Triveni Turbine Limited (533655) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Triveni Turbine Limited Q3 and 9 Months FY '21 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 '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; 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, Rishab. A very good afternoon to all the participants. I hope that all of you and your loved ones are safe and well in these COVID times. Welcome to the Q3 9-month earnings call for Triveni Turbine. For the 9 months, the income from operations for the company has been at INR 5.24 billion, with EBITDA of INR 1.38 billion with a margin of 26.3% and a PAT of INR 792 million with a carryforward order book as on 31st of December of INR 6.52 billion. As we approach 9 months of COVID, this has obviously taken an impact on Triveni Turbine's performance, both from an order booking perspective as well as turnover. As you can see, the company has weathered this quite well. But of course, given its reach and its perspective of catering to the global market for steam turbines, we are, of course, impacted by lockdowns, travel restrictions which our partner companies and countries impose over the course of the last several months. The global markets have shown very high volatility in these lockdowns, which has led to a shrinking of the global market in Q3 of this financial year '21 by 54%. While the 9 months decline has been at about 41% decline in the 9 months period of this year versus the same period last year. However, the company has registered improved profitability margins due to cost reductions achieved during the financial year, with an EBITDA margin for 9 months, showing an improvement of almost 400 basis points and is expected to be maintained in the coming quarter as well. The company's overall order booking has... [Technical Difficulty]

We request all the participants to please stay connected while we connect Mr. Nikhil back. Ladies and gentlemen, the line from Mr. Nikhil is reconnected. Thank you, and over to you, sir.

Thank you. I apologize for that. As I was saying, order booking has shown a decline of 25% during the current quarter in comparison with the same period of the previous year. With the domestic order booking showing a marginal growth of 3%, while the export order booking declined by over 50% when compared to Q3 of FY 2020. The product order booking position also reflected the overall market trend with a year-on-year decline of 33% in the Q3 product order booking. While the overall order booking for the 9 months has been lower by 26%. Even though there has been lower order finalization, both in the domestic and international markets, Triveni could maintain its market share and leadership in both the Indian market as well as internationally. On the other hand, the inquiry generation, both in the domestic and in international markets, remains extremely robust, which is a positive sign as far as the outlook of order booking in the future is concerned. I've been through some of the highlights of our operating performance, but I will summarize them again. There has been a decline in our income from operations by 21% over the same period in the 9-month period which is compared to the same period the previous year. At the same time, there's been a decline of 8% in the EBITDA, while profit before tax has been lower by 7%. We have also had an exceptional item of INR 185 million on account of manpower rationalization, which has led to a decline of 27% in profit after tax, which was majorly impacted by the onetime exceptional charge. On the domestic order bookings situation, the overall order intake has been higher than last quarter with an increase of 9% in comparison with Q2 FY '21. But at the same time, this is lower by 23% in comparison to the same period of the previous year. The sectors which have been contributing to the order booking have been the process co-generation sector, which includes distilleries, paints, pharmaceuticals, food and beverage as well as some demand from the waste heat recovery and steel sectors as well. The inquiry generation in the domestic market has shown an increase of over 34% in the 9 months period of this year. While in the international market, it is lower by 10% in comparison to the same period of the previous year. The overall inquiry generation for the company for the 9-month period has been at 3.6 gigawatts which is a marginal growth of 3%. On the export side, and I will go into this in -- during the question and answers. We believe that while order booking has been lower due to deferment of finalization as well as certain restrictions placed on travel, which have pushed order finalizations from quarter-to-quarter, there is a significant amount of pent-up demand, especially in the sectors in which we cater to as well as our bargaining sectors of API. We believe that all of these will show fruition in the coming quarters, and we are very optimistic for the export market. In the aftermarket, as you can see, there has been an increase in order booking by 37% at INR 364 million, in comparison with the corresponding period of the last year on account of increased volumes of services and refurbishment. On account of the substantial order booking in Q3 FY '21, the 9-month order booking for the current year has also shown a growth of 7% at INR 1.2 billion over the corresponding period, which we believe is a significant achievement. This is in spite of the same restrictions on travel for the aftermarket... [Technical Difficulty]

Ladies and gentlemen, we request you to please stay connected while we reconnect Mr. Nikhil. Ladies and gentlemen, we have the line for Mr. Nikhil reconnected. Thank you, and over to you, sir.

Thank you. I apologize, again, this is not a network issue from my side. But I think some congestion. As I was speaking about the aftermarket and the current growth that we've had in the current quarter, I wish to give some confidence to all of you that we believe that this segment is a growth segment for Triveni Turbine, and we believe that the international market from both the spares services as well as the refurbishment sector will open up gradually over the coming quarters, and we are very optimistic in securing some large orders in this space in the near future. As I was saying, on account of travel restrictions internationally, the aftermarket segment in the export market was lower by 22% in comparison to the corresponding period of the last year, despite the overall growth in the aftermarket order booking for the company. However, the overall order booking in the aftermarket segment for the 9-month period is almost at the same level at INR 1.6 billion. The aftermarket business in the total sales improved by 5% at 28% during the 9-month of FY '21. As you can see with the current quarter, despite the fact that we had lower sales, given that we had a better sales mix, we were able to preserve margins. In the longer term, we believe that our margin level would be at the 9-month level as opposed to the third quarter level. This is given our belief that we should be able to increase our turnover in the coming quarters. Of course, as we are currently in Q4, the restrictions on travel, which existed in Q3, have also permeated into Q4, and therefore, turnover would be similarly impacted in Q4 as it was in Q3. But we believe that with travel starting already from -- to East Asia and to other parts of Asia as well as to certain other parts of the world from the middle of this month, we believe that a lot of our order booking hurdles will get overcome in the short term. The company continues to focus on design and development and technology upgradation, both in terms of rotating equipment expertise, but also specifically driven around steam turbine, flow path and computational fluid dynamics in terms of new profiles of blades. The company has done significant achievements in terms of being able to update its efficiencies through the course of the entire turbine through multiple modules of development. We will continue to focus on research and development and be a company that puts technology at the center of its product differentiation. As far as the outlook goes, while overall performance during the 9 months is lower as compared to the 9 months of last year, the company believes that the overall business growth for the year is expected to be lower. Even though the overall inquiry generation in the export international market was largely lower than the last year due to lower inquiry generation from certain markets such as Southeast Asia, Central and South American markets, while the generation from some markets, such as Turkey, Europe, Africa and the Middle East, has shown significant improvements. We feel that the efforts put in by the company in adopting various digital platforms very early in the lockdown enabled the company to maintain a steady state inquiry flow. We believe a strong inquiry book will augur well for the order booking of the company in the coming quarters, and we are extremely bullish on the order booking, specifically from sectors such as API in the coming next financial year, FY '22. We believe a strong order book will augur well for the order booking in the coming quarters. The company continues to maintain its leadership position in the domestic market and has an over 2/3 market share of all orders placed. But also as per an international report, we continue to maintain our leadership position as the second largest steam turbine manufacturer in the international market below 30 megawatts as well as the largest manufacturer for renewable energy applications globally. With the opening up of the economic activities, we are extremely bullish on the coming year, while Q4 may get impacted by similar restrictions of travel. From a turnover perspective, we believe that the coming year will show a high amount of growth, both on the top line as well as bottom line. While this year, we may show a decline in turnover by about 12% to 15% or 10% to 15%. Our EBITDA will be largely flat on a year-on-year perspective. The performance of GE Triveni, our joint venture with General Electric, is still -- is continuing to execute orders. The company has a petition which is filed with NCLT, and the details are available with the stock exchanges. This is sub judice. With that, I'd like to open the floor up to questions and answers.

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

My first question is with respect to the order inflow potential from the PLI scheme, as a second derivative, we'll get orders notice. Can you give a broad outlook as to which are the sectors which are showing prospects in terms of giving out orders? I mean, it's still early days, but if you can give a broad outlook? And what you think might be the sectors which can drive demand for you in the domestic market it will be great?

Ravi, you bring up a very important question here because -- and I'd like to split this into two, while you focus on PLI, which is obviously domestic demand, as you would see -- as you would notice for a company, our domestic orders carry a lower margin than our international orders. But having said that, the push that we've seen in the domestic market for orders in this current 9 months has been about 27% lower than what it was for the previous 9 months of the previous year, of FY '20. Having said that, I want to ask President, Mr. S.N. Prasad, to give you a little bit of an overview of what he sees of the product order books outlook from the domestic market as well as international.

Yes. Thank you, sir. See, product order book-wise, from a domestic market, we are quite bullish. So basically, infrastructure expenditure, whatever in the budget, the current budget also laid down the road map for that. So we are seeing cement and steel going to be driving this market. Of course, in cement, again, CapEx expenditure as well as efficiency improvement. So that is a waste heat recovery option. These are the 2 segments what we are seeing are going great opportunities for us. Distillery is another segment where we have a substantial inquiry base. And today, we are talking of close to around 600-plus distillery licenses issued across the country. This is another segment which is going to drive FY '22 order booking from domestic market. So coming to international markets. Yes, we have some pockets of markets where our acceptability is quite well, and our market shares are over 80% in those markets. So we are seeing like biomass-based and waste-to-energy markets and MSW-based power plants, apart from API segments. These are the driving markets for us in international markets. Of course, API is a key focus segment. Today, we have been registered by almost all EPC, OEMs in India and 70% of OEs and EPCs and consultants approved us globally. So that gives a good inquiry book for us. And as we know, oil and gas segment, order gestation periods are quite long compared to the same. So there is some time overlaps there, but we are quite confident. The way our offers are received and technically evaluated, we are quite confident there will be a substantial improvement of our acceptability, and we'll be able to get those order bookings done through API segment as well. So overall, we are seeing next year going to be substantially high order booking year for us by seeing the inquiry pipeline and the way techno-commercial alignment happening last 4, 5 months' time. So we are quite bullish for next year in terms of order bookings.

Okay. And this year, what is the size of the market, domestic market? And next year, what kind of growth do you expect in terms of the market size? Last year, it was some 700-odd megawatts, so if...

No, no. This year has seen a decline in the overall market by about 40%. And -- but there's still -- for the 9 months, we'll still have to wait for this quarter to finish, but it won't be as bad as for the 9 months. But having said that, our inquiry book suggests a significant amount of pent-up demand. This is not only in India, but internationally, as there's a lot of liquidity and CapEx will flow through. So I think that from a year-on-year perspective, as we may end with a similar order booking level or slightly higher order booking level as we entered as 9 months, we would expect next year to deliver a significantly higher order booking that we currently have, significantly.

Got it, sir. And my second question is with respect to commodity prices. So basically, are you seeing...

Yes, good question.

Some pressure?

No, of course, there are pressures. There are pressures on copper prices, which have increased substantially, which directly impacts some of our products. And also, even with steel, steel is moderated from the peak. But the company follows a long-term pricing policy. And so very frankly, when prices crash, we don't squeeze our vendors. We work more from a perspective of volume to the extent that prices -- commodity price increases would impact us, we would pass that on to our customers. But largely, we would say that we are -- we would work in a balanced manner. And short-term price volatility on commodities will not impact us.

Got it, sir. So far -- but we wouldn't see margin pressure at a gross level because of the commodity price increase. Is my understanding correct or...

No, largely because orders are taken back to back. So we -- when we take an order, we already have the prices of all the components of bought out equipments already registered to a large extent. To -- as prices increase and, however, margins those increases mainly to our suppliers or to us ourselves, we'll pass those on to our customers. But largely, we're not seeing a significant increase because there's a significant amount of value addition that goes in. The pure amount of copper or steel that is part of our products is not substantial to warrant more than a 1% or 2% price increase to cater to even these drastic price increases that are taking place in the market.

The next question is from the line of [ Ahmed from Unifi Capital. ]

A few questions. Firstly, could you quantify the quantum of shipment deferral which happened in quarter 3?

We can take that offline. It was 3 or 4 orders that were deferred, which has an impact, I think, to the extent of maybe INR 20 crores to INR 30 crores, which was direct, which will take place in Q4, but there may be some slippage from Q4 onto Q1 also.

Is it because of the logistics challenges that we are seeing across sectors? Is that the same reason, which because of it led to the difference?

It is, but it's also driven by the readiness of clients.

Okay. Okay. Sure. Second thing is, you highlighted your market share in the product market, could you help us understand what kind of market share we have in the aftermarket and the refurbishment segment, which will help us to appreciate opportunity that lies ahead of us?

I don't think there's any data which actually puts together the entire services market for steam turbines for all manufacturers. But I would say that our entry right now is extremely low, in possibly maybe 1% or 2%, 3%, something like that. The potential is enormous, if I could give you an idea. Of course, it's very difficult to gain by a large market share here. But we believe that this segment allows us to cater to gaps in the market where OEMs, which are no longer in business, cannot provide effective solutions to clients. And we think that this suits our balance sheet by being an asset-light business for us to provide the technology intensive solution to customers to update their capabilities and efficiencies, while at the same time, providing resilience and robustness in a solution.

On margin profile, given that in our current order book, the share of export is actually coming down. And as you highlighted, the margin profile in export is much higher. Would there be a risk on our overall operating margin in the next year because the export order book is kind of declining a lot in the current period?

No, you're right. You're right. But it is -- the decline in order book from the export market, as it currently stands, is made up by a higher percentage of aftermarket as a share of order book. But also from a prospect of execution, as you can see from Q3, where we had nearly 28% of our turnover coming from the aftermarket segment. Even if that comes down a little bit by a couple of percentage points once turnover of the product segment grows, the margin profile would almost remain the same because of the aftermarket contributing more towards turnover. But you are right that a lower international order execution would lead to a lower product margin for the product business. Overall for the company, I think it will be managed within the range. Quarter-to-quarter, it will move but I think visibility for a year's period, we would be able to maintain a higher-margin level as to what I have already suggested.

And finally...

Mr. Ahmed, so sorry to interrupt. May we request you to rejoin the queue please for any follow-ups. The next question is from the line of Manish Goyal from Enam Asset Management.

Sorry, Manish Goyal from Enam Holdings. Sir, just a couple of questions. On distilleries, I believe we have been hearing an increasing opportunity. So as mentioned that there are 600 licenses issued. So if you can a bit dwell upon, like, in terms of value-wise, what is the opportunity available? And also on the other side, a lot of these distilleries, which are coming up with the support of the government with tripartite agreement, so -- and a lot of these are coming at cooperatives level. So how comfortable are we working for them? So like if you can just dissect our addressable opportunity and what would be the value term, sir?

Okay. Well, distilleries, as with most of the process co-generation sector operates in the -- I would say, in the 4- to 10-megawatt range, 4- to 8-megawatt range. So they're small turbines, very small turbines, which is where Triveni has an extremely appropriate solution and a very low-cost solution as well for the sector because it's a very price-sensitive market. Out of the 600 licenses, I -- the only guess as to how many will actually come up. But the segment is lucrative, not only from a perspective of installed base, but because it gives renewed reliable aftermarket revenue. From a payment perspective, Triveni Turbine is very conservative, and we ensure that we get full payment on dispatch or it was to LC. So the cooperative sector has been clients for us, not only for the distillery side, but also for the sugar co-generation and other segments. So we have dealt with them in the past, and we have had no problems in terms of our payment structure.

Sure. So has the ordering -- like have we started seeing order inflows from these distilleries and...

Yes. I mean, we -- our group company, Triveni Turbines is also -- Triveni Engineering is also in the sugar business, and they're setting up ample distilleries.

No, Nikhil, I'm just trying to understand that this has been talked for quite long. And finally, I believe things are taking shape. What I'm not clear as to, has the ordering momentum picked up for the -- from the distilleries? And can we expect this to sustain for next couple of years?

I think that this won't be a big bang push, but it will be a sustained amount of demand from the sector.

Yes. Because even government is now encouraging distilleries from grain base and other sources. So from that perspective.

Yes. Those are the sources which also provide us demand. So it's not only the molasses sector.

Sure. And 1 more question on the guidance, which you have kind of maintained, what you have given in Q2. So I was just trying to understand that because last year Q4 was a lower revenue and profit quarter. And on a low base also, then if I'm just trying to do some math on that low base also kind of -- we are not seeing good growth based on your guidance of 10% to 15%. So I'm just -- is it that we are taking a conservative stance at the moment or...

No. Q4 to Q4, we will do much better. You're right about that. In overall level, let Q4 happen. I think that what we were cautioning on is the fact that they are pressures for finalization of orders in the international market, which has impacted our order booking for the 9 months and possibly for the year, and also equally from a dispatch perspective. So that is turnover because we account for turnover only on dispatch. And so these are things that we'll have to wait and see, but I think at this point in time, there is -- and it's not a question for me to caution you, but this is just a reality of what the situation lies for the year. But a lot of this will get eased in the coming quarters.

Sure. I appreciate that. Just last -- again, like you mentioned that inquiry book is quite strong with a lot of pent-up demand. So is it that there is a possibility that we can see bunching up of order inflows probably in this quarter or early of the next quarter?

When looking in Q1, Q2 to be extremely good, both from an order booking as well as revenue and profitability perspective. So those will come about just driven by the dispatch schedule that we have, but also given the visibility that we have in terms of travel and the assurances that we have by some customers of finalization.

The next question is from the line of Harshit Patel from Equirus Securities. Mr. Patel, if you can speak closer to the handset, please. We are unable to hear you.

Hello, is this audible?

Yes, yes, I can hear you.

Sure. Sir, my first question would be that, sir, I understand that we don't have much CapEx requirement as of now. I mean we have a couple of state-of-the-art manufacturing facility, and we have ample underutilized capacity. So sir, now we have on more than INR 300 crores of cash on our balance sheet, and we don't have much CapEx requirement, so what we are planning to do with that. So sir, in this bad, we would also venture into some adjustment categories like generators or maybe control panels, et cetera. So is there any thought process towards that?

Very good questions. Currently, I have to say that the Board has not considered any proposal either to redistribute this money to shareholders or to put it into any inorganic opportunity or as well as organic expansion. We would, of course, try to use as much money as we can organically by pushing more money into R&D, into new product lines to shore up capabilities. But in the speed and to look for growth, there may be opportunities that we may look at. But what is paramount is that we will keep our balance sheet in consideration. I think we are very happy that we have an asset-light balance sheet. So we would look at businesses or adjacency businesses where the characteristics of the balance sheet are similar to what we look at in -- for steam turbines. So I don't know if control panels or generators actually conform to that.

Sure, sir. And sir, my last question was a bookkeeping one. So I understand we have INR 1.4 billion of order book in the aftermarket segment. So how much of that would be from exports?

I think the data is with you. I would -- but you bring up a very good point. Because I'd like our President, Sachin Parab aftermarket, to give you an idea of what he views the order booking, both from a domestic and international perspective for the aftermarket segment. Sachin?

Yes. Good afternoon, everyone. This is Sachin Parab from Bangalore. See, our share of domestic market for the full year is likely to go up to about 76% of overall customer care order booking. And this would be higher than 67% share last year. So basically, because of the inability to travel overseas extensively, the restrictions are in place in many countries. So we are able to travel only to limited countries. And so the business that we have been able to get is more from the domestic market. And therefore, the share of domestic has gone up in this financial year. However, as we move forward, we are expecting ease of travel restrictions and international travel will be much easier from quarter 2 onwards. That is our outlook as of now. And we expect that in the next year, our share of orders from the domestic market will come down to previous year's levels in the mid 60%.

And despite the growth in the overall order booking that we anticipated?

Yes, we are looking at a buoyant growth. Next year, we are projecting a large double-digit growths in order booking for aftermarket business. Also, a lot of it to be driven by our refurbishment business, which has picked up very well in FY '21.

The next question is from the line of Rishith Shah from Dhanki Securities.

So 2 questions. First, regarding basically the GE part, so -- GETL. So are we -- I mean, what are the kind of order inflows or the inquiries that we are seeing right now?

The inquiries are there. The order booking is, I think, pending. So the joint venture is continuing with its normal operations as it currently stands. From a visibility perspective, right now, there are inquiries and order chase ups, but there is no finalization that is happening with the current quarter.

Okay. Okay. Understood. And secondly, as you just mentioned, basically, the refurbishment is seeing good traction along with an expectation of double digit -- large double-digit growth in next year in the aftermarket segment. So do we -- for the next 2, 3 years, do we see any, I mean, change in the share of aftermarket or increase in the share of aftermarket in the overall revenue as well as order booking?

Well, I think if you look at the history of Triveni Turbine, as our installed base has grown, so has our revenue from services and spares. The refurbishment segment was a new segment in aftermarket, which propelled growth further. But if I look back 4, 5, 6 years ago, we started off with a mix of about 80-20, 80 from the product side, 20 from the aftermarket. And steadily, despite the growth in the product dispatches, we've been able to increase the share of aftermarket as a percentage of overall sales. So I think this last quarter, 28%, that may be a normally, but I would say 26% to 27% is something that we can target in the short term. And then incrementally growing by 1% or 2% as a share over the medium term. We do believe that there is growth in this segment for us.

Right. And so I mean, this in a way would also drive, I mean, margins going forward?

Yes. Yes. Yes. You're right about that. But the margins are very healthy in the aftermarket segment in all 3. But having said that, we, as a product manufacturer, also -- and this is through our own research, we believe that we are one of the only turbine manufacturers, which are profitable on the product because most companies actually end up selling their product at a loss, so that they can capture the aftermarket.

Right. And sir, secondly, about basically the new developments, any technological new development or upgradation that we are working on right now or maybe seeing maybe coming -- in the coming year?

We've already spoken about in the previous call, so I didn't want to reiterate the same point, but technology and our focus on technology is very much at the core of our value proposition. So this trend is not only from value engineering, which is to take cost out of the product which is a continuous process, but also breakthrough technological development for new products as well as for new components in the system, which are all IP protected. So our IP basket and patent basket is also increasing continuously year-on-year.