Triveni Turbine Limited (533655) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Triveni Turbine Limited Q4 and 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 of 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 Q4 and FY '21 conference call for Triveni Turbine Limited. We have with us today on this call, Mr. Nikhil Sawhney, Vice Chairman and Managing Director; Mr. Arun Mote, Executive Director; Mr. V. Chandna, Investor Relations and Value Creation, 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 regards to the operation and outlook for the business. Over to you, sir.

Thank you very much, Rishab. Very good afternoon to everyone. And I trust everyone is well, and everyone has had the vaccination or is in the process of getting their vaccinations. To start off with, at Triveni Turbine, we have vaccinated over 1,700 of our employees and employee dependence and subcontractors and contract workers. And by July end, we expect that we would have 100% vaccination of all our staff and employees and critical workers. The offices are operating in full swing, though with work-at-home protocols as well, and our factories are operating at 100%. Having said that, our subcontractors are currently operating in the region between 50% to 60%, given certain mobility issues with workers. All of this will be addressed, and I would touch upon this later during my introductory remarks. The turnover for Q4 for Triveni Turbine for the financial year FY '20 has increased by 16%. However, EBITDA and PAT has decreased by 44% and 78%, respectively, as of Q4 FY '20. The turnover in the financial year is at INR 702 crores, a year-on-year decline of 14%. The decline in product sales is at 19.2%. However, there is a growth of 3.3% in the customer care business. Despite the total sales, EBITDA has increased from 20.8% to 24%. And in FY '21, that stood at INR 168 crores. The tax percentage for FY '21 is similar to that of FY '20 at 14.9% despite an extraordinary charge of INR 18.5 crores on account of certain employee-related VRS expenditures as well as a lower share of profit from the joint venture. The employee cost is also significantly lower for this year by 15.9% at INR 85 crores. Investments have increased to INR 347 crores as against INR 147 crores. That is an addition of INR 200 crores in investments in this year. And this is reflective of our strong cash management and earnings visibility. There's been a significant reduction in our working capital as well due to lower trade receivables by 38% and it stands at INR 77 crores as opposed to an earlier figure in excess of INR 120 crores. Inventory is also lower at INR 160 crores. Now in the year itself, ladies and gentlemen, this has been an extremely difficult year, and all of you I'm sure have had COVID and the pandemic impact you in some manner or the other. The company's performance has been satisfactory, given the backdrop of the restrictions in both the domestic and international markets and the emergence of variance that has led to the second wave on the domestic front. During the year, the global market for steam turbines in the range of below 30 megawatts in which we participate has shrunk by 32% and the domestic market has shrunk by 43% in the calendar year FY '20 in megawatt terms. However, despite that, the company has maintained its leadership position in both the Indian market and internationally. We have attached an international report and the findings of that, which tell you about our leadership position in this space globally. The mix of domestic and export sales has remained more or less at similar levels at 54% domestic and 46% export in FY '21. And in line with our outlook last quarter, the company was able to reduce and decline -- reduce the decline in revenue and profits for FY '21 to 14% drop compared to 21% in the 9 months FY '21. The improvement in EBITDA margins for the financial year has been driven by a combination of higher share of aftermarket in the sales mix, but also on account of a lower raw material cost and value engineering. Further, there've also been significant reduction in employee expenses due to the realization of VRS benefits and the reduction of manpower. These are sustainable benefits and the quarterly EBITDA margin of 16.8% does not reflect the longer-term EBITDA margin levels for the company. For the quarter in itself, as you could tell, the raw material percentage at 54% as opposed to the annual figure of about 51%, was driven by a skewed product dispatch into the domestic market, which carries a lower margin but also by higher other administrative expenditures, which are nonrecurring in nature, and we believe do not reflect the longer-term earnings potential of the company. There's also been a significant reduction in manufacturing costs in the year due to an increased effort on value engineering as well as streamlining our manufacturing process to look at more standardized measures of manufacturing. Similarly, there have also been certain reductions in travel costs and other general expenditures, which are -- which will be -- which will come back in this current year. The profit margin has been maintained at 14.8%, and this is after the exceptional expenditure that I've already spoken about. The consolidated outstanding order book position stands at INR 6.39 billion as on 31st of March, which is lower by 9% as compared to the previous year. The company achieved a total order booking of INR 6.43 billion, which was lower by 19% year-on-year. And finally, the Board of Directors has recommended a payment of dividend of 120%, which is INR 1.2 for the financial year FY 2020/'21. Ladies and gentlemen, order booking is at the crux of the performance of Triveni Turbine. The product order booking that we saw for the financial year FY '21 was at about INR 441 crores, which is the lowest order booking for products that we have seen in the company for the past, I would say, almost a decade. This, though, as -- the visibility that we had in Q1 of FY '22, sitting here right now on order booking is a completely different situation. Our order booking for the entire financial year on the product side that we saw in FY '21 would be something that we would be able to capture before the second half but before H1 of FY '22. This visibility is something that I would talk a little bit more once the question and answers are opened up. But as you can tell from the performance of the company in the financial year FY '21, the aftermarket business is a steady rock for the company that, that business contributes over INR 200 crores to our order booking as well as revenue and easily about INR 100 crores in cash flow and a similar amount in terms of profitability before tax. This is recurring in nature. And due to the closeness of relationship that we have with the customer, it is a true testament that we've been able to capture and maintain this level of performance. In the trying times of COVID, we've been able to reach our customers, and we have been able to ensure that there is a high degree of customer satisfaction so that we could have a lifetime relationship with our customers. This is extremely important as the life of our relationship with the customer for 1 product stretches in excess of 25 years. Having said that, of course, we leverage that for further sales so that we can build on our product relationship as well. I will talk more about how we are growing this business and what visibility we have on the growth of our aftermarket business during the question-and-answer session as well. The factories have been operating in a normal manner, but we have seen an increase in commodity prices, which have impacted the company. The company has tried to mitigate this through bulk ordering as well as value rationalization and through expanding our supplier relationships on a global basis. But a certain percentage of this price increase may not be able to be passed on but we will have to see how that develops in the quarters to come. As it currently stands, the margins on which the company operates are stable. The company has also been focusing on international marketing efforts. We've been considerably constrained over the course of the past year in terms of being able to address our international market. It is extremely creditable to our marketing teams to sell a highly technological product virtually. We have been able to secure significant international orders, of course, not as many as we've got in previous years or as much as we would have expected, but despite that considerable international orders through virtual means and through means by which our customers have been able to derive confidence in our products and our processes and technology. We think that this will lead to a new form of marketing. But having said that, because of the disruptions of lockdown that we've seen in various international markets over the course of last year, we have an inquiry book, which reflects that the demand is growing in many different geographies in a variety of different sectors. Therefore, we lead to a certain degree of optimism of an expanded international sales within the current FY '22. This will also be supplemented with the expansion into different product segments such as the API segment, which we've already spoken about in the quarters of past. The domestic order booking for Triveni Turbines was at INR 4.32 billion, which was a decline of 5% as compared to last year. And the domestic or outstanding order book stood at INR 4.49 billion, up 14%. During the year, the global market in which the company operated experienced a significant shrinkage of 32%. And in FY '21, the shrinkage in market size has moderated to about 9%. But going to the restrictions, this has impacted the order booking of the company on the -- this was on the product side. On the aftermarket side, during FY '21, the aftermarket registered an order booking of INR 2.02 billion, which is lower by 7% when compared with the corresponding period of the previous year. And the aftermarket turnover was INR 1.92 billion or growth of 3% over the previous year, which has been driven by our refurbishment and spares businesses. The aftermarket contributed to 27% of total turnover in FY '21, up from about 23% in the previous year. Design and development continue to be a key focus of our business, and we have expanded and continue to expand the overhead in this segment so that we could design and reflect our products, not only in terms of our current product ranges to improve their efficiency and cost structures but also to expand our services product range to be more solution oriented. The inquiry generation during FY '21 and Q4 FY '21 remained strong in both the domestic and international markets, which is positive for order booking in the coming quarters. During FY '21, the inquiry generation of the domestic market grew by 35% as compared to the financial year '20, which we believe is an indication for the order finalization in the coming quarters. These have been driven by process cogeneration and waste heat recovery segments. In the international segment, inquiry generation was dominated by thermal renewable-based independent power projects as well as process cogeneration. Global economies in many parts continue to be affected by the pandemic, which continues to affect the company's business, but we believe that the vaccination drives and lower COVID-19 cases, that the company's prospects will significantly improve in the coming year. The inquiry pipeline is strong, and international markets are gradually showing signs of recovery. While we continue to carry a healthy order book in the inquiry pipeline, we do expect some delays and deferment of executing orders in H1 of FY '22 with respect to order booking -- with respect to dispatch. Order booking will be extremely healthy to the extent that we will have a book and bill within this current year, which we were not able to attain in FY '21. This is what led to a lower turnover and a slightly lower overhead absorption in Q4 FY '21. Overall, we expect both the global market and our market share to remain the same, if not improve in the coming year. And this is going to be backed up by our technology and R&D developments. As the company has been talking about for the last 5 years of energy transition and moving towards a low carbonized economy, the company has made significant efforts in its research and development towards establishing a solution and product pipeline to cater to the segment effectively. This is in 2 parts: one is through rotating equipment in the steam turbine lines, but also, as we've spoken about in other areas such as concentrated solar thermal which will lead to a better value proposition for our customers who require both heat and power solutions in an industrial context. This is a significantly large market, and we believe that we are optimally positioned to leverage it. The other thing that we will be working on over the course of the next quarter is to bring increased visibility to our shareholders is a more articulated capital allocation policy. As a company now has over INR 400-odd crores in its bank, we believe that a prudent capital allocation policy which embeds the values of Triveni Turbine as being a higher return and a high return on equity company should be maintained. We will be articulating this in more detail in the coming quarters, but it will provide a visibility in terms of how we aim to grow, and it will be closely linked with our reteach and development, our organic growth opportunities and possible diversifications. With that, I'd like to introduce you to our new Investor Relations Manager, Surabhi, has joined us recently. She's had an experience with Morgan Stanley as well as with some other public companies. And she would be happy to have a long-term mutually -- a mutual dialogue on the company so that we can both benefit from the engagement. Surabhi, would you like to say a few words?

Sure. Thanks, Nikhil, for the introduction. It is my absolute pleasure to be part of the Triveni Group, and I look forward to interacting with the investor and analyst communities. For anyone wanting in touch, my coordinates are mentioned in the investor brief from yesterday and also listed on our website. Thanks again. And if we are done, then we can pass it on back to the moderator to start the Q&A session.

Yes, please. Let's start the question-and-answer.

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

My first question is with respect to export order inflow. I mean, over the past couple of years, it has seen a declining trend. Is it attributable purely because of the COVID restrictions which are there? Or is this -- you had -- in your press release, you had mentioned that global steam turbine market has kind of come up over the past 3 to 4 years. Is it a combination of the reason because of that also? And are customers moving away from coal-based steam turbine solutions? So if you can give a broad outlook as to when we can go back to FY '19 levels of inflows, it will be really great?

Thanks, Ravi. So let me answer this in a couple of ways. We've tried to provide data that there is a macro trend of decarbonization. And that is something that I'm sure all of you are extremely conversant with. The different segments of markets, which we've broken up as in below 30 megawatts, below 100 megawatts and then above 100 megawatts, are impacted by different situations. The decarbonization has bearing degrees of impact in all these different segments. So the utility segment has been reasonably disastrous in terms of the amount of new thermal power plants that are coming up. But the requirement from the industrial side is slightly distinct because they require both heat and power, which cannot be substituted from -- by renewable energy sources. So the demand is following a CapEx cycle rather than the decarbonization stream. Having said that, this market exists within the larger thermal market. And so there will always be pulls and pushes and strings, which -- where banks have funding, which are -- funding commitments and objectives which are driven around decarbonization. But having said that, efficiency-based solutions are the name of the game. And those are the ones that are being implemented in the international market as well as in India. But when we look at the international market, and this is reflected in our order booking as well and inquiry book, it is dominated by waste to energy, which is thermal renewable as well as process cogeneration. Process cogeneration is a requirement of -- from a variety of different sectors. So we actually see from Triveni side in this coming current year, the fact that over FY '21, we were not able to cater to a majority of the market due to travel, but still maintained our market share, the market declined by over 30%. That pent-up demand will get realized over the course of the next quarters, I'm going to say, next year for sure. And so therefore, we would see an increased market available to Triveni. And therefore, what I'm going to presume, but we already have indications of because we're already 3 months into the current financial year is order booking also.

Got it, sir. And with respect to the domestic market, seems like core sectors like the steel, a lot of companies are announcing CapEx. Cement also, there seems to be some CapEx activity. So if you can give a broad outlook as to domestic market over the next 2 to 3 years, how fast can the market expand that will be great, sir?

The domestic market in FY '20 was somewhere in the region of about 1,400-odd megawatts and this declined to somewhere in the region of about 800-odd megawatts this past year. We're seeing that this market would rebound to -- in excess of FY '19 in the current financial year and is driven by a variety of different sectors. You have the distillery segment, which in the sugar space, which is expanding quite aggressively to have a different value proposition, therefore companies moving away from molasses-based distilleries to direct juice which would mean additional capacity of turbines that will be required. The same infrastructure may not be suitable. The power complex in a distillery would comprise of approximately 25% of the entire cost, of which 10% would be the turbine. So we aim to -- we will gain from that segment growing and as an affiliate company of Triveni Turbine, which is Triveni Engineering is closely associated with the sugar industry. We have good visibility that there is an expanded CapEx program in that space. Similarly, the process cogeneration space is also good visibility in terms of investments into food, food processing, paints, pharmaceuticals, et cetera. These are slightly lower in capacity, but higher in value from a per megawatt perspective. The segments of waste heat recovery in cement is growing, but fresh CapEx in terms of new capacity additional cement side have not been announced. I mean, they may be announced but they're not realized into orders as yet. And similarly, on the steel side, there has been very muted orders. But we are hopeful that given the rise in commodity prices that CapEx would be -- would realize -- would translate into orders in -- possibly in the next couple of years.

Okay. So from -- I mean steel, generally, the ticket sale of orders are pretty large most. So can we see...

But you have the rolling mills and you have the smaller non-integrated players who would require in our side. The chemical side is growing extremely well, and similarly with pharmaceuticals also.

[Operator Instructions] The next question is from the line of Sreemant Dudhoria from Unifi Capital.

So if I look at the historical trend of your order book mix, closing order book mix last, at least 4, 5 years, the absolute number from the products has been stagnant, both exports and domestic put together about -- nearly about around INR 600-odd crores. But it's really the aftermarket the closing order book, which has actually grown up, I think which has doubled from FY '18 INR 72 crores to about INR 133 crores now. So in the past calls, you had mentioned that this aftermarket is your key driver and you have some 2-, 3-pronged strategies, one among which you said was servicing third-party turbines. What is our penetration level now in this category, both in the domestic as well as export markets? What are we doing differently to service the third-party turbines? And what could be the share of this business in the next 2 years?

I think you bring up an extremely good point. Not only is the aftermarket segments of Triveni, as for all capital goods companies, a driver towards profitability and to the life cycle relationship with the customer. But to expand it, it's a very delicate balance because you cannot push more sales to a customer without losing credibility. And so therefore, to expand the growth of this highly profitable segment, we have to look at the refurbishment side, which is exactly what you had spoken about. I'm going to ask our President Aftermarket, Mr. Sachin Parab, to give you a little bit of visibility on exactly the question that you talked about, what are we doing? And what is the visibility that we have for growth in both our spares and service business, but also in terms of refurbishment. Now you must remember, refurbishment for us is refurbishing rotating equipment. So of course, it includes steam turbines, but it also includes certain other rotating equipment. So Sachin, can you give a little bit of insight on this please?

Yes. Just to answer basically the question first about the penetration level in domestic and export, to be very honest, we have today only a small penetration in the multi-brand service offerings of Triveni. So there is a lot of scope for us to grow in the future. And that is why we are buoyant both on the domestic and export front that there is a good potential for growth. As you rightly mentioned, the order book has been growing and the carryforward order book has also been growing over the year. We are trying to do things differently in terms of improving our reach, our coverage in the international market. We are strengthening our organization and our marketing efforts, both physical and digital. So this is helping us. And even in the [indiscernible] we were able to manage with good order bookings with our efforts onto digital and our strengthened marketing. In terms of your question about the share of business going forward, it has historically been -- aftermarket business has been about 25%. This year is about 27% of our revenue. And we target to grow it more around 30% of the revenue in the years to come. Refurbishment business as a part of our aftermarket business has also consistently grown. And the reason for that is basically the diversification that we are doing. And as Mr. Nikhil Sawhney mentioned, we are not just focusing on industrial scheme turbines. We are diversifying into utility turbines where there is potential. We are diversifying into new geographies, new industry segments, such as geothermal that we have talked about in the past. And our successful entry into this segment has given us a lot of confidence in our capabilities and the potential can be tapped very successfully by our company going forward. So all of that and the recent successes and the traction in some of the export markets gives us good confidence that we will be able to achieve our plans for the future.

So in the overall aftermarket order book, what is the mix of refurbishment?

So...

Typically...

Sorry, please, go ahead.

No, continue sir.

Yes. So this has also been growing over the years. About 2 years ago, our refurb business in the overall order book was about 27%. FY '21, this has become 31%. FY '22, we are targeting 35%. So there has been a good growth in the refurb business as a part of the overall order book of Triveni Turbine aftermarket. I hope that answers your question?

Sure. So just another maybe a little granular detail I'm not checking. You mentioned that it's not just the industrial turbines, which you're looking in the aftermarket, but the utility, new turbine and even the other parts in the system. So the driver going forward would be industrial turbine or these other things, which you talked about, can also contribute in...

Let me explain it to you, rather than looking at the product itself in terms of what is the solution you're providing, they are different and varying degrees of solutions that you provide which could be anything from overhaul to reengineering. And this stretches the value chain of technology. So the point is that we want to stick to high value-added services. But at the same time, capture it with the liability that we are willing to accept. There's a large value warranty liability question that comes into this, which plays into what is the technology level that you are going to be putting in. And so this varies. So for example, in the steam turbine line, of course, we would be much more comfortable going into the higher end of value addition, which is upgradation and life extensions, et cetera, which may or may not be the same in other markets. But having said that, because the profitability of the segment is extremely high and the return on equity and capital invested in this specific business line is extremely, extremely high. We would go after this market in an opportunistic manner in terms of being able to source demand from wherever we find it. In terms of a consistent buildup of demand, we, of course, need to work with certain customers and geographies so that they can have confidence in our capabilities and our capacities to be able to deliver because it's obviously already in a running condition in their plants. And a breakdown condition, most people usually go back to the OEM because of speed of execution. So to bridge the credibility gap with the customer is the first breakthrough. And that happens over a period of time with successful installations, and that is something what Sachin was pointing out to that it only happens over a period of time in certain geographies as you have successful installations, your credibility grows and you're able to then offer it to a wider set of customers in a varying degree of industries and technologies.

Great. So in your initial remarks, you had, I think, gave a number that out of your profit before tax number. If I noted it right, about INR 100 crores comes from the aftermarket. Is that the number which you said?

I said about INR 100 crores is cash flow comes from the aftermarket segment.

Sorry?

INR 100 crores of free cash flow comes.

Of free cash flows. Okay. Okay. Got it. So I have a few questions, specifically on the quarter gone by. You had highlighted the margin compression that has happened in the quarter 4 was driven by, I think you said about a domestic order, which was of lower margin.

No. I said that it was driven by -- can you please repeat your question?

Yes. So I just wanted a clarity on that. Did I got that point correct?

No, no, you didn't exactly. I said that there are a variety of factors that have led to a slightly lower EBITDA margin. One of it is the fact that the product -- the turnover mix between domestic and international was skewed more to domestic, which carries a lower margin. And so that is reflected in the higher material cost or raw material cost percentage of turnover, which is at approximately 54% versus 51-odd percent for the full year. Secondly, there were higher other administrative expenditures which are nonrecurring in nature, which have impacted the quarter. But I would encourage you to look at the full year numbers as what we believe is a sustainable number for the company going forward, not only for FY '22, but for the years to come.

[Operator Instructions] The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.

Sir, could you give us an update on the ongoing case with GE? In the last section of your press release, you mentioned that there was a judgment by NCLT, if you could help us understand that will be useful?

Bhavin, you're asking me for something which is sub-judice and it really wouldn't be correct. Our lawyers told us explicitly that this is something that we should not be commenting about in public. I think the information that we had, we've given you and we've given to the Board, and this is what the Board has mandated us to disclose not only to the shareholders but to the exchanges as well. Suffice to say that, as you can see from the performance of the joint venture -- the performance of the company in FY '21, that the joint venture is a going concern. And there is profitability in it. There is a dispute, and the details of the dispute have been detailed to some extent in the disclosures. There will be more disclosures that will be catered in our annual report. But suffice to say that the company is defending its position. And I think that we all await a speedy resolution to all matters. But I think that is all I think I can say at this point of time unfortunately.

Sure. Maybe next question is on the growth path. So you did mention about some outlook on the sugar and...

Yes. That's a good question. I'm going to ask Arun, who is our Executive Director and CEO and he can bring in Prasad, who's our President as well on the visibility that we're seeing and especially Bhavin, as I pointed out in my introductory remarks, we are pretty much done with Q1 already. And so we have a firm idea as to the orders that we have secured with advances as well as those that we've secured without advances. And suffice to say that it's a significantly high number, which leads us to have extreme confidence that the product order booking of this INR 440-odd crores will be achieved in the full financial year of FY '21 is something that we would exceed within the first half year of this year itself. Arun, would you like to comment and give us a little bit more clarity into the sectors that you're seeing this from? And if you could get Prasad to also comment.

Yes. As our Vice Chairman, Mr. Nikhil Sawhney has said, we started the year very well off. And we are begun for the first quarter. All the budgeted parameters have been met as regards various financial parameters. And the market is looking up. As indicated by him, we expect that our order booking for the half year this year will be well over last year's full order booking in the product line. And on the customer care, the growth that is planned, we are already coming in. As far as the operations of the company are concerned, we are very strong. We have made all the arrangements to meet COVID eventualities. Even if we would have third wave, we are not likely to be affected severely because we have worked out arrangements for all our working staff to be staying together and ensuring that the company runs. That's on the operations side. As regards to the market, we are very well poised even if the market is shrinking overall in -- even in the industrial space, which is not much, but due to introduction of new products and new blade designs, we will be able to address the market with certain exceptional efficiencies which are required in some operations. And also the product gap is being closed with wherever we find that the portfolio has not been sufficient. So overall, for the company as such, the market would be -- addressable market would be expanding, irrespective of what happens to the overall market, which we expect anyway to come to pre-COVID level in a year's time. So that is the situation. We have -- in domestic market, we are looking at good order booking in process cogen, which includes pharmaceutical. As you know, people will be going for drugs production. So we are targeting that. And we are also looking at distillery segment where we already have a good market share, and we expect to improve it further. On cement side, the waste heat recovery market has come up and we hold a dominant position in that market. So all these 3 segments are giving us a good order booking as well as the inquiry generation has been quite good. So overall, as a management, I think we are quite satisfied with what is being done in Q1, and I expect similar things in Q2. So H1 hopefully should be a good one as expected. Thank you.

Just last question from my side is on the margins. As we see a cycle of increased product orders and execution, and given that the margin percentage is lower, would it be fair to assume that our underlying margins, which has been in that 20%, 21% range, could trend down as we see growth coming back?

Nikhil, would you like...

You said trend? Arun, you can answer.

Yes. See, it's like this. Margins are what have been indicated are over a fixed turnover. And when you are talking of, we are expecting growth in aftermarket as well as the product. So it is not that the margins would be suppressed, it would depend on the product mix and the total expenditure that we would go through. So when the turnover is increasing, it is both product as well as customer care where we would have turnover. We expect that they would compensate each other, along with the value engineering that we are going through.

Sure. Just last follow-up, what could be capacity utilization currently?

Currently, our capacity -- we have -- I don't think we have any problem in capacity utilization. We are operating -- it depends on the number of shifts, et cetera. But if you have to look at in terms of what could be the top potential output, we would probably be operating anywhere in the region of between 45% to 55%. But I have to say, Bhavin, on the margin question, is that there is a commodity price pressure. I think that you have to -- it would be domestically hard to mention that. We will try and address it to the extent possible and to see how best we could pass it on. It may not be possible for us to pass it on in the extremely short term. But over the medium term, of course, it will all be passed on. And so again, quarterly execution will -- I would request you to look at annual numbers for visibility on the numbers and the margins that we have given.

The next question is from the line of Manish Goyal from Enam Holdings.

Yes. So just to carry forward from the Bhavin's question on the margins and the reply you gave. So the current order book what we have, is it a fixed price contract? And do we have any escalation clause built to it?

These are short duration product contracts, and we actually take -- our scope is only for product supply. We have separate contracts for installation and reduction of commissioning. But as I indicated to you earlier, one of the -- the potential from 1 customer from a life cycle relationship, it's a -- if we sell him a product worth 100 is over the next 7 to 8 years, we -- 10 years, we aim to drive the same amount of value from the aftermarket from him. So establishing that relationship with him, the credibility is extremely important. Of course, we will try and push as much as we can because these are unique and discrete products. And really, you cannot compare one with another in terms of pricing. So it all depends. There's nothing uniform in terms of acceptability from customers. But ultimately, we have to do what the customers are happy to accept.

No, I agree, Nikhil. I appreciate that like we leverage a lot on the aftermarket going forward. But just from a shorter-term perspective, you did mention that difficult to pass on in near term. So basically, we should probably factor in that in the first half, we may see a fair bit of margin pressure.

No. But look at it this way, when I say that our material cost as a percentage of turnover is somewhere in the region about 50%, 51%, 52%, which includes -- we don't buy any direct steel. It's always fabricated or value-added on it. So the percentage of direct raw material in terms of metals would not be as a percentage of our entire -- raw material costs would not be more than 10%, 15%. So even if that grows by 10%, we're only -- we're not looking at very large numbers.

Okay. Okay. And on the new products, if you can just provide an update on API-drive turbines, how is it progressing?

I think I am going to ask -- that's a very, very good question. In fact, we have set extremely ambitious target for ourselves this year. And I think you could remind us of this in the subsequent quarters as well, too. But I'd like Prasad, who is our President of Triveni Turbine, to give you a little bit of insight on the API market as well as on international. Prasad, if you could just talk about international from a product side as well as the API market in specific?

Yes. See, starting with the API market, as we informed in previous calls also, this is one of the key segment for us, and we have a product readily available, which is developed and well accepted. Our vendor registration process since the last 2 years, whatever effort we put on to that, so we could be able to achieve the desired target. Today, we are accepted as API product supplier over 90% of refineries consultant, EPCs, OEMs accepted Triveni as an approved vendor. And even our Q1 order booking is as per the budget. So we booked quite a good number of orders from API segment. So that is, again, a mix from international as well as the domestic -- not domestic like Indian oils and all these things. And international also we picked up from South America and some orders we picked up from North America as well of our API segment. So that way, it is a quite bullish market for us. And based on the inquiry pipeline, which you see on the API segment, there is a huge growth on the inquiry pipeline. Today, we are sitting substantially over 1,000 machines inquiry pipeline on API. Coming to international, non-API, so the inquiry pipeline is quite good. So we are seeing some Middle East, North Africa region is one of the key areas for us, API as well as non-API segment. And Turkey and Europe, these are the other 2 areas where we are following it up for rate-to-energy inquiry based and wast heat recovery option sort of the thing. And MENA is substantially giving us API inquiry pipeline. So that's way we see even in international, apart from domestic. Domestic, obviously, there is over 30% inquiry pipeline increase is there. Even in international, we are seeing a good traction. And through virtual interaction, there's a good acceptability there even though last year numbers are not that good, but based on the current inquiry pipeline and the Q1 tractions what we are having, we are quite optimistic that we'll be able to meet the desired results, what we are expecting in international markets as well. In the international, again, we are seeing one of the combined cycle opportunities increasing for us, apart from waste-to-energy and wast heat recovery cogeneration proposals. So this is a new segment where we are entering as a combined cycle. That is along with gas turbines as well as gas engines and diesel sets. That is the 1 segment which we are entering in fact.

So would it be able to give a perspective like currently in API turbines out of existing market, how much of it is we are able to address and to what megawatt range we have launched the products for API turbines?

Based on the current product availability to us, almost 85% of the market we'll be able to address the product, so across because in API, the megawatt ranges are not much because these are all -- majority of these sizes, some 5 megawatts, up to 6 megawatts drive turbine application. Rather than the megawatts here, number of machines drives the whole thing. So today, we can address 85% of the market. And this market is substantially big market I'd say.

So just to clarify...

So 85% from a number perspective -- from a number of units perspective, it may be about 60% from value perspective.

Okay. So basically, just to clarify, we are now addressing 85% of the total API market. It is not that the products what we have launched, we are addressing 85%, just to clarify?

Total API market, total API market. So our products will be able to address 85% of that technical.

And this movement has only been in the last 18 months old. And of course, the last 12 months have been very difficult from an order booking perspective, as we've already talked you but this will be -- we should be able to have very good penetration here in the current year going forward.

Okay. Okay. And typically, the product order size would be similar to what we have in steam turbine, like if you probably want to look out on a per megawatt basis or something like that, if you can just give us a perspective -- just to get a perspective as to how can our order book look like going forward?

So we don't really break it down into price per megawatt. Suffice to say that -- because these are smaller turbines and in a segment which has extremely high environment and safety guidelines, the price per megawatt is higher than normal, but the scope is less. We're not providing the entire scope. So turnover would be less per megawatt because we're not providing other equipment, such as generators, et cetera, et cetera.

Okay. So here, we will not be taking on a EPC basis, but purely product supply?

But even earlier, we were not doing EPC. We were just doing integration package, let's put it that way because I look at EPC from a perspective what liability you take forward, you don't...

No. Exactly, sorry, sorry. What I meant was that -- so here, we will probably do a product-drive turbine supply to the integrator and we are not doing the entire integration.

No, but there will be some integrations, for example, the lube oil system, et cetera, which will come under us. But the scope of supply is less in this segment.

Okay. Okay. And just for a housekeeping, if you can provide us a breakup of order inflow and order book of the aftermarket between domestic and exports?

Okay. Manish, maybe we could take this offline. I'm sure whatever the numbers we've been giving in the past, we'll be happy to give you. But suffice to say that the order booking on the aftermarket side has been consistent in both the domestic and aftermarket and even in this last year, we have used a lot of digital means to maintain and grow our international aftermarket business.

[Operator Instructions] The next question is from the line of Amit from Edelweiss.

Nikhil, I have 2 questions. First, on the strategy of diversification. Can you specify which areas should we look at when we use the balance sheet to expand our addressable opportunity? And my second question, once we finish the first, I'll maybe ask.

So I wanted -- can you just -- I couldn't follow your question exactly. Are you saying that what -- how would we look at the allocation from a perspective of technologies?

Yes, I was just trying to understand the possible diversification route, what -- which segment will look at in terms of specifying...

Yes. Yes. So there are 2 aspects to this. We -- our competency from engineering perspective and our balance sheet is what we would keep in mind because we need to be -- we need to ensure that we'll have some sustainability growth in which ever segments that we do look at. And so we've already talked about us looking at an alternate offering from a technological perspective to providing heat and power, which is through supercritical carbon dioxide. But equally, as we look at the transition from decarbonization away from carbon base to maybe a potential more hydrogen-based economy also, which I have an opinion that I think that there will be a certain segment which will definitely move to hydrogen, either if it's from a perspective of electrolyzers to fuel cell requirement. But the heat requirement from that and the combined cycle requirement, which still require our offerings, which will come. So we will be moving towards looking at both rotating as well as static technological solutions within that space.

We take the last question from the line of Pranav Tendolkar from Rare Enterprises.

Sir, I have just 1 question. Can you just elaborate if any industry decides to put up captive power plant, coal-based versus it puts various renewable plants like solar or...

Sorry, I've not -- can you repeat the question, please?

Yes. Yes. So I'm just saying, if any industry puts up a captive power plant, thermal power plant, coal-based or gas-based versus if it puts a captive renewable brands like solar or wind, how does the economic per se actually compare? And because what I see is that there are many industries, which are our large customers like paper, sugar, cement, et cetera, are actually...

Yes. Okay. No, okay. No, thank you. I think you bring up the question that we take for granted. I think we need to explain a little bit better, and possibly, we'll give a working paper with our next earnings call, which is to explain the cost of heat. And when we talk about cogeneration, there is a requirement in not only power but also heat in industrial. So in residential establishments also, but we're talking about industrial. So when you look at sugar, paper, rubber, textiles, et cetera, pharmaceuticals, chemicals, they require steam that is heat as part of the process, which cannot be generated on a renewable basis. Or if it was to be generated, it would be -- the cost -- the capital cost as well as the efficiency cost of that is prohibited. But to give you an example, say, solar works at the efficiency levels on somewhere in the region of 10%, 12%, and it will be the capacity factors, et cetera. A thermal-based plant running of even coal at a small size would be somewhere in the region of about 25% efficient. If you move up the technology curve and actually use -- let's leave the technology curve. Let's just say that if you were to look at the efficiency, that's for power production. If you were to include heat, we would probably be in the region of utilizing approximately 50% to 60% of the thermal power, thermal energy in the application. So I think that until now the renewable solution hasn't been -- hasn't come about for heat, which is as obvious as what exists for the power -- the utility power market. The utility power market has a very clear winner. And I think that is quite obvious that renewables has a very -- has a better cost economics.

Okay. Right. Sir, because what happened is that last year many coal excavation was decentralized, right? There are like 150 more private coal licenses and the coal supply in India is going to go through a very high-growth phase, and it is going to be very, very easy to put up a coal-based power plant, which is not possible previously because you had to import coal and there are many things. So I think that if that is the case then you could have a very high-growth rate in the next 2, 3 years. That is -- am I wrong...

I think you're right. I think if you already look at spot power rates or forward rates, you do have an increased power consumption in the domestic market in India. In fact, this is a global phenomenon. And you are probably going to see very high spot rates of power going forward, which will lead to a lot of expenditure on short-term power.

I now hand the conference over to the management for their closing comments. Over to you, sir.

Thank you very much, ladies and gentlemen. Thank you for attending the financial year '21 earnings call. We think that Triveni Turbine is in a very steady position, even though our order booking for the financial year '21 was not up to mark due to the COVID pandemic. We have great visibility on FY '22 from order booking perspective, and we believe that we are in a steady and stable footing, and anticipate and look forward to our move on this energy transition path. Thank you very much. Goodbye.

Thank you. Ladies and gentlemen, on behalf of Triveni Turbine, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.