Triveni Turbine Limited (533655) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Triveni Turbine Limited Q1 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to 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 Q1 FY '21 conference call for Triveni Turbine Limited. We have with us today on the call, Mr. Nikhil Sawhney, Vice Chairman and Managing Director; Mr. Arun Mote, Executive Director; and Mr. Suresh Taneja, Group CFO; along with other members of the senior management team. Before we begin, I would like to mention that 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. Nikhil 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 a very good afternoon to everyone. Thank you for joining the Q1 FY '21 conference call for Triveni Turbine. I hope everyone is well and their families are well in this COVID times. But also given the unseasonable rains in Bombay, I hope that you are all well. So first off, I'd like to give you a little bit of overview on where the business stands and how we have prepared in this past quarter. Even though we had a call about 6 weeks ago, I think that you would see that the company's performance has been quite good in this very trying time. The COVID-19 pandemic has impacted not only us, but global economies and industries in a very severe way. And while Q1 FY '21 has been a difficult quarter due to the restrictions of travel and movement of raw materials, but also the fact that businesses were not allowed to operate and we would also close as a company in terms of our entire production for a little over 3 weeks, but our supply chain continue to be impacted. And so did our logistics supply chain as well. So given these factors, it is quite commendable, I think, in our opinion, as the performance that Triveni Turbine has put forward in this current quarter, which truly shows the agility that the company is able to operate through, while being able to have a low asset base under which it operates, but still deliver in a very dynamic manner to our commitments, to our customers primarily, which ultimately hopefully leads to performance for our shareholders. Again, in this time, our top priorities have and will continue to be the safety and security of our employees and key stakeholders, along with those, with close customer connect. This is all to ensure that we understand and work with our clients through whatever impact the virus may have led and continue to have on their businesses. The order booking for the quarter has also been impacted due to this lockdown. While surprisingly to us, the inquiry generation has been at a similar level and has, in fact, maybe increased by a couple of percentage points. Our team has worked relentlessly, and actually they deserve the entire credit. The dedication of the employees of Triveni Turbine, to be able to deliver satisfaction to our customers, really was at the forefront of all the efforts in this past quarter. And it has turned out in an extremely [ fortitude ] manner for us in terms of being able to derive the benefits of our transition where we are at this point in time. As part of this new normal, the company has also strengthened its digitization efforts with an adoption of various tools such as augmented reality and virtual reality. I alluded to this in our previous conference calls. And as you would tell from these results that it is because of these digitized -- digital tools that we've been able to achieve whatever performance we have in this current quarter. We believe our step into digitization is just at its beginning right now, and we are at the real transformation of the company, where we would be digitizing and -- we would hold digitization at the center of all our activities and endeavors to benchmark our activities on efficiency and productivity. So where it's a real transformation right now, there is a lot of thinking internally, and we will be taking future initiatives, which will truly transform a company to be even more agile in the days and years to come. On the performance itself, the net income from operations for the quarter was at INR 1.65 billion, which is lower by 23%, and EBITDA was at INR 433 million, which is lower by 7%, while PAT was lower by 11% at INR 273 million. This is, of course, impacted -- the PAT numbers impacted by the performance of the joint venture, which had a loss of INR 146 lakhs during the current quarter, which we believe will get -- this is due to the fact that there's no dispatches in the joint venture. And by the next subsequent quarters and by the end of the year, the joint venture will display profitability, and so we are confident on its operations. The outstanding carryforward order book as on the 30th of June 2020 was at INR 6.78 billion, which is only lower by about 3% when compared with the beginning of the year. The company achieved a total order book of INR 144 billion as against INR 215 billion during Q1 FY '20. The decline in order booking, as you well imagine, was due to the lockdown and lower international order booking, as we had also alluded to in the previous conference calls. However, the positive factor is that even during this period, the inquiry flow has been very steady. At the same time, the company could achieve a higher EBITDA margin of 26% due to a focus on cost reduction through value engineering, supply chain optimization and a reduction in administrative costs. All of these are sustainable into the future as well. We have been alluding to this over the previous conference calls that the form in which the company is selling its products is more modular, which allows us to have a tighter control on inventories, which has a tighter control on manufacturing expenses as well as a utilization of raw material inventory. So therefore, not only does it allow us to be more efficient from a cost perspective, but also to be agile from a cash flow perspective also. At the same time, the mix of aftermarket, along with product sales, has positively impacted the company in this quarter. And I will go into that in a little bit of detail in a few minutes. The domestic order booking was down by 19%. And as you would imagine that this was impacted with the restrictions that we had in terms of the lockdown in the current quarter. The main segments that we got orders from where the usual suspects in terms of the renewable sector waste heat recovery, and specifically, process co-generation. This is a segment that we are still seeing some growth in, in the domestic industry. And we believe that the domestic industry will show us good growth -- not good growth, sorry, it will show us order booking for this current year, akin to probably about a quarter market of about 5 years ago. Though at the same time, the inquiry suggests that in the coming year, which is FY '22, the order booking from the domestic market will pick up again. This is driven by several factors, which I'd be happy to answer once you ask questions around it. At the same time, the export market has seen a decline in order booking of 53%. And some of the export orders that we had on hand, which was stuck at port, was able to be dispatched in this current quarter. We have to say that the company incurred certain costs on those export orders, which was stuck at port in the form of demurrage. Those have been included as far as costs, and we believe that those costs will not be recurring in future quarters. The company currently has installations in over 70 countries. And we are focusing on expanding our presence in a variety of different sectors, not only in the renewable sector in which we have a global dominant market position, but increasingly so in the process co-generation and also in the oil and gas market going forward. The aftermarket turnover -- the turnover for the aftermarket in Q1 FY '21 was at INR 426 million, which is 3% higher when compared with the same quarter of the previous year. And the share of aftermarket sales to total sales was at 26% as opposed to 19% in the same quarter of the previous year. During Q1 FY '20 of this year, the aftermarket segment showed -- on the other hand, the order booking in the aftermarket segment was at INR 401 million, which showed a decline of 35% as opposed to the same quarter in the corresponding year. We have to take great comfort in the fact that the aftermarket segment has led the business in this current quarter, not only in being able to maintain its sales in this trying times, because we have to understand that it was because of the urgency that our customers faced in terms of getting their spares because they may be part of the essential supply chain or part of the essential industry themselves, that drove us to get permission to start our operations. So aftermarket is what allowed us to get back in front of our customers and being able to deliver to them. At the same time, the order booking was impacted, driven by the fact that there was uncertainty in terms of when customers may take their shutdowns as well as total lockdowns in certain areas, and that did not allow us to add closer interaction with our customers. Going forward, we believe that aftermarket order booking will pick up in the coming quarters, and we will display a good result in terms of order booking for the aftermarket segment for the full year, which is FY '21. Design and development has always been a very strong area for the company. And we always believe that the value of Triveni Turbine has been its engineering capability and the technology that it puts into its products, and therefore, able to cater to its customers' requirements. We have continued to focus on this, and we'll be investing further in research and development into new areas of rotations -- or new areas of fluid dynamics and new areas of rotating equipment, whereby we can utilize the best of our abilities both from a manufacturing perspective, but also from a supply chain and management side. We are optimistic that we would come up with certain areas whether we can lead to future revenue growth for the company, but this will all be driven by technology and design and development. The outlook for the company is quite good. While we had given an update in the last call about the possibility of having a decline in turnover and profitability, at this point in time, 6 weeks forward from when we spoke, I'm not at a position to change what we anticipated at that point in time. But we believe that the outlook for the business is quite good. This is driven by not only a decent inquiry level, but also in terms of the focus that we have in the end markets, which have funding and have the traction in terms of customers willing to set up 2 projects. The problem happens in terms of finalization of orders. And what we find is, at this point in time, that customers are looking to bargain. And therefore, while we have a cost advantage over our competitors, we feel that this is not a time for us to be discounting at a level, which is not necessary. And so therefore, we may even go slower on accepting orders where customers feel that they have a bargaining advantage in terms of being able to pressurize us in terms of pricing. But having said that, our international travel, we believe, would start off again in the next 4 to 6 weeks. At the same time, our operations in Dubai and South Africa have started, and this will help cover not only the European and African markets, but also some parts of West Asia. The Thailand and Indonesian operations will be starting soon. And so therefore, we will be able to have more focused efforts in front of our customers at that point. We have a strong inquiry pipeline, like I had said, but specifically for the aftermarket, it is quite robust. And we believe that Q2 onwards, the order booking is expected to pick up. For the full year, the company sees a strong order booking for the aftermarket business. There's also a strong pipeline between all the segments of the aftermarket. But today, there will be a greater focus on the refurbishment business. The one segment market business, which will get impacted and may not be able to recover to the same level of its performance in previous years -- of the previous year, will be our service, which as we move into a more digitized form of offering service to our customers, it will definitely have a revenue impact because we may not be able to be in front of the customers as much as we may like. But from an overall year-on-year perspective, the business will perform well. The company's foray into the oil and gas market is also gaining momentum, and we are hopeful of getting some large orders in this segment in the coming quarters, and we will be able to display some good results for this current financial year. More than that, this places us very well for this market segment for next year going forward. Due to the COVID-19 impacting the domestic as well as global markets and economies, and based on the current situation, the company may witness a decline in revenue and order booking in H1, but it is expected to improve in H2 with the current orders in hand. And the company believes that it could limit its decline in revenue and profitability to the extent that we've already spoken about. While all the attempts are being made to minimize the impact in terms of revenue declines, our attempts from a cost-cutting perspective and operational flexibility will be also moving forward with a very short footing. We believe that there is still some scope for us to be able to rationalize costs. And we think that from the longer-term perspective, we will take very prudent decisions. And I hope to come back to you in the next couple of quarters with some concrete plans as to how we will be able to implement those. Therefore, with a healthy outstanding order book and with the good pipeline of inquiries, we are confident that the company will fare well in the coming quarters. Of course, we've been impacted quite severely with this COVID crises and the lockdowns, and we had lost between 4 to 6 weeks of revenue. And this will directly impact the company for this current financial year. But it places us quite well for the coming year and the coming years. The company has a good cash position of about INR 3 billion, and this is driven by an increased use of our -- or the reduction in our inventory where we've been able to actually release a lot of cash there. At the same time, our operational flexibility has also allowed us to get better cash from our customers in terms of receivables. But more importantly than anything else, that as we move into Q2 and Q3, we have -- we are of the opinion that we will move back into a negative working capital environment where the company has always -- which the company had for several years in the past. So with that, I'm happy to take some questions from the investors and from participants.

[Operator Instructions] We take the first question from the line of Ravi Swaminathan from Spark Capital.

My first question is with respect to the O&G orders that you had mentioned, that they can be big. How large can there be per annum on a steady-state basis? If you could quantify it, it would be really helpful.

Well, the market in my estimation is a couple of billion-dollar market for the product in any given year. The point is that because of the fact that these products are low in value from the perspective of end buyer, they don't tend to qualify to many people, and they don't want to go through the process of the bureaucracy of having to qualify because safety and security of the product is paramount for them. So they don't mind not having the best cost. But given the change in environment that we have in terms of declining oil prices and the need for everyone to be more efficient in terms of their supply and chain procurement, we have actually had good success in getting into a lot of the qualification that our clients need. And at the same time, we are hopeful, and as we currently stand, we are in the process of closing a couple of orders. So it all depends on size and scale of what the requirements may be. If it's a new refinery or a new complex process, the requirements are large. If it is a question of upgrading or replacement, the orders are, in terms of value, are smaller.

Got it, sir. But you told -- you had mentioned that it's a couple of billion dollars, which is like INR 15,000 crores. Even 1%, 2% market share can make a huge delta to your order inflow. Do you expect that kind of magnitude of inflows in the first year itself?

Let's wait and see what success we get. We are hopeful that we think that we would be able to -- this is a new market segment for us, dry markets. And if I need the dry market -- when you look at the entire market, this has a potential to pretty much double the business that we are getting right now. But that's over the longer term.

Got it. Got it. And more slightly short term. I mean gross margins have expanded this quarter. Is it because of the mix, after-sales service growing at a relatively higher pace than the other segments, because of which it is there? Or is it...

You have to -- yes. Well, you have 2 reasons. One is that, structurally, we have reduced costs. This is through the entire organization. So it starts from manufacturing expenses, which is driven by the mix of products that we are selling in terms of how standardized they may be. And at the same time, administrative costs, as you would imagine will come down considerably, both from a work-from-home perspective as well as the fact that international travel is not possible. At the same time, the mix of aftermarket with product has, of course, helped in terms of the EBITDA margins. But the decline in the lower revenue also was laid down by general operating administrative overheads. And so operational overhead. So we believe that as turnover grows, there may not be a potential to expand EBITDA margins. I don't think I would like to give that as a [ out ] to investors here. But I think that to maintain margins is something that is definitely enough visibility.

Got it, sir. And my last question is with respect to cash levels. I mean we are sitting on a very comfortable INR 300 crores of cash, which is like 15% of market cap. You don't have big CapEx plans, and you had also mentioned that working capital, in fact, might even go down. So any plans to increase dividends or do buybacks?

Well, at this point in time, the Board hasn't taken any decision on it. And as and when it does, we will come back to you. And of course -- but I think the imperative of the business right now is to ensure that we can provide greater visibility to its shareholders from a revenue perspective. And I think that the ambition that we have in terms of revenue growth is something that really we would like the cash surplus to focus around. Ultimately, the company has derisked itself in a variety of different ways. As you could see from the fact that it was able to actually deliver this type of turnover in the quarter, which was significantly impacted, both in terms of dispatch as well as outreach to customers, both in India and internationally, we think that we have the wherewithal both from a management perspective as well as the different functions to be able to add value from our revenue.

The next question is from the line of Ashutosh Garud from Ocean Dial.

Can you hear me?

Yes I can.

So I just wanted to understand, I mean from an external mix perspective, would you be able to give some sense of your order book mix across sectors?

No. I think we stopped giving that because people were reading too much into it. But in general, if there is -- in terms of outlook, as we look at it from a domestic market perspective, there are certain sectors which are performing well, which we believe will continue to grow well, such as the process co-generation, which is in the food, distillery space, pharmaceutical space. We think that the waste heat recovery segment, which is in steel and cement, will take a little bit more time to pick up. In the International market, geographically, we are seeing a much greater traction in Europe. And we think that, that will be a bigger market for us in the coming quarters. It's basically based on where people have opened up and requirements in terms of the underlying businesses remain. Our largest market segment is the renewable segment. And so that will be our focus in terms of municipal solid waste consideration as well as other biomass-based applications.

Okay. And on this PLI scheme, do you think that there would be any kind of benefits coming to the manufacturers like us?

You see, PLI is, I think, is for specific industries. We think under [indiscernible] will be other programs around it, such as this increasing -- well, we contacted several times in terms of standardization and standards -- standards, sorry. And so we believe that there's a need for us to as standards are adopted, nontariff barriers which will come up in the Indian market, which will -- as it is, we don't suffer from imports to such a large extent, but even to the limited extent of 5%, 7% of the market, which goes to export, may possibly come down. At the same time, we think there are certain implementation of certain policies, which could end up benefiting the company from the longer term, such as the capital goods policy. And so we think that there's potential for us to make up most of government schemes and programs as well.

Okay. And sir, if you can elaborate the point of digitization you mentioned earlier. So how exactly will that play a role in our business? Will it cut costs? Or is it going to expand the opportunity size on the demand side?

Both. Both. Yes, both. Firstly, it opens up a new revenue stream. And that's what I like to focus on because very frankly, these are ways for us to reach customers when we couldn't reach them previously. This is a way for us to offer services to them, both in terms of reliability as well as our productivity to them where we couldn't previously. So this is a new offering for us to be able to offer this to our customers, not only in terms of being able to remote monitor, but also to use data in a much more efficient or able to predict where and how our customer may have its problems. And so this dependability as a service and ultimately it leads to a revenue increase in terms of new product lines. This also benchmarks ourselves in terms of offerings with our competitors. And so therefore, it is a step-up in terms of being able to cater to our customers more better. For the second part, as you rightly put it also is the fact it is the reduction in cost. And this happens through the entire value chain of the company. So when you start from places like travel that comes down, you have increased digitization on the shop floor in terms of industry 4.0, and so we have a greater degree of automation and a greater degree of flexibility on the operating flow, which not only leads to a decline in manpower cost, but higher productivity. But also leads to higher efficiency and lower turnaround time and less wastage and variety of different factors. So I think both -- all these factors add together to make the company more agile, firstly, but also increase revenues and lower cost.

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

Sir, I had a couple of questions. The first one was on our...

Mr. Patel, I'm sorry to interrupt. Requesting you to please speak a bit louder, sir.

Is it audible?

Yes.

Yes, yes, I can hear you.

Sir, I had a couple of questions. The first was on our value engineering effort. Could you elaborate a bit more on that as to what exactly we are doing here and what would be its contribution in our overall operating margin improvement? Because since last 3 to 4 quarters, we have been witnessing a sustainable improvement in the operating margin from the kind of levels that we have achieved in FY '19. So from FY '20 onwards, there has been a pretty different progress on that front. So if you could enumerate a bit more on that, it will be very helpful.

Okay. There's a -- value engineering is a continuous exercise whereby we aim to take costs out of our product, both through material cost reduction as well as through manufacturing supply chain efficiency. So it's a more complicated answer than just simply laying it out. But principally, for us, it drives around the fact that the steam turbine is a customized engineered-to-order product. To that extent that you can standardize modules and you are able to actually consider those a manner they can be used across a variety of different platforms, we are able to then have value in the engineering side. So every [ percipient ] has its own different elements. I have Executive Director, Mr. Arun Mote on the line as well. Arun, would you like to explain a little bit more about your value engineering exercises and...

Yes, sure. Yes, sure, Nikhil. I will do that. This is Arun Mote. When we talk of total cost to cost to the product, we have the material cost, we have the conversion cost and then we have the indirect material cost. These 3 -- and the last one, of course, is the overhead. Now we are, as our Vice Chairman has said, in the business of engineered-to-order product. So what happens is that there is a continuous learning of the product and -- which entails value engineering. What we mean by value engineering is that we ensure that the function of the product is not compromised, but the material that goes into it is reduced on a continuously basis. About 1.5% to 2% of the material by value engineering and the supply chain initiatives is something which is considered to be good for all engineers. So one, we do this value engineering, and it's a continuous process. You will find it every time we introduce a new product, the cost will keep going down. The second is the conversion cost, which through direct operations and also subcontracts, we'll continuously reduce it. There, we get some percentage, maybe 0.5% or 1%. And then on the conversion cost, on the other side, we have been going through a process of rationalization of manpower and other administrative expenses, which we have started, and that is yielding continuous results, as we wanted in FY '20, that is last year and this year. You rightly pointed out, there has been a continuous improvement in the margin. So this is one of the processes. And the last one is, of course, on the other expenses of indirect material, that we are going ahead. So it's a combination of all the efforts that is giving us these margins. We have also introduced new initiative of using an inventory, and that is also giving a result, which will continue to be there for about 1, 1.5 years next. So these new initiatives in total are giving the company more margins on product as well as on customer care. And we would like to emphasize that the current difficulties have shown how an agile organization like us has transformed and given results to the shareholders in a much better manner. Thank you.

Thank you, Arun. I think, essentially, if you look at it from the reported results, you'll see that our material cost is somewhere in the region about 52%, and that's come down from, I think, 58% to 56% levels in different quarters in the previous year. And I think that is something that what Arun was talking about in terms of efficiency of operations, and the other costs, I think, you would be able to work through.

That was very elaborate, but thank you for your response on that. So another continuation of my question would be that you had earlier mentioned that you have started in-house testing of turbines. So you had commissioned the test sometime in FY '20. So could you give us an idea as to what kind of cost savings that this translated into? And earlier when we did not have that kind of test, who used to test our turbines?

Well, actually, there's 2 different things that we test -- that we commissioned over the previous years. And I don't know what you mean by test, but we installed and commissioned a [ dynamometer ], which is actually essentially giving us greater dependability on our research and development, and new models that we would develop. And previously, research houses would have this, and so the cost would be spent in terms of a higher expenditure on R&D there. But we decided to this in-house, not only in terms of being able to do it quicker. But also, we felt that it's a good capability that we should build ourselves. The cost to it itself isn't really very large. Another large equipment that we did commission in the last, I would say, couple of years was vacuum tunnels. And this is a larger vacuum tunnel than one that we already had. This really did not just augmented our capabilities to the extent that we already had a vacuum tunnel, which allows for high-speed balancing. And this -- the increased capacity that really did help the capacity of our joint venture, which had larger turbines, but also the refurbishment market where we can cater to turbines of a much, much higher megawatt than the range that we cater to, which is 0 to 100.

Sure. Understood. And just last one, bookkeeping question one. So for the first quarter, could you quantify what was the share of exports in our overall aftermarket orders and the present order book? That will be all from my side.

I'm happy to give that information. Narayanan, if you have that, you can give it, otherwise you can contact him afterwards. Narayanan, are you there?

Yes, I'm here. The aftermarket mix is, as we said that the overall dispatches in the aftermarket, in the international segment is lower than what it was distributed. So it is in the range of around 80-20. That is a kind of mix for the aftermarket perspective, both order booking as well as [indiscernible] .

The next question is from the line of [ Koscheck from VER Enterprise ].

So I had a few questions on this [ GE JV ]. I mean how much ever you could answer. I'm sorry, I joined the call late also. But just basically 3 questions. How much of your end profitability does this JV contribute right now? And what is the main topic of debate right now in this whole issue, which is going on? And what is our stance on it? What is the best possible outcome that we would like to achieve from this legal case, which is going on? And what should we base for in the worst-case scenario?

Okay. So let me answer the question, because as you do know, this matter is subsidized right now. And so therefore, elaborating on this is quite difficult for us to do. But let me try and answer it in whichever manner I can. From a perspective of the profitability of the joint venture, the expectations are, of course, for it to be a larger market, larger turnover, larger profit than the stand-alone enterprise. As it currently stands, also for the last several years that we can see, the joint venture really hasn't contributed more than, I would say, a maximum of 10% of profit to the bank. The matter is currently in front of NCLT from perspective of [ this management ]. And I think the petition is in public domain, so you can get access to it. We believe as a company that, very frankly, we have certain competency and capabilities in this field. Field is not litigation. I mean -- sorry, we have competencies in the field of manufacturing and designing turbines. Our field is really not litigation. And so we hope that we would be in a position to move on from this very quickly.

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

I have 3 questions. First of all, in this quarter, if you can give us a sense of how much did we save on travel costs, given that there was almost no travel?

I don't think we did that breakup. I think you're asking for a bit too much of detail. But as you could see from other expenses, I think we would possibly have -- other expenses include a variety of different factors. One aspect which has been higher has been our selling cost, which is, like I said, because we had higher -- we had some exceptional costs in terms of [ leverage for both ]. But if we look at it, we would -- we could substantially see maybe INR 3 crores to INR 4 crores of reduction in the year on an annualized basis.

This is INR 3 crore to INR 4 crore reduction for the overall other expenses or for the travel expenses?

Travel.

Okay. And...

No, no, no. I mean annualized though.

The?

Annualized. One quarter, we have...

Yes. And with regards to the oil and gas market, you mentioned the overall market size is $2 billion, about INR 15,000 crores. As of today, the qualifications that we have from the key players, what is the addressable market size for us out of this INR 15,000 crores as of today?

As you know, we have our President, S N Prasad, would you like to answer that question?

Hello?

Hello. Okay. Arun, can you answer that question for -- on the oil and gas market segment, please?

Yes. You see the -- I would like to give you overall. As our Vice Chairman has indicated, the overall market is in a couple of billions. Now we would be catering through a particular segment. And that particular segment would be up to maybe 3 to 5 megawatt range. And it would be in specific applications. So it will depend -- the overall turnover and the addressable market will depend on which inquiries will be coming. So we won't be able to quantify this just like that. Today, our concentration has been on the registration. And more the registration we get, more the inquiries we get. And based on that, we would be doing it. So it will not be correct to quantify the market and how we will be getting it because we are in the very initial phases.

I just wanted to understand what is the current market setup like? I'm not asking what we are targeting. Of the 3 to 5 megawatt segment in the oil and gas, what is the size? Because overall drive turbine is INR 2 billion, but 3 and 5 megawatt would be some percentage of it. So what percentage it is?

It would be roughly about, I would say, about 15% to 20%.

Okay. For us, in Q1, how much of the revenues were due to orders which couldn't be shipped in Q4?

I think we can take the top line with Mr. Narayanan.

This was not more than about INR 20 crores to INR 30 crores.

INR 15 crore, INR 20 crore?

INR 20 crores to INR 30 crores. But we also have in Q1 to Q2 also. So I think, yes, you're right. There won't be an impact of that, when you look primarily from the export side.

Okay. And lastly, there is some chatter about change in -- possible change in NEI scheme. So currently, we do get benefit under NEI scheme, right? And what's the percentage of the exports that come to us as NIE incentive?

We are 2%. I think the question has been asked earlier in terms of the P&I scheme. And so we alluded to that in terms of how the company is representing for government to ensure that this NEI has converted into packing credit or other forms of export incentives, which are more WTO compliant. But secondly, it's also that specifically according to certain policies that have already been implemented, which have a segment turbines and specifically exported turbines, that is continued. Incentives to be provided. And this is provided under the capital goods policy, which has been tabled and which has been accepted and passed by the legislature.

Okay. So as of now, it seems the incentive would be modified, but broadly it will be retained at the same level, 2%?

Well, I mean there's only talk right now. Primarily, it's on newspapers in terms of publishing NEIs completely and limiting it to INR 9,000 crores from the INR 45,000 crores at its current outlay is through a variety of different PLI-driven schemes. How that is implemented is, I think, anyone's guess. So I think from our perspective, very frankly, we focus more on being able to derive better profitability from our customers. As it is, the refund of money that we get from these schemes is extremely slow and extremely poor. So we just look at this as incidental. Yes, it does help our profitability, but from a cash flow perspective, it's really quite delayed. So we focus on our business. And I think that's where we should drive more profitability from, better market position, get better orders. I think all of these things that come along the way are always very helpful. And it's not as if we lose focus of them, but it's really not a priority.

Okay. And lastly, before COVID struck, we were anticipating that FY '21 could be the first year we get to deliver some orders for drive turbines in oil and gas. Is that still a possibility for us? Or is it -- does it get pushed to FY '22 now?

Yes, I think you're right. It gets pushed to '22. So we were hopeful of orders right now that we are in a point of closing, and we hope that by the next call that we have -- we should have positive things to let you know about. Let's see how that develops. I think we're optimistic on that side. As you rightly pointed out, we've been talking about it for a couple of quarters now.

[Operator Instructions] We take the next question from the line of Manish Goyal from Enam Holdings.

Just to clarify on the revenue mix chain, what we are seeing with higher aftermarket. So within aftermarket also, has there been a beneficial revenue mix in terms of higher spreads or more profitable revenues, which would have helped the margin improvement?

No. The blended margin of aftermarket is consistent. But as you would imagine, the customer-facing element of service is, of course, going to see a decline because customers also aren't that open to letting service engineers come without proper planning and process, et cetera. And we're also in the form of actually moving our digitized offering forward. There would a period of transition within servicing. But I think for the entire year as a whole, we look at margins to be consistent as previous years. Order booking should be good going forward. There may be a slight decline in the revenue in the aftermarket segment, but broadly, it will be in line with the previous year.

Sure. And also, if you can just provide some insight as to how is the refurbishment market developing for us? Especially last call, you were like a bit update on the inquiry levels.

Yes. Yes. Yes. So I have our President on aftermarket, Sachin Parab, on the line also. Sachin, if you are there, you could provide some visibility to...

Yes. This is Sachin Parab. So we have had some very good success in opening up some new markets for the Refurbishment business, and both on the [ side ] of India and on the [ digital side ] of India. Also, we have had good inroads into new segments of the market. Overall, the trend is very positive and the inquiry levels have gone up for the Refurbishment business.

Right. So is it that the restrictions on the travel is kind of a bit impediment for us to get the orders into right now and execution part as for refurbishment?

To some extent, yes.

Give an idea about the digital services as well as specifically on the refurbishment and aftermarket side.

Okay. So we are using a lot of digitization tools for addressing the needs of our customer. Yes, travel has impacted us, and we are seeing much more traction on the domestic market travelers, much more feasible. International markets challenge of travel has affected, but we are using digital tools to connect with the prospects and generate more and more inquiries.

Okay. And one more question broadly on the order inquiry pipeline. Last time, you mentioned that domestic market has somewhat had a market size of 1,000 megawatts. And so if you can give us a sense in terms of how will you quantify the pipeline?

I think for this current year, our belief is that the domestic market will come down to about 2/3 or a little less than that of the previous year in terms of total orders. So there's going to be a decline in the domestic market. And could you talk about product here, the aftermarket?

Yes. Yes, referring to the product.

So therefore, as we had said in the previous call also, we believe that the first 2 quarters will be driven by domestic market inquiries and orders, which were pent-up and backlog from the previous year. And therefore, we believe that the international market should substantially add to our order booking in the latter half of the year, which is what we're seeing in terms of interaction with clients.

Okay. So Nikhil, would it be possible to quantify like what's the international order book inquiry book, like usually you talk about in terms of megawatts...

It's in gigawatts. No, it's in gigawatts. It's large. Like I said, our inquiry book this quarter internationally also has grown. But it's only grown by 1% or 2%. But that seems like that's just a segmentation of it. So that we just need to say that the market exists. The issue that we're facing right now is from finalization. And as I have spoken about, customers are also looking at this opportunity to say, well, listen, no one has ordered. So if you want an order, give me, whatever, 20%, 30%, 40% discount. And that doesn't work for us. We don't price discount. We don't work that way. So there's no need for us to buy orders. We are in a good position. And I think that, to that extent, we will be prudent.

But are you seeing your competition succumbing to that in terms of...

No, no, no. You see -- as it is, we have cost leadership in this space. So very frankly, if there's anyone who could do it, it would be us. So 1 or 2 orders here and there obviously happen. But in general, I think everyone understands, if you go down that route, it's a slippery path.

Okay. Okay. Just last question. Do you -- so from your commentary, it seems that even if we have a little lower revenues in the current -- entire year, we'll be able to maintain our margins...

Yes, that's what I said earlier -- exactly. Even though you would have low operating leverage, the fact is because of our cost savings and -- sustainable cost saving, we think that we will come out in a good manner. But of course to make sure that we maximize revenue as much as possible because the order book is sufficient for a higher turnover than that.

So the note says that there has been some manpower rationalization. So like -- can you quantify in terms of how much people have been laid off or what is the...

No, no,. These are not layoffs. These are -- but we are undergoing [indiscernible], which is really to benchmark individuals on -- directly on their productivity. And so that may have some implications, of which I'll come back to you in the next couple of quarters and give you more details. Because really, the question is that, and what Arun has also tried to point out, is that we're trying to make an organization which is extremely flexible. And I think that's demonstrated in this quarter in the way we operate. But we believe that we should be even more flexible. And so that's the way that we'd like to build up.

And does this, like -- in terms of reduction cost, does this involve, or probably, are you looking to accelerate your process of shifting the facility for [indiscernible] to the new facility, which has been state-of-the-art facility and has a lot of room to expand?

I think you've -- I mean the basis of the productivity between the 2 factories is [ locked ]. And it's the learning between the 2 factories that we want to benchmark both of them at the same levels. And so we're taking it up to that level where we can have a greater degree of automation and degree of digitization in the manufacturing process itself, and see how best we can actually come up with that. So yes, we'll come up with more details.

The next question is from the line of Nidhi Shah from Prabhudas Lilladher.

It's Nidhi Shah. Sir, basically, first of all congratulation on our recent set of numbers given the pandemic and the situation for the first quarter. Just wanted to understand, since most has been answered, how -- when do you see that the kind of this inquiry level getting converted into actual orders, coming to back to pre-COVID levels where the trend was much, much prudent? So do we expect that to happen in second quarter or third quarter onwards? One. And how fast, whether it can be in domestic market faster or international market. So if you could throw some light onto that, that would be helpful.

Prasad, are you on the line? Are you back?

Yes. Yes, sir. I'm back.

Would you like to answer?

Yes, sir. I will take this question in 2 ways. In domestic markets, yes, I think slowly we are seeing some traction is happening. But as our Vice Chairman mentioned that even the negotiation process is taking a longer time. We are waiting and watching the scenario. Whereas the International markets, what we expect, probably once the international travel starts, that means we are expecting maybe by end of this month or early September. So since the inquiry pipeline is there, all technical alignment meetings are going on on virtual platform. What we feel that probably Q3 traction should be better on international.

Okay. Fair enough. Secondly, sir, in terms of steel supply side and logistic issues, have -- they have been resolved completely, right? Or are we still facing some?

No, no. You're very right. So as we currently stand, issues are fine. But if we look at it from a risk perspective, the greatest area of risk for us is our supply chain, vulnerability to COVID. And I mean vulnerability not from a cash flow perspective, because that is something that we can help with them on. It is really if some of our small subcontractors get large cases of COVID and shutdown for a period of months. These are things that no one can help with. Or a certain city is locked down and therefore supply chain gets interrupted. So that is the risk that we carry. And that will be there, we think, till the end of the year. Logistics, I think, is fine now. That's not a problem.

That was really helpful. Finally, we had talked about digitization, and we obviously would have made a huge amount of investment as well. So please throw some kind of CapEx guidance for the year as a whole. And what parts will be digital CapEx? How much has been...

We expense all of this out. So the things -- but as a company, which is prudent in terms of any capital expenditure and any expense, we actually try to minimize these as much as possible. And the bigger point is that we have to try to learn ourselves from what our vendors are providing us. So we have to internalize the processes that they're trying to implement. So from a digitization perspective, it's ongoing and it will continue. It is something that we've been trying to do for the last 5 to 6 years in different forms of process. But I think it's just going to get more accelerated now. And so from a P&L perspective, we’re not going to see anything marked -- from a cost side to spend more. In fact, you see some benefits only. The net will be better.

The next question is from the line of Sandesh Shetty from PhillipCapital.

Am I audible?

Yes, you are.

Sir, you mentioned about industry 4.0 and automation that is being currently implemented by Triveni. Just, sir, if you can explain on that, because it's our belief that usually automation and Industry 4.0 is more applicable to automotive industry and industry where mass production is a scenario. But Triveni being more of a custom-made kind of a thing. If you can explain on that, that would be helpful, sir.

So if we start on the output and what do you expect out of Industry 4.0 is you expect higher productivity, expect lower basis, you expect higher quality, et cetera. And so all of it starts from a matter of process. Automation and Industry 4.0 are slightly different, like of robotics that you may have within a company is likely distinct. Automation for us is a digitized process of ensuring that they've seen this movement of drawings and data between design to the machine. So there's no human interference at all. More than that is the fact that how machines are themselves operated and how they're programmed to be able to move between different jobs. And so there's a huge degree of automation than learning there, machine learning there to be able to reduce time, setup time, et cetera. There's a [ different ] how you break the manufacturing process down. Now of course, this is more easily understood in our sector, that is auto. And our learning also come from the vendors who are providing this to the auto sector. But I think that there's enough learning for us also as a company where we can actually help with this. Does that answer your question, Sandesh or...

Yes, yes, yes. Got it. Got it. So my question was mainly because I was trying to understand how it is impacting production. So I was on that line. I was thinking on those lines.

You see the main thing is that -- you see -- when you have a customized product, what happens is that every component of it is usually a large, I want to say, it's customized. The biggest issue that you have is in terms of quality because you need the consistency on every product that is manufactured, but each of those is unique. So how can you get that done? And really to have a dependability of quality is extremely important. Then, of course, it has to be overlaid with cost. And once you get all those factors, you need the repeatability of it.

The next question is from the line of Ashutosh Garud from Ocean Dial.

Sir, just a quick one on...

Sir, I'm so sorry to interrupt, but your audio is not audible, sir.

Hello?

Yes. A little louder, please?

Our -- do we compete with the Chinese, compete with us on international and domestic level or...

Sir, we couldn't get that -- you're not audible as such. What suppliers?

Hello? I'm thinking, do we compete with Chinese players on -- for these products, which we have?

Largely, we don't, because these are customized orders and the system by which large manufacturing infrastructure being built in China has been on a very standardized platform. So actually, we don't see Chinese in the international market or the domestic market. We would not encounter Chinese competition more than, I would say, less than 1% of the time.

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

So just more of a medium to long-term of a question. As a company, our skill lie in engineering. And while you are in one segment turbines, we are leaders there, and we tried to get into the same higher level for the key. And for some reason, it didn't work out as planned. So in terms of adding more revenue streams, what is the thought process at the Board level? If you can give us some sense. You have cash. We keep hearing about companies wanting to transition out of China. Is there a possibility that we are contemplating to have current venture with some of the leading global companies and our skills in managing lean operations and our engineering skill plus there global demand. Can those be combined and can we enter a newer segment? If you can just some sense on and what's the cost of it?

You bring up a very, very interesting point, and this is thought that I think individually we've all had. The Board, I have to say, has not considered anything along those lines and nothing in front of the Board on that matter. But very rightly, you do bring up a point that there is hunger with management to drive further revenue. But I think one of the things that we have built with a lot of dedication is our balance sheet and the ability to be able to have a higher return on capital, a high return on equity businesses, and at the same time have the productivity of good asset turnover, et cetera. So very frankly, as long as we can keep all those factors in mind, we're quite open to see how best we could actually approach future businesses. But really, technology needs to be at the heart of it, over a long period of time, is that sense of development of technology is extremely important.

Okay. That partly answers the question. More so, I mean if you can just us and has this been discussed at the Board or registered certain proposals? Anything, I mean -- I broadly understand the principle that if you can get into some of what all ideas maybe you already rejected, that will also give us a sense of what you're thinking.

No. Right now, there has been no plans at all on spending any money from a cash reserve. The company continuously evaluates and is in dialogue with different companies in certain sectors, be it in terms of newer age or different types and non-lithium ion based batteries. We think that's a good area to look at from a research perspective as well as from a deployment perspective especially for you to integrate applications. We think that there is potential there. We've already talked about a development that we're doing both indigenously as well as with academic partners for supercritical carbon dioxide market. And there's certain other developments that we're looking at, both with partners as well as independently on that front. So we think that there's good scope. We could not accelerate some of these developments further. There will be some money spent, something that the company can well afford. So we hope to have commercialization in some of these operations, at least support in the following year.

Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments.

Thank you very much for joining this call, ladies and gentlemen. I trust all of you will be well between now and our next call. I think the company has displayed some good performance in this quarter given the trying circumstance. And we look forward to taking forward this discussion in our next call. Thank you very much. Goodbye.

Thank you. On behalf of Triveni Turbines Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.