10 years. So that's the reason why we haven't.

Understood. But what's the proportion now?

So earlier, the proportion used to be 5%, 6%. And now since the sales, it still remains around 5%, 6% of our overall sales. So the sales are also growing at 30%, 40% per year. So our service business is also still growing at that rate, keeping the percentage remains the same of our overall business.

Right. Second question on Turkey. So last financial year, because of the tariff uncertainties, we decided to -- because of the advantages we are getting utilized Turkish factory for the exports. So now again, we are hearing that probably there could be more tariff, 100% tariff on oil imported nations. So what are your thoughts? How are we now thinking and utilizing the Turkish factory amid...

I don't know -- I have not heard about that 100% tariff comment.

It's in the media. So in general, what is your sense now on the factory?