Triveni Turbine Limited (533655) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Triveni Turbine Limited Q1 FY '22 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Gavin Desa of CDR India. Thank you, and over to you, Mr. Desa.

Thank you, Lirav, and good day, everyone, and a warm welcome to all of you participating in the Q1 and FY '22 earnings call for Triveni Turbine Limited. We have with us today on this call Mr. Nikhil Sawhney, the Vice Chairman and Managing Director; Mr. Arun Mote, Executive Director; Ms. Surabhi 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 discussions may be forward-looking in nature, and a statement to this effect has been included in the invite, which has been e-mailed to you earlier. I would also like to emphasize that while this call is open to all invitees, it may not be broadcast 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 Q&A session. I now invite Mr. Nikhil Sawhney to share some perspective with you with regard to the operations and outlook for the business. Over to you, Nikhil.

Thank you very much, Gavin. A very good morning, ladies and gentlemen, and welcome to the Q1 FY '22 Investor Call for Triveni Turbine Limited. It's been about 6 weeks since we spoke last, and I trust everyone is well. For the quarter under review, the company has continued to face some restrictions in terms of travel and disruptions at the customer's end, especially in the international markets. However, more vaccinated work focus and increased domestic travel in Q1 FY '22 was relatively better than Q1 FY '21. In the last 15 to 18 months, the COVID-19 pandemic has affected public health, livelihoods and has decimated economies across the world. While the situation in India and many parts of the world seems to have improved from the peak breakout period, the threat of newer and more perilous variants causing further disruptions still prevail. Meanwhile, the vaccination drives are continuing, and Triveni Turbine, from its stakeholders' perspective, aims to lead and be at the forefront of this so that we could return to as normal working environment as possible. The revenue for the company grew 11.4% in the quarter under review to INR 1.84 billion, driven by higher domestic sales, which grew 38% year-on-year to INR 1.23 billion. EBITDA was lower by 4.6% year-on-year at INR 413 million. The lower share of exports as a percentage of turnover is one factor which is responsible for lower EBITDA margins as well as an increase in administrative costs. We believe as we do go on during the course of this year, EBITDA margins will normalize at our existing -- at our previous levels, which we have talked about through -- for the entire year. Profit after tax grew at 1.8% year-over-year to INR 278 million, and profit margin declined by 140 basis points to 15.1% in Q1 FY '22. We had a record order bookings of INR 2.73 billion, which is the highest in the last 4 years, and the outstanding carryforward order book as of 30th of June 2021 stands at INR 7.28 billion, which is higher by 14% when compared to the beginning of the year. The company achieved a record total order booking in Q1 FY '22 as against a INR 1.44 billion order booking in Q1 FY '21, an increase of 89%. Both the domestic and export order booking contributed to this growth. The mix of domestic and export sales was at 67% -- was at 2/3-1/3 in Q1 FY '22 as compared to 54% and 46% in Q1 FY '21. This was a result of the situation in the previous quarter in terms of lockdown as well as certain logistical impediments that the company has faced in terms of export as well as revenue recognition for export, which will get normalized in this current quarter as well as, we believe, not impact us for the full year operations. I'd be happy to speak about that more in the question and answer. The company has maintained its leadership position in both in the Indian and international markets, and we are very optimistic about the way that the company is positioned for the quarters and years to come. As I said, the domestic market performed exceedingly well in this quarter under review, and the domestic market increased by 117% year-over-year in terms of megawatt ordered. The domestic order booking during the same quarter was 200 -- was INR 2 billion, which is higher by 91% compared to last year. All sectors of the Indian economy have performed exceedingly well in terms of our representation in our order book, which includes segments of distilleries, chemicals, waste heat recovery in cement, steel and other allied cogeneration and process cogeneration sectors. The export market is estimated to have declined 5% year-over-year for the quarter under review in terms of megawatt ordered. And the export order booking for the quarter was at INR 734 million, higher by 83% as compared to last year. However, COVID-19 continued to impact export sales, which declined by 20% as compared to last year to INR 608 million during the quarter. We have again performed exceedingly well in securing orders on a remote basis, where our marketing team has been able to work with customers on a remote basis and to close orders. But we believe as travel becomes a little easier, and we've already seen that happen in this current quarter of Q2, we believe that we would have an increased export order booking in the quarter and quarters to come. The aftermarket segment has registered an order booking of INR 561 million, which is higher by 40% when compared with the corresponding period of the previous year. While international travel is limited in this segment as well, the company has been able to garner positive results domestically with more in-person interactions as when travel was feasible. The aftermarket turnover was at INR 507 million for the quarter, a growth of 19% over the previous year and which has been driven by the refurbishment sector as well as spares. Aftermarket accounted for 20% of the total turnover in Q1 FY '22, which is up from 26% of the previous year. We are very optimistic about this trend, and we think that aftermarket, which is a high-margin sector for the company which also allows us to have a deeper and more meaningful relationship with our customers, portrays a more favorable trend for the business where we can have an increased order booking on the product side, but still ensure that our percentage of aftermarket as a percentage of sales increases. And I think that portrays very well for the margin level for the company in the longer term. Design and development of the -- is a very core part of Triveni Turbine's business operations. And on the technology side, the company continues to develop cost competitive and increasing the efficient models with enhanced profiles and a steam path to meet and exceed all global requirements. We have again introduced a new series of blades, which will allow us to maintain and hopefully exceed our already stated leadership position in this segment. Our R&D continues to be focused on alternate energy, technologies as well as certain sectors such as the API market. We -- our progress on all these development fronts is proceeding exceedingly well, and we believe that we will be able to make significant progress during the course of this year. And we believe that we will be spending more money on these fronts, so as to secure a more stable revenue stream in the quarters and years to come for the company. With aggressive value engineering and cost effective product development and efficiency improvement, the company is also ensuring that it's mitigating any large increases in commodity prices, which have already been visible in certain sectors of our supply chain. But we believe those will not impact the company in the short run but will only do so for orders which may get executed in Q4 of this year. But to mitigate all of these circumstances, we have already locked in higher and longer-term supply chain contracts and rates with our vendors and suppliers, but also have equally passed this on to our customers and both in the domestic and international market. The inquiry generation during Q1 FY '22 was strong in both the domestic and international market. But we believe that in the quarters to come that we would see a further growth in the inquiry levels, both at the domestic and especially at the international level. During Q1 FY '22, the inquiry generation in the international segment grew by 21% as compared to the corresponding period of last year, and these are dominated by the Biomass and other renewable IPP sectors, including process cogeneration. Overall, while we await travel restrictions to be lifted to pre-COVID levels, the company continues to focus extensively on virtual meetings to conduct business as well as through our extensive agent network to help facilitate closure of these orders. We also remain positive on the contribution from new segments such as API, which have witnessed an exponential increase in terms of inquiry generations as well as order booking. These have already translated into a variety of performances for the company, which have been reported in the quarter under review and which I've alluded to for the year to come. Overall, the outlook for the year is much more constructive than the previous year. We believe that we have an effective mitigation strategy for any further lockdowns that may happen due to -- of third wave or fourth wave of COVID. We believe that we have an effective strategy to enable international travel to happen on a continuous basis despite any lockdowns that may happen in India or in other countries. We believe that our inquiry book and order booking position foretells a very optimistic situation for the year to come as well as for future years. As you know, Q1 contributes significantly towards the book and bill for the current year, and we are optimistic to be able to reflect that within the growth of both profitability as well as turnover in this current FY '22. I'd like to open the floor now for 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 size of the domestic market. You used to tell it used to be around 700 megawatts, et cetera. How is it likely -- how is it this year? And how is it likely to grow? If you can give an overview.

The -- like I alluded to, we have seen an increase in not only the order finalizations in the quarter but also an increase in our inquiry levels. If you look at the quarter, I wouldn't like you to -- like to give quarterly levels, but suffice to say that -- and we talked about this in the previous quarter as well that we are -- that Triveni Turbine was optimistic in terms of being able to achieve an order booking on the product side for the half year, which would be higher than the full year the previous year, and we are optimistic to maintain that position. From a megawatt perspective, in the first quarter, I don't have the data, but I would ask my colleague, Mr. Prasad, who is the President of Products, to just allude to -- Prasad, can you give some idea as to where we sit in terms of total megawatts ordered and how that looks like for the full year to come?

Yes. Yes, correct. See, inquiry generation-wise, the domestic market inquiry pipeline is quite good. And in terms of order booking of first quarter, it is closer to -- compared to last year, it is closer to around 12%, 13% higher in terms of megawatt, that is our thinking. Overall year megawatt size-wise, we are expecting around 15% to 20% growth is what we are anticipating based on the current inquiry pipeline, which is around 21% higher domestic inquiry compared to last quarter 1.

Got it, sir. And in terms of pricing, are we seeing an improvement in pricing with our customers? So basically, given the fact that demand is likely to be robust, are we able to pass on prices or the input cost prices to end customers, sir? Are we able to do that, sir?

Yes. To -- this is a customer as an engineer to order product. So no one customer's pricing is exactly the same as in others. But to a large extent, customers do understand that there has been a commodity price increase, and those have been passed on. This will depend, obviously, from customer to customer competitive intensity of those orders as well as the longer-term relationships that we may have with them. But in general, we do pass on price increases.

[Operator Instructions] Next question is from the line of Nilesh Jethani from Envision Capital.

My first question is on the opportunity size and the market share that we have. So I believe we are expecting a 15% to 20% kind of a growth in the order inflow. But on the opportunity size, say, a 700 megawatts plus a 15%, 20% growth, are we confident of maintaining about 20% market share in the domestic market?

I think our market share has been in the below 60 megawatts, and the below 30 megawatts segment is higher than 60%. We've maintained that for the last many, many, many years now. And we are optimistic to maintain that market share level, if not exceed it.

Understood.

Do you have another question?

Yes. The second question is on the asset turnover. So I believe we don't give our capacity in terms of megawatts, but we give our capacity in terms of number of turbines. So I wanted to understand, at the current capacity, what kind of sales levels we can expect? Or what is the optimistic asset turnover that we can achieve?

That's not -- typically it's not the correct way to look at the business because we are exceeding the -- focusing our structure of our balance sheet to be asset-light. And so not only do we have flexibility in terms of hours of operation and shifts of operation because our manufacturing -- both from a manufacturing and assembly perspective. Typically, we say that we are operating at a level of upwards of 200 to 220-odd turbines a year. And on average, you could look at the fact that we are producing half of that right now, and so that is about 50% capacity utilization on a steady-state basis. But we have the potential to take it up with increased shifts.

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

Yes. My first question is on the order booking. Congrats on the very strong order booking in the quarter. We are now on track to achieve the last year's full year order booking in the first half. So the question really is what is the guidance beyond the first half? Do you think that the current rate of...

Very strong. No, no. We're very optimistic to continue the momentum until the end of the year. Of course, product may be a little bit more lumpy, but aftermarket has given us very good visibility, and we are optimistic on significant growth in the aftermarket order booking for the year. The product order booking also will be significantly better as we -- as you already alluded to the fact that we aim to have a higher product order booking in the half year than we did for the entire full year. So there will be extremely good growth in both sectors. Of course, the product growth because of the lower product intake last year would be significantly higher in terms of percentage.

Yes, yes. So in the product order booking, where our -- the current run rate is about, say, 200 plus, do you see that sustaining in the second half of the year also? Or is it just a spike because of the pent-up demand?

No, we're aiming to maintain that. Our ambition is to maintain that. Marginally here and there may be around it but not significantly different.

Sure, sir. So in the past, you have alluded that the larger sizes of order book usually come from the core sectors like the steel and the cement. Are you starting to now see a big ramp-up in these core sectors? Or is it coming from the usual sugar distillery and other areas?

Actually, the sugar sector itself, as sugar manufacturing and cogeneration has been very muted for the past year overall. We've seen an exponential increase in investments in the distillery segment. We have always spoken about cement waste heat recovery as well as some fresh greenfield CapEx on the cement side. Steel was a sector which really didn't fill a large sector of our order book in the previous year. But in this quarter and then in the coming quarters, we believe that there is going to be an increased investment in this area, in small rolling mills and other types of investments in the metal space. So those are the largest sectors, and we think that those represent good growth opportunities. Of course, general process cogeneration, including chemicals and other food and pharma applications, continued to perform very well. But from a megawatt perspective, these are smaller in size. I'll have Prasad, again, just give a little bit of insight into what he's seeing in the market from a domestic perspective. Prasad?

Yes, yes. So from the domestic perspective, we are seeing the process cogeneration is one of the interesting areas that is basically covering all like pulp paper, textile, full processing industry. And the steel, of course, is one of the key areas where we are seeing a good traction and even inquiry pipeline is quite substantially higher, following with API. API is another segment where we are seeing good inquiry pipeline, even finalization is happening. So that way we can say distillery, process cogeneration, steel, that is the waste-to-energy, that is cement industry, these are the key industries which will be driving the growth in FY '22.

Sure. That's very helpful. And I'm sorry, I have another question...

Sorry to interrupt you. I'll request you to come back in the question queue for a follow-up question. [Operator Instructions] The next question is from the line of Ashutosh Garud from Ocean Dial Asset Management.

Am I audible?

Yes.

Congrats on a good set of order inflows. Just wanted to understand, you mentioned about the traction in the exports. However, the domestic market from order inflow front has done fairly well. If you can highlight some aspects, how you expect the exports to pan out in FY '22? And if you can share some aspects on how the margins in export market as compared to the domestic market?

Okay. Well -- so the 2 aspects that I'd like to talk about in the export market, which is one is from an execution and turnover perspective and the other is in terms of order booking and inquiries. The execution from Triveni Turbine in the export market is dependent on the order book and the carryforward order book that we bring into this current year. And as it is -- as exports as a percentage of our order book is lower than in the historic past, that would reflect into the execution for this current year in that respect. But we are optimistic that we would be able to -- that would not significantly impact margins to such a large extent due to a higher percentage of aftermarket as a percentage of sales as being part of the entire execution strategy. We also have got impacted in this current quarter in terms of revenue recognition billing to quite a significant extent due to logistical challenges at ports as well as being able to fulfill our Incoterms for revenue recognition on export orders. On the order booking side, there's a limit to how much -- how many orders you can finalize on a remote basis. So we have already seen higher mobility of our sales force as well as our agent network. And so we are more optimistic in order booking on the export front going forward. And so we, as a company, are quite optimistic and are putting both money and resources of people and time into ensuring that the export market gets back to our traditional percentage of order booking at about 50-50. It will take some time and a little bit of effort.

Right. And also from the order inflows from a domestic perspective, would there be -- I mean, these order inflows would have accounted for a lot of commodity price increase passed on, as we mentioned. So from a volume and price angle, can you give some sense of the growth in volume terms and growth in realization or maybe pricing terms as far as this growth in domestic order inflow is concerned?

I'm not fully understanding the question, but we aim for -- we aim to increase our market share -- or maintain or at least increase our market share in what is historically existing in the domestic market because of our strong portfolio of products. From a realization perspective and price increases, it's not that easy to talk about it on a uniform perspective. Of course, all the projects that we'll be executing pretty much until Q3 on the product side will be based on our existing order book and the existing pricing, which have locked-in margins. Arun, can you talk a little bit about this question on realization without being very specific on the price per megawatt?

Yes. As everybody has experienced, we also experienced a sudden increase in the commodity prices. We have fixed price contracts. So it is difficult to get a price increase from the customer. But at the same time, we have long-term rate contracts with most of our suppliers. Our relationships with suppliers are all long term. They are not for a year or so. Therefore, there is always a give and take on the prices whenever such a sudden increase happens. So by and large, it is our effort to see that our margins are not affected, and that's what really has happened even in the current year. At the same time, we have got value-engineering exercises going on. So every year, between 1% and 2% of the cost comes down depending on the project, and that helps us in maintaining the margin. Now since the prices have gone up, we have already taken into account these costs, and prices have already been -- it has been already factored into our new ports. So all the ports which have been in the previous -- some of them in the previous ones and some of them now, and they are all getting with the new costs. So we don't expect that there will be any increase on each. There will be any effect on our margins as such. Realizations depend on the market. So we can't really say specifically a sector or a customer. It's a combination of factors. And we find that realizations are all right. There will be some pressure, of course, which we expect, but due to volumes, will be dealt with properly. So overall, it's an average plus outlook, I would say.

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

Is it audible?

Yes, but you're very, very distant from the phone.

So yes, I had just one question. So on the TTL segment that you have mentioned, so what has been the order booking for -- in this particular segment in the last [ previous year fourth quarter ]? And where do you see this number going up for the full year FY '22 as well as full year FY '23? So if you could give us some outlook on that front, it would be very helpful.

I don't want to be specific in terms of number of orders, but the number of orders that we had -- that we were able to secure in Q1 was higher than we got in Q4 of FY '21. And we are optimistic that Q2 and Q3 will be better than Q1. And so we are capturing more market share as we go on, and we are very optimistic on this sector. We think that our product has an extremely appealing value proposition to our customers, but not only having exceedingly high efficiency levels but at cost point which is very appropriate to the market. And so we're optimistic about it, and it's a market sector that we think will drive growth for the business. As of now, it is not significant in terms of our turnover. Once it becomes a much more significant part of our turnover, we may provide more visibility. But right now, it is a growth sector for us. We are optimistic in getting more market share, and we will report as we go on. As you know, these -- all these data that we give out are extremely sensitive from a commercial perspective. So I would -- it is more from that reason that I try to be a little bit more cautious.

Sure, sir. No problem. So just to get a ballpark idea. So could the API segment be 5% to 10% of our overall order intake probably next year? Would that be a possibility?

Arun, would you like to answer that?

I'm not very clear about the question. Could you please repeat it?

He said, "Can API form up to 5% to 10% of your order book next year?" I would see no reason why not at level...

Yes, it would be. It would be.

[Operator Instructions] The next question is from the line of Nikhil from SiMPL.

Am I audible?

Yes.

Congrats on a great order booking. I had 2 questions. One is on the international front. Which are the segments or the end industries where you are seeing good order intake or order inflow? And if you can also share some perspective on which geographies you are seeing the order inflow coming from. That is one. And secondly, on the domestic business, you mentioned in the initiating call and during the discussion also that steel and general engineering and waste to heat, all these segments along with distillery, we are seeing good demand. But can you give an approximate breakup between -- for the industry between these 4 or 5 different segments? What would be the approximate breakup?