TD Power Systems Limited (TDPOWERSYS) Q1 FY23 Earnings Concall Transcript

TD Power Systems Limited (NSE:TDPOWERSYS) Q1 FY23 Earnings Concall dated Aug. 10, 2022

Corporate Participants:

Nikhil Kumar — Managing Director

Vinay Hegde — Head Global Sales & Marketing

Varalakshmi MN — Chief Financial Officer

Analysts:

Mohit Kumar — DAM Capital — Analyst

Jiten Parmar — Aurum Capital — Analyst

Kunal Pawaskar — Tata Asset Management — Analyst

Kartik — Shreyas Advisor — Analyst

Dhwanil Desai — Turtle Capital — Analyst

Himanshu Upadhyay — O3 Capital — Analyst

Rohit Balakrishnan — iThought PMS — Analyst

Alisha Mahawla — Envision Capital — Analyst

Mohit Khanna — Banyan Capital Advisors — Analyst

Ankit Gupta — Bamboo Capital — Analyst

Dhruvesh Sanghvi — Prospero Tree — Analyst

Dipen — DS Investments — Analyst

Rajesh Jain — NB Investments — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q1 FY ’23 Earnings Conference Call of TD Power Systems Limited. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions and expectation of the company as on the date of this call. The statements do not guarantee the future performance of the company and it may involve risks and uncertainties that are difficult to predict.

As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Nikhil Kumar, Managing Director of TD Power Systems Limited. Thank you and over to you, sir.

Nikhil Kumar — Managing Director

Thank you. Good morning, everybody. Thank you once again for joining us today on our earnings call. I trust all of you would have received our results and investor presentation. Now, I would discuss with you TDPS financial performance in the quarter-ended 30th June, 2022.

I’d like to start the call by mentioning that we have now sold our generators to 100 countries worldwide and our total supplies is 5,400-plus generators. Now, let me come to the results. Our total income on a standalone basis for Q1 was 2.06 billion versus 1.28 billion over the same period in the previous year, an increase of 60%. Profit after tax and comprehensive income for the quarter was 194 million versus the profit of 68 million for the same period previous year, an increase of 186%. Manufacturing revenues for Q1 was 2.05 billion, which was 1.25 billion last year, an increase of 61%.

Manufacturing order book including Turkey operations is 13.77 billion, out of which 4.06 billion is our generator business, 9.46 billion is the railways business and 0.25 billion is our Turkey business. Export and deemed exports from generator business is 66%.

Order inflow, we are very happy to report a big increase in the order inflow during the first quarter over last year, an increase of about 81%. Our total order inflow this current year for India is 2.03 billion. Order inflow from direct and deemed exports is 1.09 billion versus 0.81 billion over the previous year, an increase of 34%. Projects business revenue for Q1 is 12 million versus 15 million in the same period of last year. Order book for the projects business stands at 459 million.

Consolidated performance, our total consol income was 2.11 billion versus 1.65 billion for the same period last year. Profit after tax and other comprehensive income for the first quarter was 204 million versus the profit of 97 million[Phonetic], an increase of 111%. Our consol order book is 40.23 billion. We continue to maintain a strong cash position of INR1.88 billion.

Now, I will come to the order book market situation and guidance. In the first quarter, we have seen a substantial increase in inflow of orders from all segments of the market, both domestic and international markets have contributed to the big increase in order inflow. We are seeing continued order inflow in July as well as for Q2 which will not only ensure that we reach our previously guided top line, but also start filling the order book for next year.

Let me talk briefly about each segment. Steam turbine, strong demand from India and rest of the world. In India it is capex-driven, and globally it is driven by an increased investment in waste-to-energy, biomass and garbage burning plants. Our positioning in this segment is strong and we see sustained order inflows taking place even for next year. Only a small fraction of the inflows from now on will be executed this year, and the majority will go into next year. We have reached our target for this year in the steam turbine segment.

Gas turbine, we are not seeing the big investments taking place in the shale gas industry as expected. In fact, the shale gas industry has not increased output and is enjoying the high prices and do not want to increase supply. Investments have also been subdued to save gas. However, we have got good orders for power generation from a gas turbine customer in USA and the enquiries book is really strong.

Hydro, for this year, we have crossed the internal target. We have picked up a large number of orders execution for next year and the enquiry pipeline is also very strong. We’ll close out a few more big orders in the next quarters for execution next year. The main markets continue to be Southeast Asia, Europe and Latin America.

Gas engines, we have very good orders and forecasts on both our engine customers. We’re selling all over the world and there’s no concentration of any orders in any market. Wind repairs, we have got three orders in the last three months and we have firm inquiries for a few more large orders. This outlet is becoming stronger. About 55 megawatt generators, the market in India has been very active in the past quarter — in last two quarters, we have recently booked an order for 90 megawatt machine for delivery next year and there are a number of other active jobs in the market.

Our TDPS personnel are right now in Germany for training to make a complete rotor in India and this 90 megawatt would be the first complete made in TDPS generator. Earlier, we were importing the rotor from Germany.

Other new segments, railways business is on track with the Indian railways. However, it will take time. I think we can only see the business results next year. Synchronous motors, we have a lot of enquiries and negotiations, but unfortunately we have not been able to report any finalizations to you.

On raw material prices, we’re seeing a slight pullback on some commodities, but we have booked materials for the whole year according to the forecast of our customers and we will not see any further benefit this year. It must be kept in mind, an inflation thickness to be high, transport costs, wage pressures are still at high levels. Rupee weakness against the dollar has also increased the cost of imports, offsetting some of these relief in commodity prices, but special steels, forgings are still in short supply and available only at high prices.

TDPS is focused on price stability to customers and marketing stability for investors. Maximum such a strategy cannot benefit from small term — from small short-term reductions in commodity prices nor will we get hurt from sudden price increases. For next year, with the capex in India firmly on the expansion mode, the increased investments flowing in the area of renewables internationally and as well as the new verticals the TDPS has entered, will ensure a solid platform for growth in the next year and the following years.

Guidance, as indicated in our previous earnings call, we continue to hold the guidance which is at below. Manufacturing business, TDPS India top-line of 8.2 billion, TDPS Turkey top line of 0.2 billion, total manufacturing business should give a top line of 8.4 billion. Projects business should gave a top line of 0.5 billion. We expect to have a gross contribution level between 30% and 31% for this year. All our subsidiaries except Turkey — TDPS Turkey will be profitable, TDPS Turkey will report operational profits, but continued depreciation of the Turkish lira to the Indian rupees will impact TDPS Turkey profitability due to foreign exchange loss in translation from Turkish lira to INR.

This brings me to the end of my initial remarks. I’ll now be happy to address any queries that you may have. Thank you.

Questions and Answers:

Operator

Thank you very much. We will now begin with the question-and-answer session. [Operator Instructions] We take the first question from the line of Mr. Mohit Kumar from DAM Capital. Please go ahead, sir.

Mohit Kumar — DAM Capital — Analyst

Good morning, sir, and congratulations on a very, very good set of numbers. So, my first question is how do you see the opportunity arising from the Indian railways, locomotive and Vande Bharat tender? Is there any tie-up you have done with some OEMs to bid for this particular opportunity?

Nikhil Kumar — Managing Director

Yeah. We have currently a supply agreement with a major player in this business, an international company, who has won the 12,000 horsepower electric locomotive projects currently being produced in Madhapur, and they are bidding for all the new projects of the Indian railways, the new 12,000 horsepower, the new 9,000 horsepower as well as for the Vande Bharat trains. So, the winner is yet to be announced for these packages but if our customer wins, I think we have a very good chance to also get benefited from their success.

Mohit Kumar — DAM Capital — Analyst

Is it an opportunity for us to tie-up with the other OEMs, we don’t need to stick to one particular OEM, right?

Nikhil Kumar — Managing Director

We are currently focused on this one OEM, because we think they have the best chance and let us see how it works out.

Mohit Kumar — DAM Capital — Analyst

Understood, sir. Secondly, sir, is it possible to give the breakup of motor and generator in the top line for TDPS India, is it possible?

Nikhil Kumar — Managing Director

Yeah. Right now, it’s overwhelmingly generators that are just a few less than INR5 crores of motors, I mean the railways business is traction motors and that as I said would be around INR160 crores for the whole year, it’s about INR40 crores per quarter in the railways business traction motors. The other motor business is less than INR5 crores.

Mohit Kumar — DAM Capital — Analyst

Understood, sir. Thank you, sir, and best of luck. Thank you.

Nikhil Kumar — Managing Director

Thank you.

Operator

Thank you. We take the next question from the line of Jiten Parmar from Aurum Capital. Please go ahead, sir.

Jiten Parmar — Aurum Capital — Analyst

Good morning. Congratulations for excellent numbers, and the guidance you have given, I would just like a clarification on that. So, around what you said consolidated, you’re guiding for INR900 crores, is that right?

Nikhil Kumar — Managing Director

Yes.

Jiten Parmar — Aurum Capital — Analyst

Okay. Okay. So, my — I have a couple of questions. What is the maximum revenue you can generate from the existing facilities? And if there is any plan for any expansion or capex?

Nikhil Kumar — Managing Director

Yeah. At the moment, we can push our utilization capacity to about INR1,200 crores and we are continuously investing in automation productivity improvements. So, we will push the INR1,200 crores to a larger higher number. At the moment, we have no plans for any greenfield production facility.

Jiten Parmar — Aurum Capital — Analyst

Okay. So, my next question was actually on automation and robotics. What are the, I mean, employee cost, can it be reduced further out and to what extent due to automation and robotics?

Nikhil Kumar — Managing Director

We are increasing our top line without having a proportional increase in the employee cost. We’re not hiring any fresh people. And that’s how we will get the benefit of the higher savings without increasing our employee cost substantially. So, of course, the current set of employees we will have to increase salaries year-on-year. That’s a given the market in Bangalore especially for engineers and other management staff is very competitive. So, we have to remain competitive to retain our talent. So, those kinds of increases will take place with existing people but we are not going to add people to increase our top line, rather than the investment and productivity and automation will start showing.

Jiten Parmar — Aurum Capital — Analyst

So, my final question is on the INR900 crores guidance you’ve given, how much of it will be exports and how much will be domestic?

Nikhil Kumar — Managing Director

It would be around — if you take up the traction in motors business, it will be around 60% exports and 40% domestic.

Jiten Parmar — Aurum Capital — Analyst

Great. Thank you. That’s all for now. If I have any other questions, I will come back in queue. Thank you so much, and best of luck. Thank you.

Nikhil Kumar — Managing Director

Thank you.

Operator

Thank you very much. [Operator Instructions] We take the next question from the line of Kunal Pawaskar from Tata Asset Management. Please go ahead.

Kunal Pawaskar — Tata Asset Management — Analyst

Hi, good morning.

Nikhil Kumar — Managing Director

Good morning.

Kunal Pawaskar — Tata Asset Management — Analyst

Yeah. My question was around the situation in Europe, especially after the geopolitical issues there. With respect to energy security as it is changing there and every nation having to look for substitutes, how is it helping company, are there initial discussions that are moving in that direction? Considering that the company was already strong in Europe on say things which were in waste-to-energy, etc., but how do you see discussion shaping up? Are you seeing early signs of business, because of those specific reasons after Russia-Ukraine specifically?

Nikhil Kumar — Managing Director

Yeah. We are seeing increased enquiries in the business that I mentioned in the introduction, waste-to-energy and biomass and also garbage burning facilities. So, these are the three sectors that predominantly use steam turbines. We’ve seen increased number of enquiries, increased amount of business coming from these sectors. So, interestingly, we are also not seeing any reduction in the gas engine business. So, that’s a bit contrary to what could be expected given there’s a shortage of gas in the market, but it’s actually we are seeing growth in these sectors and it’s very good contrary to our expectations.

We have also discussed in detail about the prospects for next year and we don’t see — we don’t have any feedback from our customers that there’s going to be any reduction of business, in fact, both our Indian customers are predicting steady and strong growth even from next year.

Kunal Pawaskar — Tata Asset Management — Analyst

Okay. And last question on diesel engine generators out of Europe, I mean, there are news reports of cost through diesel engine, power generation being at parity with natural gas. These things may not last, but people are looking at substitutes and backups. Diesel engine generators in particular, any comments there?

Nikhil Kumar — Managing Director

Yeah. Basically, gas engine generator, diesel engine, in all these, diesel will be easier to burn compared to gas. So, people will definitely go for dual fuel engines, they won’t just put all the money into diesel and then later on next year find that the total investment is a total waste. So, they will go for dual fuels and dual fuel engines, multiple fuel engines and switch depending on which fuel is the cheapest in the market at that particular moment of time. So, as far as the generator is concerned, it is the same machine, so I don’t think that they’re going to get affected by that.

Kunal Pawaskar — Tata Asset Management — Analyst

Okay, thank you. That’s all from end.

Nikhil Kumar — Managing Director

Thank you.

Operator

We take the next question from the line of Mr. Kartik, Shreyas Advisor. Please go ahead, sir.

Kartik — Shreyas Advisor — Analyst

Sir, good morning. Very interesting commentary. So, couple of clarifications there, sir. One is in the context of segmental outlook. You said that you’re not taking any orders for the current year anymore and telling only accepting orders for next year. What part of this would be later on —

Nikhil Kumar — Managing Director

I did not say that. I said most of the orders coming in now would be for execution for next year and a small proportion we will still execute this year.

Kartik — Shreyas Advisor — Analyst

Right, right. Okay. Why would that be, sir? Eight to nine months would be a reasonable timeframe for delivery, so I am assuming?

Nikhil Kumar — Managing Director

Yeah. It would be — so, seven, eight months is a normal delivery time. We already coming to August end, so we have seven months for this year, by end of August we’ll have seven months left for this year. So, a lot of the orders are going into next year.

Kartik — Shreyas Advisor — Analyst

Yes. Right, right. The second question would be on the larger capacity generators that you spoke above 60 megawatts, so, obviously that’s an interesting market, but how do you assess the size of the opportunity over there and what plans over say one to three year timeframe for that business?

Nikhil Kumar — Managing Director

That’s an interesting question. So, this market has been dead for a long time and it has revived recently due to capex taking place in the metal sector. So, we are seeing that a lot of waste-to-energy as well as basic power generation, waste to power generation requirements are coming in from the metal sector. So, I think I can answer this question to you in a different way. As long as this sector remains healthy and this capex cycle continues, I think this part of the business also will keep the power generation requirement of putting up power generation facilities at these larger sizes will continue.

So, it is a captive power plant gain, it is still a waste-to-energy gain, for example, using the waste heat gases from the blast furnaces and things like that. Those are the kind of applications where we are seeing these larger machines being used. But this is not — we’re not seeing any market for these machines in the areas of ITPs and things like that. So, it’s still captive industrial.

Kartik — Shreyas Advisor — Analyst

What is the maximum capacity you can offer, sir?

Nikhil Kumar — Managing Director

We can go up to 250 megawatt.

Kartik — Shreyas Advisor — Analyst

Okay, okay. So, as and when you could even service UBT-sized orders if need arises?

Nikhil Kumar — Managing Director

There’s no — captive power plants we are seeing maybe up to 150 megawatt, very large captive size and power plants which use multiple units of 150 megawatt, but it’s very rare that you’d find captive power plant above 150 megawatt size.

Kartik — Shreyas Advisor — Analyst

No, I was just saying utility order, sir, assuming that BHEL getting your orders.

Nikhil Kumar — Managing Director

Utility orders would be, I don’t think the market is going to come in this 200, 250 megawatt size for utility. It’s going to be only that super critical 500, 600 megawatt and I don’t think any power plants are going to come up in this size for utility application.

Kartik — Shreyas Advisor — Analyst

Thanks very much, and best wishes, sir.

Nikhil Kumar — Managing Director

Thank you.

Operator

[Operator Instructions] We take the next question from the line of Dhwanil Desai from Turtle Capital. Please go ahead, sir.

Dhwanil Desai — Turtle Capital — Analyst

Hi, Nikhil and team. Good morning and congratulations for a very strong set of numbers. So, two questions. One is apart from a synchronous motor, we were also developing I think a couple of new products. So, any update if you give on that front that would be helpful?

Nikhil Kumar — Managing Director

So, these synchronous motors basically go into large irrigation projects in different states in India. There’s a very, very large enquiry pipeline running into hundreds of crores. Number of negotiations also taking place. But we’re not seeing — at the moment we’re not seeing any finalization. So, it could be due to funding issues and things like that. Projects are there, enquiries are there, enquiries are live, but they are not getting finalized. They eventually will. So, these projects come and they go. So, eventually all of these things will get finalized over the next six months to one year and then we will see large amount of order inflow coming in — hopefully chunk of these orders coming in and execute them.

So, I’m pretty upbeat that we will see a good chunk of orders for next year, I’m pretty upbeat about it. We still have time. And as I said number of projects under negotiation, so one or two of them will click and hopefully move in and we will see a good amount of business coming from this segment for next year sales.

Dhwanil Desai — Turtle Capital — Analyst

Okay, okay. I think you were developing a couple of new products other than synchronous motor, right. So, I was referring to that if there is any update on that?

Nikhil Kumar — Managing Director

No. At the moment we have no updates on that.

Dhwanil Desai — Turtle Capital — Analyst

Okay. And second question, we have cash balance of INR188 crore and we are seeing good times now and probably as per our expectation maybe a couple of years need to be good, where we’ll generate INR80 crore to INR100 crore kind of a cash flow. So, any thoughts on what we want to do with cash sitting on the book?

Nikhil Kumar — Managing Director

The first priority would be to deploy the cash in the business. Second priority would be to give the money to the shareholders. So, we expect to give them — because the cash for the business, it needs capex, working capital, all things put together. So, second priority would be to return the money to the shareholders in different ways. So, there wouldn’t be share buyback things like that. So, all these things are on the table. Right now we are focusing on the first priority to see how to use the — how the business needs the cash and then if the cash is building up, then, of course, we will go to the second priority.

Dhwanil Desai — Turtle Capital — Analyst

Okay. Okay. That’s it from my side. Thank you.

Operator

Thank you. [Operator Instructions] We take the next question from the line of Himanshu Upadhyay from O3 Capital. Please go ahead, sir.

Himanshu Upadhyay — O3 Capital — Analyst

Yeah. Yeah. Hi, good morning, and congrats on good set of numbers. My first question was on aftermarkets. We were thinking about getting significant orders from replacement orders of older generators, okay, for windmills and all those things. What is the progress there and are we seeing increased traction or it will take more time, any thoughts on that?

Nikhil Kumar — Managing Director

So, I gave an update on the wind repair business. I said that we are executing three large machines right now and there’s a strong pipeline of enquiry for the next few months. So, I think it is a little bit slower than what we expected, but definitely the market is there and we are actively playing in the market. So, I’m not disappointed, I think I’m very upbeat about the new large enquiries which are there which we will surely win a part of it.

Himanshu Upadhyay — O3 Capital — Analyst

Okay. And how significant can that size be of that business?

Nikhil Kumar — Managing Director

I don’t want to. I’ve given the projections of what is happened about the size in the market in the past, I think it’s hard to say exactly how much is going to come, because in this wind repair business, the machines have to fail and then only it comes to repair. I can’t predict how many machines that will fail.

Himanshu Upadhyay — O3 Capital — Analyst

Okay. And in case of Turkey, what is the progress and the PAT and all those things had changed in Turkey, and hence the orders were not there much. But are we seeing the market now starting to see some amount of traction or it is slow moving only, the Turkey market?

Nikhil Kumar — Managing Director

Yeah. It’s a good question about the Turkish market. This year we will make an operational profit, but we continue to have the problem of the exchange translation loss, which is the notional loss, but nevertheless it appears in the P&L statement, that’s one problem. The other problem is that the Turkish market due to the continuing currency depreciation is not as large as it used to be in the previous years, it’s significantly shrunk by just a few orders in the market.

So, we are actually evaluating what our plans are going to be for next financial year. We might even just take a pause and maybe just keep the factory at a very, very low level, of course, just open just on a token basis, but not actually do any operations and wait until return to this market recovers and see what happens, but at the moment it’s the market is really bad and there is no signs of any recovery or revival in the market from a macroeconomic point of view also, they continue to have extremely high inflation, they continue to have problems with their currency. So, I’m not so upbeat about Turkey for the short term.

Himanshu Upadhyay — O3 Capital — Analyst

And one thing on Turkey, I had asked this a few quarters back, about the money what we have. You said you kept the money in Turkish currency only, okay. But is the money —

Nikhil Kumar — Managing Director

No, we have the money in euros. We have the money — We have all the money in our Turkish operation in euros.

Himanshu Upadhyay — O3 Capital — Analyst

The profit has been now shifted to euros?

Nikhil Kumar — Managing Director

All our transactions in the Turkish market has been in euros. We take the orders in euros and we receive the payments in euros. When we report the earnings, we have to report the earnings in local currency.

Himanshu Upadhyay — O3 Capital — Analyst

So, on our cash balances there, it does not impact much of the depreciation?

Nikhil Kumar — Managing Director

No.

Varalakshmi MN — Chief Financial Officer

No, when we bring them also, it will be in euros only, not in Turkish lira.

Himanshu Upadhyay — O3 Capital — Analyst

Okay. Okay. One last thing, in case of motors, we had wanted to be in the large motors, okay. So, it will be again an engineering approvals and all those things and how many approvals or is it first only for domestic market or even exports you would be looking for large motors? And how many vendors or what is the model you are trying to build for motors business? Some thought from that will just help in understanding your movement ahead on that business.

Nikhil Kumar — Managing Director

Okay. I’ll make this — I’ll try to answer this very briefly. There is not so much of a question in earnings call. So, basically we are in the market for the larger size motors. Yes, we have to get consultants approvals and we have to get approval from certain large government companies like, and we have — we are in the process of getting approval, we have the approval from Nuclear Power Corporation, we will get the approval from NTPC. So, we are in process of getting these approvals, and as I mentioned, we are focusing in a large, specialized motor business, and we will get a few orders for sure in next quarter.

Himanshu Upadhyay — O3 Capital — Analyst

And the focus is Indian market only currently?

Nikhil Kumar — Managing Director

Focus is Indian market only.

Himanshu Upadhyay — O3 Capital — Analyst

Okay, okay. Thank you for the answers.

Operator

Thank you very much. We take the next question from the line of Rohit Balakrishnan from iThought PMS. Please go ahead, sir.

Rohit Balakrishnan — iThought PMS — Analyst

Yeah. Hello. Am I audible?

Operator

Yes, sir.

Rohit Balakrishnan — iThought PMS — Analyst

Hi, Nikhil. Many congratulations on the numbers. So, Nikhil, just a couple of questions. You alluded to it earlier in the call that despite whatever is happening especially on the gas side, you still are seeing very good traction. So, can you sort of explain it a bit more why is that and your and you’ve also said that you’ve spoken to customers and next year is also strong. So, I mean, can you just explain that part? Because, whatever one is reading in the media and newspapers and all seems counterintuitive. So, just wanted your views on that if you can share?

Nikhil Kumar — Managing Director

Vinay, do you have any comment on that?

Vinay Hegde — Head Global Sales & Marketing

Yeah, basically, initially, there was some problem with the supplies, but we have a major customer for gas engine in Austria, they supply a lot of sets to Russia. And now there is absolutely no embargo or sanctions on supply to Russia, so rather it is increased, the business is increasing. So, we are not seeing any problem because of this.

Nikhil Kumar — Managing Director

It’s not the Russia, but we are also seeing business coming from the gas engine segment from both our customers also for the European market. We’ve also seen business coming from other places like North America, Australia, some countries in Africa. So, it’s counterintuitive, but people are people going ahead with their plans for gas power plants, a small gas captive power plant at 15, 20 megawatt size.

Vinay Hegde — Head Global Sales & Marketing

Yeah. Due to the shortage of gas in Europe, many countries are going for large biomass plants. So, we recently got one big order for installation in UK. These are all biomass and garbage burning plants. Now, they are expediting those projects because there is a shortage of gas in countries like Germany.

Rohit Balakrishnan — iThought PMS — Analyst

Okay. So, biomass and waste-to-energy would be more on the steam side?

Vinay Hegde — Head Global Sales & Marketing

Yes.

Rohit Balakrishnan — iThought PMS — Analyst

Okay. Got it.

Nikhil Kumar — Managing Director

Rohit, it’s hard to explain. We don’t have, we can’t give you a clear answer to why this is happening. It’s just that we have raised the same questions with our engineers, our customers and we’re now getting, nobody can give such kind of clear answers as to why it’s happening. They said, this is the forecast and this is our expectation and we’re not complaining about it.

Rohit Balakrishnan — iThought PMS — Analyst

Okay. Second question was in the — we were bidding about lot of, I mean, obviously, in the country, there are a lot of metros also getting commissioned for various cities, Tier 2 as well, non-metro Tier 2 cities and also winning the order flow. Are we also in the phase for — in one of the calls in the past you’d mentioned few quarters back that could be an opportunity, but I just wanted to sort of get a view on that as well if there’s an opportunity there for us for the induction motors — sorry, I mean the traction motors?

Nikhil Kumar — Managing Director

Yeah. There is an opportunity. I don’t know if there’s no opportunity but I think we are going to be focusing with our locomotive partner you could call it, more on the freight side and the high-speed train side, and that’s where we see our strengths for the larger size traction motors. So, still — I don’t want to say that the metro business is a closed chapter for TDPS, but there is a lot of more discussions taking place on the freight side and the high-speed train side.

Rohit Balakrishnan — iThought PMS — Analyst

Okay, okay. Understood. And Nikhil, I missed your commentary on the shale side [Technical Issues]. Hello?

Nikhil Kumar — Managing Director

Hello.

Rohit Balakrishnan — iThought PMS — Analyst

Yeah, Nikhil, sorry, I was just saying that I missed the commentary that you had mentioned on the North American market on the gas side, and the shale side if you could just repeat that? Sorry, there was some issue at my end.

Nikhil Kumar — Managing Director

What I said was that we expected the shale gas industry to just putting a lot of capex and we’re not seeing that happen. We expected them to also to supply [Technical Issues]. Hello —

Operator

Sir, I muted the line, sir. You may go ahead.

Nikhil Kumar — Managing Director

Yeah. As I said, the shale gas industry in the U.S. is not increasing supplies, not making the mistakes in the past for increasing supply which can cause the price reduction, they are enjoying the higher prices and they are also being very careful in capex. So, we’re not seeing that boom what we expected from the shale gas industry. But we’re seeing our business increasing in gas turbines in general on the power generation side both in the European market as well as the U.S. market. These would be larger gas turbines of 15 to 20 megawatts size.

Rohit Balakrishnan — iThought PMS — Analyst

Okay. Got it. And Nikhil, last question, we’ve held on to our guidance, I mean Q1 is usually the meanest of quarters for us. So, chance of probably overshooting what you said, just wanted to get your view on that? Thank you and all the very best for next year, and many quarters.

Nikhil Kumar — Managing Director

Thank you. We stick to our guidance. If we have any changes, we will inform everyone in the next upcoming phone calls.

Rohit Balakrishnan — iThought PMS — Analyst

Sure. Thank you very much.

Operator

Thank you, sir. We take the next question from the line of Alisha Mahawla from Envision Capital. Please go ahead, ma’am.

Alisha Mahawla — Envision Capital — Analyst

Hi, sir. Good morning. Thank you for taking my question. Just wanted to reconfirm the ex-railways order book, will all be executed in this year?

Nikhil Kumar — Managing Director

No, no. The railway business will be around INR160 crores per year.

Alisha Mahawla — Envision Capital — Analyst

Yeah. I’m saying the ex-railway order book excluding the railways, the balance order book will all be executed —

Nikhil Kumar — Managing Director

Yeah, the balance. No, no, it will be — part of it is executed for this year and part of it is going to be next year.

Alisha Mahawla — Envision Capital — Analyst

Okay. And the aftersales revenue would be over and above this, the repairs and —

Nikhil Kumar — Managing Director

Aftersales revenue was included in our generator order book. Aftersales order book is reflected in the generator order book.

Alisha Mahawla — Envision Capital — Analyst

Okay. Sure. In the projects business, this quarter has obviously been lean. So, is it a more H2 heavy segment?

Vinay Hegde — Head Global Sales & Marketing

Yes, it will be H2, madam.

Nikhil Kumar — Managing Director

Yeah. H2, exactly, H2 will be heavy.

Alisha Mahawla — Envision Capital — Analyst

Because for a guidance of INR50 crores, we’ve done INR1 crore this year. Just wanted to read.

Varalakshmi MN — Chief Financial Officer

Yeah, yeah, it is towards H2.

Alisha Mahawla — Envision Capital — Analyst

Sure. And is it fair to assume, because we have raw material book for the rest of the year the kind of margins we’ve done in this quarter will be sustainable for the rest of the year?

Nikhil Kumar — Managing Director

We have booked our raw materials as we have mentioned for the whole year, we’re not — and we expect price stability in the market. So, we stick to our guidance on the cost contribution.

Alisha Mahawla — Envision Capital — Analyst

Okay. Thank you.

Operator

Thank you, ma’am. We take the next question from the line of Mohit Khanna from Banyan Capital Advisors. Please go ahead, sir.

Mohit Khanna — Banyan Capital Advisors — Analyst

Hello.

Nikhil Kumar — Managing Director

Hello.

Mohit Khanna — Banyan Capital Advisors — Analyst

Good morning, sir, and congratulations for good set of numbers. Just wanted to understand a little bit more clearly, sir, seeing the trend on the margin side and as the aftermarket business is now also increasing its share, would it be fair to assume that the margins that you have reported in last two quarters the double digit margin is the new normal or the new base for the company here on?

Nikhil Kumar — Managing Director

At this level of sales where we are around INR200 crores per quarter, one could certainly expect this to be the new normal, because we are talking about doing INR820-odd crores for the year, it’s about INR205 crores per quarter. So, Q1 is more or less exactly at that run rate, 25% of that number and we are certain about our order book and certain about our top line performance for this year of INR820 crores. So, there are small variations quarter-to-quarter, but ultimately, we will hit our target. This level of capacity utilization, this level of raw material cost, this level of gross contribution, you could say we will see stability in the earnings.

Mohit Khanna — Banyan Capital Advisors — Analyst

Right, right. I’m not looking for a particular quarter. So, I’m just looking at the longer-term trajectory here and given the order book remains on the solid turf. So, [Speaker Overlap] —

Nikhil Kumar — Managing Director

Longer-term, I’ve already said. Longer-term, I’ve said, we have to — I said to the earlier question that we have the capacities to do more within this plant up to INR1,200 crores, INR1,300 crores and we’re not going to add manpower, we’re going to go for more automation and obviously we will see expansion in the EBITDA margin taking place for better capacity utilization for sure.

Mohit Khanna — Banyan Capital Advisors — Analyst

Fair enough, sir. Sir, one more thing —

Nikhil Kumar — Managing Director

That’s the plan. That’s the thing we have to — we will use our operational leverage to increase EBITDA margin. That is clearly in the direction that we’re going in. Even if we don’t expand the gross contribution by a large level, the major increase in the EBITDA margin will come from the capacity utilization, operational efficiency. So, there is a limit and we can’t just keep increasing the prices in the market and expect that margin expansion will take place with price increases. I think we have reached a limit on that. So, the future is really going to be on how we’re going to be able to manage our operations in a more efficient way, and that’s where we’re going to see the margin expansion taking place.

Mohit Khanna — Banyan Capital Advisors — Analyst

Sir, just taking a little bit longer term view here, what’s your sense that our business in next three years with the upcoming opportunities and what segments do you think should contribute or should have a larger contribution to the revenue line in next three years down the line, I mean from INR820 crores that we are here today, what’s your internal target?

Nikhil Kumar — Managing Director

I don’t — I think as we — I can’t give that number to you, but all I can say is that we have a baseline business what we’re talking about INR500 crores where we are today, and there are a number of large opportunities on the table in the railways side, and also on the synchronous motors side, and also within our existing business to expand the business, there’s a larger, two-pole generator which we talked about, that’s also increasing. So, there are a number of opportunities clearly visible to the company to the management and we are well placed and we’re going after everything. How many of these succeed and how many of these to what extent? That will become in the final top line though that — and top line and the exact, I would say, exact numbers of sales and profitability. If you want me to give a number right now, I can’t. The opportunities we are talking about, all of them are large and they deliver great results for the organization, even they are successful in a few of them, you don’t have to be successful in all of them to get great numbers. One or two or three if you get also, you see big growth taking place in the overall sales.

Mohit Khanna — Banyan Capital Advisors — Analyst

Great. Just a last thing if I could just ask. What is your sense in the market currently regarding the sub-100 megawatt or 30 megawatt generators, especially on the distillery side in the domestic market? Thank you, sir.

Nikhil Kumar — Managing Director

Great. It’s booming. It’s booming right now. Distillery side is booming and smaller machines less than 10 megawatt, it will continue to boom because India is talking about higher and higher percentages of ethanol, blending in the fuel. So, as long as that policy continues with the Indian government, there’s going to be almost unlimited demand for ethanol if this will continue at least for two, three years and then let’s see.

Mohit Khanna — Banyan Capital Advisors — Analyst

And how much is this contributing to — this segment contributing to our order book currently?

Nikhil Kumar — Managing Director

I can’t give that number exactly at the moment, but it’s good.

Mohit Khanna — Banyan Capital Advisors — Analyst

Fair enough. Thank you so much.

Nikhil Kumar — Managing Director

Thank you.

Operator

Thank you. We take the next question from the line of Ankit Gupta, Bamboo Capital. Please go ahead, sir.

Ankit Gupta — Bamboo Capital — Analyst

Thanks for the opportunity and congratulations for the great set of numbers. Nikhil, I wanted to understand one thing from you. Some of the new initiatives on the traction motor side, on the railways side, the wind generator refurbishment side, and other new initiative that we are taking, although they might not be contributing significantly to our top line this year, but let’s say on a combined basis in FY ’24, can we expect all this new initiative to at least contribute around INR100 crore to our top line or it will be like too far of a number? Will it be possible to have INR100 crores from all these new segments?

Nikhil Kumar — Managing Director

I’m going to avoid that question seriously, because it could be a lot more, it could be less, it could — we are working to close out some of the deals and let’s see when we actually close up those deals, what those numbers would actually end up being. It could be a lot more, right and I don’t want to put that number on the table. So, it takes a little bit more time for finalization, then it may not be INR100 crores, but the deals are not going away, it’s all there, the market is there. It just may take a little bit more time. So, I don’t want to answer this question. Let’s just be a little bit patient and I think we will definitely have some information for the markets and for ourselves definitely by the end of this calendar year. So, let’s be a little bit patient for a few more months and we have all the answer.

Ankit Gupta — Bamboo Capital — Analyst

Sure, sure. And on the gross margin side, you have — in earlier calls you have expressed your aspirations for reaching or targeting 34%, 35% kind of gross margins. So, in current year, we are looking at around 30%, 31%. So, where are we in our journey to reach those kind of 34%, 35% kind of gross margins and do you think that it will be possible to achieve such margins, let’s say, in two year or three years horizon?

Nikhil Kumar — Managing Director

Yeah, it could take that long. We can’t — we have to improve our margins, I would say, we are going into the service business, we have to reduce the cost of our machines, we have to — there’s a limit how much we can keep increase in prices in the market to achieve these higher gross contribution level. So, it will be incremental year-on-year. But we will — the goal of the management as I said is to keep increasing the gross contribution marginally, the greater emphasis will be put on operational efficiency and trying to achieve higher sales without increasing the cost.

Ankit Gupta — Bamboo Capital — Analyst

And my last question, we have been hearing a lot of news about the locomotive opportunities which are coming up and Alstom can be one of the major parties to get this contract. So, do you think that if Alstom get those orders, we can get a lot of new orders from them as well apart from the existing railways order that we have from them?

Nikhil Kumar — Managing Director

There are no guarantees in life, but we are the front-runner being the existing supplier to them.

Ankit Gupta — Bamboo Capital — Analyst

And, is Alstom also the front-runner in getting those contracts?

Nikhil Kumar — Managing Director

I hope so, and I think so. Yes.

Ankit Gupta — Bamboo Capital — Analyst

Okay. And can that order be as big as the existing order that we have in hand or it will be a smaller one?

Nikhil Kumar — Managing Director

Potentially, they are at large. So, the 12,000 horsepower kind of is as large, the 9,000 horsepower is also at large. So, let’s see who wins.

Ankit Gupta — Bamboo Capital — Analyst

Any tentative tender days for order finalization for that?

Nikhil Kumar — Managing Director

Vinay, could you give some light as to when the tender that we do and when they expect to happen.

Vinay Hegde — Head Global Sales & Marketing

Tender finalization is in September-end. It may take six months from there.

Ankit Gupta — Bamboo Capital — Analyst

Okay. Okay. Thank you and wish you all the best.

Operator

Thank you. [Operator Instructions] We take the next question from the line of Dhruvesh Sanghvi from Prospero Tree. Please go ahead.

Dhruvesh Sanghvi — Prospero Tree — Analyst

Yeah. First, I would just like to comment on the amazing way you have steered the company from seven, eight years from single product India-dependence to multi-product, multi-country, the way you have done it is amazing.

Nikhil Kumar — Managing Director

Thank you.

Dhruvesh Sanghvi — Prospero Tree — Analyst

And in the past, we used to sometimes comment that in spite of doing so many things, the sector was not probably supporting and your voice was sounding to that arena and the way you describe in the con calls now is completely changed. So, it’s really amazing to hear you. Just one part here that the way you have expanded across the globe, what we see, like, have we already reached to wherever we were supposed to reach in this strategy of touching busy customers or if you can give some sense on where are we there that how many more customers are to be tapped where we can reach and potentially further penetrate over the next couple of years?

Nikhil Kumar — Managing Director

The overall market is huge. We don’t have — we have maybe just a single digit world market share in our engines. While the number of OEM customers may not be significantly larger, we do supply smaller quantities to all of them. It’s more about how we can cut deeper into them and how we can increase our market share with each of these guys and repeat our overall business. So, there are still a number of challenges that we face in terms of acceptance of our products in many parts of the world, I would say that’s number one hindrance, so we’re constantly working on how to improve our marketing, how to improve our reach to the customer, directly to end users and try to increase our acceptance level.

And as acceptance levels increases more and more, it’s difficult for our competitors to compete with us on the price, quality metrics. So, I would say challenge is still to cut deep in the market. Long way to go. Lot of scope to grow. I’m not worried about the market size. We just have to keep working hard.

Dhruvesh Sanghvi — Prospero Tree — Analyst

Okay. Thanks. Thanks a lot. I mean that was the only question.

Nikhil Kumar — Managing Director

Thank you.

Operator

Thank you. We take the next question from the line of Mr. Dipen from DS Investments. Please go ahead, sir.

Dipen — DS Investments — Analyst

Yeah. Thank you very much for the opportunity. I had a couple of questions. Firstly, just from an understanding perspective, is there a ballpark figure in the sense that per megawatt of power, what is the kind of revenue which we would be generating in terms of supplying our generators, so maybe per megawatt, is there an average, that’s just for a broader understanding perspective?

Nikhil Kumar — Managing Director

No, we don’t have that measure in our company, because there are a number of factors that can influence the size of the generator, complexity to generator, and we are not related to the megawatt rating, so we don’t actually have that metric in our organization.

Dipen — DS Investments — Analyst

Okay. And the second question is relating to your guidance. It’s a two-part question. Firstly, we have done about a 25% growth in the first quarter and we are probably guiding towards the 15% overall growth for the current year. So, maybe just as I thought what is going into it? And the second part is that we say that we have a capacity where we can reach a revenue of INR1,200 crores and you also mentioned in the earlier part that now all the orders which we are taking will be coming in the next year, because they generally take about seven to eight months to complete the order. So, just trying to understand if you already have a capacity to do INR1,200 crores, can’t we finish a larger number of orders in the current year? Thank you and all the very best.

Nikhil Kumar — Managing Director

Thank you. I think I would like to just once again comment on things like all, it’s not all, I did not say all the orders are going to go for next year. Part of the orders are going to be shifted to this year, part of it is going to go for next year. So, we are still booking some orders for this year. Whether we should deliver the machines this year or next year, depends on customer requirement and also what our steam turbine — what our turbine customer or engine customer wants. So, if they can deliver the turbine this year, customer wants machines this year, we will deliver this year. It’s totally dependent on what the market wants and what our customers want.

In general, I said, a lot of the orders that we are taking in from now are going into — the majority of it is going into the next year and a smaller portion of it is coming into this year, that’s number one. Number two is our guidance is based on our current order book that we have on hand as of date, and what is the expected inflows we have smaller number of, relatively small number to and already closed to reach our target. And after a lot of discussions and discussions with our OEM customers, our own internal discussions, we come up with the guidance. So, our guidance is something that we don’t want to give negative surprises, we’d like to be positive surprises. So, let’s see how it works out.

Dipen — DS Investments — Analyst

Sure. That’s nice to hear, sir. Thank you very much and all the very best, sir.

Nikhil Kumar — Managing Director

Yeah. Thank you.

Operator

Thank you, sir. [Operator Instructions] We take the next question from the line of Rajesh Jain from NB Investments. Please go ahead, sir.

Rajesh Jain — NB Investments — Analyst

Sir, I had three questions. The first one is regarding the gross margins. In your introduction, you had alluded that you would be maintaining 30% to 31% during the year. But in Q1, we have already done more than 32% gross margin. So, any particular reasons why you are expecting these margins would be lower for the remaining three quarters?

Nikhil Kumar — Managing Director

Varalakshmi, when you answered that question it was not more than 32%. Can you please answer?

Varalakshmi MN — Chief Financial Officer

Actually, we have told that we will achieve around 31% to 32% gross contribution over the year. It will be that in some quarters, it maybe 30.5% and then next quarter it would be 31%. So, on an average is what you will have to see as a nature of industry.

Nikhil Kumar — Managing Director

I have given the guidance of 30% to 31%.

Rajesh Jain — NB Investments — Analyst

Correct. And we have done already 32.5% during the current quarter. So, I know this keeps varying every quarter. Is it that we are not in a position to pass on whatever the fluctuation in the raw material prices to the customer or something like that?

Varalakshmi MN — Chief Financial Officer

No, we have already passed on is what we have told and we are seeing the benefits we had.

Nikhil Kumar — Managing Director

Yeah. We have passed on, but basically the historic gross contribution levels of the company at the best of times has been around 32%. So, we are reaching — around reaching that, we are coming close to that number once again. That’s where the stability should take place on the pricing front also is what I have been trying to allude in a number of questions over this call today. There’s a limit on what we can do in terms of increasing prices. We’re coming to a region of price stability which we like to keep and maintain the market share. So, this is — we can’t expect gross contribution expansion is going to take place to price increases anymore.

Rajesh Jain — NB Investments — Analyst

Okay. My second question is regarding the direct business with railways where we were to supply some engines for the trial. If you could share what is the current status of that?

Nikhil Kumar — Managing Director

The motors have been cleared for dispatch and we are waiting for the final dispatch clearance on the Indian railways track, in boxes we are just waiting for the final document and then they will be shipped out, then they have to be mounted on a locomotive, and then they could run for six months, then we get approved to bid in a preferred category, where we get higher prices and a higher share of each and every channels.

Rajesh Jain — NB Investments — Analyst

So, all that could happen only after H2 of next financial year?

Nikhil Kumar — Managing Director

Yes, yes.

Rajesh Jain — NB Investments — Analyst

My third and last question is regarding the capex part. You have already given how much we can do it from the existing facility. Just for the information, in case if you have to put up a facility on a short notice, how much time would it take for you to put up that facility in the land which you mentioned that we already have a land, so how much time would the company require to put up a facility let’s say to make INR300 crores a month?

Nikhil Kumar — Managing Director

Eight months — six to eight months.

Rajesh Jain — NB Investments — Analyst

Okay. Thank you very much and wish you all the best.

Nikhil Kumar — Managing Director

Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question for the day. I now hand the conference over to Mr. Nikhil Kumar for closing comments. Over to you, sir.

Nikhil Kumar — Managing Director

Yeah, thank you very much for joining us on our call today and we look forward to communicating with you further over the next few months and definitely at the end of each month. Thank you very much.

Operator

[Operator Closing Remarks]