Triveni Turbine Limited (533655) Earnings Call Transcript & Summary

Ladies and gentleman, good day. And welcome to Triveni Turbine Limited Q3 and 9-month FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rishab Barar from CDR India. Thank you, and over to you, sir.

Thank you. Good day, everyone, and a warm welcome to all of you participating in the Q3 and 9 months FY '20 earnings conference call for Triveni Turbine Limited. We have with us today on the call, Mr. Dhruv Sawhney, Chairman and Managing Director; Mr. Nikhil Sawhney, Vice Chairman and Managing Director; Mr. Arun Mote, Executive Director, along with other members of the senior management team. Before we begin, I would like to mention that Stage some statements made in today's discussion may be forward-looking in nature, and a statement to this effect has been included in the invite, which was mailed to everybody earlier. I would also like to emphasize that while this call is open to all invitees, it may not be broadcasted or reproduced in any form or manner. We will start this call with opening remarks from the management, following which we will have an interactive question-and-answer session. I now invite Mr. Dhruv Sawhney to share some perspectives with you with regard to the operations and outlook for the business. Over to you, sir.

Thank you very much, and welcome, everybody, to the third quarter FY '20 earnings call. I'd like to begin by presenting you the 9-month consolidated key highlights. As we've been saying, operations of a business like ours are lumpy quarter-to-quarter, so I should concentrate on the cumulative 9 months results and then go into our feelings of the future both for the end of the year and for next year. The net income from operations for 9 months consolidated is at INR 6.64 billion, a growth of 11% year-on-year. But our record is the PAT in the history of the company at INR 1.08 billion, a growth of 50%. Again, I would say that this is extraordinary for certain quarters and it's not something that happens every quarter. But we're very happy that the 9 months results have come out with such a good bottom line. We have a strong outstanding order book at INR 7 billion -- INR 6.94 billion. The total order booking during the quarter in Q3 was good, and appreciably better than what it was in the first half of the year at INR 2.1 billion, a growth of 11% year-on-year. And this enabled us to bridge the gap, which was there in the first half, which I mentioned during the last conference call. The order booking for 9 months is just marginally lower than last year at INR 6.36 billion at -- versus INR 6.45 billion. We expect to end the year with the same, if not better, order booking than what we achieved in FY '19. During the last -- during the 9-month period under review, the turnover was 11% higher than the last year's period. And here, the domestic side has grown very substantially by 24% and international was marginally lower. In order booking, I would like to highlight that in Q3, our international order booking was very good. We started off the half year -- in the half year, we had a deficit of 63% versus -- 43% versus last year in the H1. That's comes out to 25% in -- at the end of Q3. And we expect good orders and we already have some in Q4, so we expect to end the year with -- at the same sort of order booking as we achieved in FY '19, if not slightly better. In the international market, there have been a lot of turmoil, as you know. And for us, some of our key markets were affected, namely Pakistan, Turkey and the Middle East. But we are -- the future is looking extremely good because we have big growth of inquiries from Southeast Asia and from Europe. We have 42% of our inquiries are from Southeast Asia, 25% of them are from Europe. And here, we expect this good order conversion -- I mean, good inquiry conversion into orders. So FY '21 order booking also is looking up. And the mix is -- is what we are very encouraged on that where we are seeing domestic growth also and at least the same amount as international growth. So we have had a rectification of the situation that might have happened temporarily in H1 of the current year. If we look at the 9-month period, net income, which was at INR 6.64 crores (sic) [INR 6.64 billion ] an EBITDA of INR 1.49 billion for the 9-month period against INR 1.22 billion, a growth of 22%. And our PBT again has a growth of 28% and is standing at INR 1.38 billion. As I said earlier, the PAT was a very good 50% growth at over $1 billion and giving us an EPS not annualized of $3.34 per share. I'll be going into the domestic and aftermarket in a few minutes and exports, but I'd like to just stress for a minute about our research development. The company has a long -- strong focus on technology development and -- through this very dedicated team of design and development engineers. And the push that we've had on efficiency of our products and making them more cost competitive has really borne fruit. And we are very encouraged now with proven results that we are at the front line of customer expectations on the value for the product looking at both efficiency and costs. And that is one of the reasons why we are encouraged by our order conversion -- inquiry conversion and the spread of our geographical inquiries and order bookings. The company's efforts in design and testing is being closely supported by our collaborations with various international design houses and universities both in India and overseas. That's really the backbone of our support system. Our new test bed, which we put up and this is definitely the most modern test bed for a turbine facility globally, it has come into operation and it's already making the contributions of bringing down cost and time in our development cycle. I think one of the points I'd like to mention in design and development is a new segment that we've got in order form, which is the Geothermal segment. We've received an order for a geothermal turbine refurbishment, which is very prestigious high-tech order. And here, the markets are in good growth both in Australasia and in Africa and good margins. So this is a good breakthrough that we've had in the last quarter. The research that we are carrying out with the institute for the development of supercritical CO2 cycle turbines is carrying on and we've talked about it before. And we're very encouraged by the close cooperation that we're having both in India and overseas in this absolute frontline technology line. And this will continue for the next few years. But we are making good progress here and that's also a very encouraging fact. A market which we have been talking about for some time is the oil and gas market, and we've developed new turbines for this market. I'm happy to report that in January, which is actually Q4, we've now received further breakthroughs in drive turbines. And -- so this is really -- it's taken a long time to get these breakthroughs. But the market, as you know, in the oil and gas for drives of small is very good. At the moment, we have just started. So the upside is big for FY '21 both in terms of margins and in terms of orders, even though the scale may be lower and the numbers are higher. But these are the developments that I'd like to share with you on the design and development. I'd like to just quickly mention about our joint venture, GE Triveni, as communicated to you in June, Triveni has filed a petition with the National Company Law Tribunal and then this has now moved to the National Company Law Appellate Tribunal and the matter is [ sub-judice ]. It's reserved for orders. But this is not affecting our [ turn-to ] business. The JV has received orders of INR 830 million, and the performance of the JV in the quarter has been okay. It's achieved a total revenue of INR 1,170 million and a profit after tax of INR 158 million. So we are carrying on normally as we were before. I just want to mention that in the domestic market, we are seeing, which may be a little different to what this renders, the situation is not bleak in the future. If anything, we have seen a slight upturn and we expect that to stay where it is in our segmented lines. They are coming from both the process co-generation, distillery segment, the biomass IPPs and the renewable space. Comments on our aftermarket. At the moment, our percentage of aftermarket to total sales is down at 23% versus 27% previously. We expect in Q4 this to correct and we expect it to come back to 25%. And in H1 next year, we hope to be higher than 27% again. And so this is the encouraging order booking in aftermarket, both -- especially in the refurbishment international sphere. So this is the encouraging fact, which we've looked at. Now, we've got very hot inquiries and good traction in different geographical areas. So the aftermarket business is where we are seeing positive growth in FY '21 both in terms of execution of orders on hand and in terms of order booking for the balance -- and for the -- for '21-'22 and '22-'23. On the export front, as I mentioned, we are expecting much better traction in Q4 and in FY '21, where we can see visibility in the first half. Again, it's the forefront that we've got in terms of our product. The acceptance of our new product in the market both in terms of efficiency and costs and the different geographical and product segments that we are catering to. I would say that with our orders on hand right now, which are good, and more substantially the inquiry pipeline both internationally and for the aftermarket, we look forward to a very good performance in -- at the end of the year for FY '20 and a good performance going forward into the first half of '21, which we can see now. The cost control efforts that we started last year have borne fruit and we are increasing these, and we'll be accelerating awareness initiatives in the next 6, 9 months. The new -- the penetration in new geographies are working and has strengthened the company's performance in the export market. We now have orders and installations in over 70 countries. And looking at future markets beyond the 70, the segments, as you know, are: Biomass; Paper, Process and Co-generation, Sugar Co-generation; Distilleries; Palm Oil; and the new segments of Waste-to-Energy; and the Oil & Gas. We believe that this strong inquiry and order-on-hand pipeline, and the aftermarket business, which is picking up with the international market all goes well for Triveni Turbine into the next 6 to 9 months where we see visibility immediately. Thank you. Open it to questions, please.

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

First question is regarding the drive turbine. You had mentioned that you had won an order in the fourth quarter. Just wanted to get a sense how large is the opportunity there? And what is the size of possible quantum of order that you had received in fourth quarter?

Ravi, see, the point is that, as the Chairman said, the drive turbine market is a market where we have very low part -- installed base ourselves. So it's a market for us where we look at in terms of approaching it in a manner where we can expand a new product category and segment. So the fact that we are facing success in it, leave the matter of -- it is a large turbine order, let's not getting into the [ details ] of it, but we think that this proves our contention that we have a reasonable product for this line. We have products, which will sell well, and this is specifically into the Oil & Gas segment itself, which is a more lucrative end of the drive turbine market. So it's something that's very encouraging and it's something that we've been talking about. Yes, it'll take time for us to establish a good market share, but we're on our way. We think that we will get more traction as we go along.

The oil and gas market is different to other markets because there they have -- they replace their turbines. These drive turbines are small costs for the oil and gas sector. So they are replaced very often in terms of the -- versus other power generation process industries. So that's why even though the oil and gas market may go up and down, the drive market for oil and gas is a fairly stable one.

Got it. So I mean, is it like they replace pumps with these drive turbines or how is it?

No, the turbine drives the pumps. The drive turbine drives the pumps. It drives the compressor. It drives the blower.

Okay, okay. And that gets replaced often, you are saying?

Yes, there has been...

And these orders are from the Middle East, mostly?

Yes, they're. You got it.

Got it. And in terms of exports, you had mentioned that there is a healthier pipeline -- inquiry pipeline. So basically, what could be the size of that pipeline? Initially, you used to give numbers in terms of gigawatt. How is it now vis-?-vis how it was last year for export and domestics? If you can give us some idea, it will be great.

As I said, we are expecting order booking to be the same as last year. The inquiry from Southeast Asia and Europe is very good. I'm getting the figures of 2.5 gigawatts.

Okay. And last year, how was it, sir, similar time? Should have been...

About the same.

About the same.

But I'm telling you why we are more encouraged is because the areas that they are from are not the ones that went back.

They're more diversified.

You see, we earlier had orders from Pakistan and from Turkey and all, now those markets just -- they were not available to -- Turkey dried up and Pakistan went elsewhere, even though it was a very major market for us, and as you know, we had a major market share of sugar co-generation in Pakistan Triveni had.

Got it, got it. And my final question is with respect to the JV. I mean, we continued to keep receiving orders from this, in spite of the case, which is going on currently. So is it like these orders are the ones which we had bidded for earlier during better times and that is getting converted into orders now? Or is it like -- so basically, joint venture continues to bid for order, in spite of the misunderstanding between the 2 parties?

We continue to bid for orders.

Next question is from the line of Bhavin Vithlani from SBI Mutual Fund.

Congratulations on good numbers despite [ volatile market ]. Just a clarification on the international. I'm looking at your press release, which mentions 28% growth in the order booking and you mentioned healthy inquiry, but you mentioned the order booking will be similar to the last year. So can you help us...

But that's in the quarter, Q3 showed a growth versus last year. But for the 9 months, it's still a deficit over last year if you look at the numbers. What the Chairman was pointing to is the fact that for the full year, the international market, we would be meeting up with the numbers, at least from that front, while the domestic market, as you see, itself has grown quite considerably. So we're looking positively at the opening order book starting FY '21.

And you also mentioned about encouraging pipeline on the aftermarket, some color on -- some more color on that will be helpful.

This is just because we're a month into Q4. So we have visibility on orders that we have placed. And so that's what he was saying in terms of being able to get a better order book and opening order book in the aftermarket segment as well getting into next year.

But I can see one very encouraging, it's a bit of a long haul, but a huge market, is the refurbishment of other people's turbines, especially internationally, of other mix. And we have received orders, and we have -- some of the inquiries are very hot. And those are very good orders and good margin orders and good scope, where we were able to have -- where you're able to get growth in various different segments and various different industry segments and geographical segments.

So you see the area of aftermarket stretches from 2, 3 areas. One is, of course, the parts for our own turbines, the other is a service for our turbines and then is for third party. For our own turbines, that organically is growing at about 7%, 8%, 10% a year based both on a larger installed base as well as certain inflation on the product -- on the pricing side. Service, similarly. And so organically, and these, of course, at good margins, and so we're able to get a good contribution from that. The refurbishment area is dependent on multiple different product offerings that we have, which stems from anywhere from overall to higher value addition services, such as reblading and upgradation of the power output from a turbine. Now -- so this all depends on where we sit and our proximity to customers and our relationship with customers. It's very difficult to provide you great clarity on how we can do this apart from saying that the conversation that we're having are such at an advanced level with customers that give us confidence and some of those already translate into orders. So it's a question of just moving ahead with this segment on a geographic basis where we can cater to customers' expectations better.

But as you know, here, where the real breakthroughs have been for us. We've got people with other made turbines, who have agreed to air freight the rotor back to us and we refurbish it, we engineer it and give it back to them with a better efficiency and freight it back to them. That's a very substantial transportation logistic, which they feel we are still very, very competitive in doing it plus not having the turbine work for some time.

And when we do this, we are looking at it as relationships with groups. So one of the large groups in India has placed an exclusive contract with us for aftermarket service of third-party turbines with some confidence, of course. But the fact is that this is -- we approached it in a -- we started approaching it from a basis where we can occupy our overhead better in terms of sales and support.

But this large group business, you're talking about internationally and not India.

No, this is in India, but the approach is the same internationally.

Internationally, also we have a good group from South Africa.

Sure. And given this, could we assume that a double-digit growth next year seems to be a higher probability?

We were not wanting to put any forecast out. It's too early. But I can say that we are encouraged and we expect growth.

We would expect that. And we are...

I would like to say growth rather than putting numbers.

The next question is from the line of Anand Bhavnani from Unifi Capital.

I have 3 questions. The first question is, at early in the year, you had indicated that we have no offices set up overseas to run more business and we have been spending on it. So if you can update us as to how that is panning out? How many offices have been opened? And is there any business generated out of this initiative?

I'll take all 3 questions. Give me the other 2?

Yes. The second is in terms of business this year, you indicated we lost quite a bit of business to -- which earlier used to come from Pakistan and Turkey. If you can quantify it as to what was our total, let's say, revenue contribution from Pakistan in FY '19, similarly for Turkey?

No, no, we don't go into these commercial -- these are fairly sensitive commercial matters, which -- to give out such details. We haven't done that in the past also.

And the third question was on capital location. Last year, you did a buyback, and it's -- the time period to consider buyback is, again, approaching. So are there any updates whether the buyback is on the cards?

I can tell you, we finished our Board meeting, but nothing has been discussed. But we are sitting on about INR 150 crores of -- so the liquidity of the company is good and liquidity in the company is expected to be increased on -- good. So we are in a little different position to many other manufacturing companies in India, where we are having treasury operations. We have very conservative treasury operations and -- rather than anything else, and the balance, I would have to say, needs to be considered by our Board. But I can take your first question, and I want to be a little bit open with everybody. We looked at our handling international sales through the offices and are handling them from Bangalore. And we found that the value-add from the -- having the quality and the number of people we have to send from Bangalore to support it was still quite a lot. So we were not getting as much value-add as we thought we were going to get, that we could do it just as easily and at a cheaper cost than as effectively but more from Bangalore. So while the travel costs may be sadly increasing from Bangalore, we were getting better coverage and the results have been good. So we have not -- we wound down -- some of the operations down slightly in the international share offices. That's all. But we are not looking at opening any new ones.

And sir, in case of our existing setup, we are not anticipating any additions in FY '21. We have enough capacity, right? So there will be no CapEx, is that safe to assume that?

No, we've got plenty of space in capacity utilization with the new factory. And CapEx is very small, similar to what was in the current year of

76...

No 22 -- about INR 23 crores, which is not much. That is so some balancing and some testing and some R&R and some design software. And we are -- we've acquired a bit of CapEx, I mean, the figure is similar to this year, which is just around INR 20 crores, INR 21 crores. Automation, IoT, so we are growing very heavily. We're in a project management, Primavera. So we are more on the technology side, both in terms of design technology, automation, and speed of doing business.

Sir, and if I may squeeze in one question, we had taken some cost control initiatives. So is there any benefit left or we have already gotten all the benefits from the cost...

No, no, no. We have taken it, but we have looked at areas of further cost benefits. And we are even -- some of our design efforts are continuing to go in this direction. So we are spending money for cost reduction. And we will continue to do that. We feel we can still get more cost out in the next 6 to 8 months. Arun? Absolutely.

We'll continue to have the savings in Q1, Q2 and then further on.

The next question is from the line of Harshit Patel from Equirus Securities.

Sir, I had 2 questions. The first is, some time ago, there was an order from Central Pollution Control Board that even captive power plants will have to put FGD system. So if they do that, do their cost goes up, and consequently, their internal return ratios come down? So that -- does this affect any way the demand for our kind of turbines?

No, one thing, let me -- to explain something, most -- no one is setting up a power plant, a captive power plant, to export to the grid. There may be a consequence if it's a biomass-based pipeline, which has a different sub-zero -- air pollution control. But from a cost economic perspective and steam is used as part of the process, the cost of that steam net will always validate the company to set up a power generation plant at site.

But they don't have -- where -- what you're talking about is not really applicable to the type of power generation people we sell to. And so it's really not a consideration at all. People are happy to go for air pollution, they are going for zero discharge and things which is in boilers. And so it's not really -- the turbine part is very, very small, if at all.

And sir, my final next question would be a bookkeeping one. So in our outstanding order book for aftermarket, sir, can you break that up between domestic and exports?

I don't know what level of detail we gave, but I think the detail is in our investor brief. You can take it from there.

Sir, that's actually not given in the presentation. Earlier, you used to give this detail. That's why I asked.

Well, if you get back to us offline, we'll give it to you. I don't have it with me right now.

Next question is from the line of Manish Goyal from Enam Holdings.

A couple of questions, sir. First, on -- sir, do you see any risk on executing the current order book or potential order inflow from the outbreak of the virus in China?

No, we have no orders from China or...

No, not China, but say probably it's like Southeast Asia and...

Southeast Asia, not really.

Not much. We continue to export.

Yes. They're not -- and the people who are chasing up and -- are not really -- I don't find anything. I myself, I'm thinking of traveling this month.

And sir, sorry to harp again, but just on your initial remarks in terms of order inflow, which was similar to FY '19, just back of the envelope calculation shows that the order inflow number would more or less remain between INR 210 crores and INR 220 crores, which will again be equivalent to number what we -- inflow number which we had in the Q4 of last year. And -- so ideally, what it implies is that the order book, which is already 8% down in the first 9 months and looking at Q4 execution, which is always the best quarter, my worry is that your order book may decline more than 10%, which in turn probably reduces the growth opportunity for FY '21.

No, no, it doesn't matter what you're talking about.

Yes, we have said that we hope to -- we expect to have an opening order book on 1st of April 2020, which will be...

Same if not better.

Same if not slightly better than what it was on 1st April, 2019.

[Operator Instructions] The next question is a follow-up from the line of Anand Bhavnani from Unifi Capital.

Sir, I just wanted to understand for our domestic as well as international market, is there a threat of refurbished turbines of, let's say, Chinese mix being a more cost-effective option for customers and they're preferring...

No, zero. We have refurbished Chinese turbine.

No, no, no, they're...

No, they are not able to -- let me tell you that in the power generation market in our range, the Chinese don't seem to be keen with their manufacturers at all. I mean, there are so many of them. They are -- they're quite happy to concentrate on the Chinese market and on the -- where there's Chinese-funded project. I wanted to also mention to you that from an international source -- international data source of steam turbines, in the first 9 months of FY '19, for which the data has been given to us by this -- when we are a subscriber to the source, in the 5 to 30-megawatt line globally, we are #2 in terms of number of turbines and megawatts of turbines...

It's units sold.

Units sold internationally. So that is, I think, a very commendable thing that we've achieved this -- we did that in FY '18 also. And there are no Chinese anywhere in the horizon in that. So that's why we know where they are.

Sir, and just secondly, wanted to understand if you were to keep aside the loss of business in Pakistan, Turkey, any other significant disappointments for us in the first 9 months of the financial year?

No, I mentioned it to you. These are the 2 places. And some parts of the Middle East, which we've also compensated now.

Disappointment in Africa also.

But Africa, I personally hadn't thought that it's -- but there are other parts of Africa that have picked up this Nigeria part, so that's total Africa though. But let me give you more is to say where we're finding encouraging inquiries and growth from, which is Southeast Asia. And I don't think that it's going to be affected by the virus. And Europe, there, we are seeing good traction in inquiries. But when I talk about inquiries, I talk about things that look like active inquiries. So we categorize our inquiries also into 3 categories of completely budgetary or active and very active.

And sir, in terms of inquiries, any quantification, like are the inquiries same as last year or they are like...

They are very diversified. But as you know this is -- we don't even want to speculate on that internally. It varies from country to country and segment to segment. So the risk mitigation for Triveni Turbine is to approach all.

And in case of sugar distilleries in India, have we -- are we seeing any pick up further from the existing levels? Or is there...

There is some pickup.

Sorry?