TD Power Systems Limited (NSE: TDPOWERSYS) Q2 2025 Earnings Call dated Oct. 30, 2024
Corporate Participants:
Nikhil Kumar — Managing Director
M.N Varalakshmi — Chief Financial Officer
Vinay Hegde — Global Head, Sales and Marketing
Analysts:
Mahesh Bendre — Analyst
Ganeshram Rajagopalan — Analyst
Jainam Jain — Analyst
Himanshu Upadhyay — Analyst
Deepesh Agarwal — Analyst
Khush Nahar — Analyst
Manoj Dua — Analyst
Unidentified Participant
Unidentified Participant
Unidentified Participant
Alisha Mahawla — Analyst
Rohit Balakrishnan — Analyst
V.P. Rajesh — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the TD Power Systems Limited Q2 FY ’25 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as of the date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions]
I now hand the conference over to Mr. Nikhil Kumar, Managing Director for TD Power Systems Limited. Thank you, and over to you, sir.
Nikhil Kumar — Managing Director
Good morning, everybody. Thanks for joining us today on our earnings call. I trust all of you would have received our results and investor presentation. I would now like to discuss with you TDPS’s financial performance for six months ended September 30, 2024. We’ve had an exceptional half year with the highest ever revenue, highest EBITDA margins, highest-ever PAT and highest-ever order inflow.
On a consol basis, our total income was INR5.89 billion versus INR5 billion, an increase of 18%. Profit after tax and other comprehensive income for six months is INR764 million versus INR584 million, an increase of 31%. We continue to maintain a strong cash position of INR2.35 billion. Stand-alone, our total income on a stand-alone basis for H1 was $5.77 billion versus INR4.94 billion over the same period the previous year, an increase of 17%. EBITDA for six months is 18.41% versus 17.44% previous period, including other operational income, but excluding exceptional and treasury income.
Profit after tax and comprehensive income for the six months is INR720 million versus a profit of INR600 million over the same period in the previous year, an increase of 20%. Order book, the order book for manufacturing segment is INR12.34 billion. Regular manufacturing business is INR3.7 billion — sorry, our regular manufacturing business is INR8.33 billion, INR3.7 billion railway business, spares and aftermarket is INR0.14 billion and INR0.17 billion in the Turkey business.
Export and deemed export constitutes about 71% of the order book, excluding the Railways. Order inflow, the order inflow for the quarter is INR3.6 billion, which is the highest-ever order booking in the history of the company. Order inflow has increased 41% on a Q2 to Q2 comparison basis and 33% over an H1 to H1 comparison basis. The H1 order inflow total for the current year is INR6.58 billion versus the previous year INR4.93 billion. Strong order inflow momentum continues to drive our top line.
Now I’ll talk about the order book market situation and guidance. The order inflow continues to be very strong from exports in our generator and motor businesses. We expect the order inflow in Q3 to exceed the number in Q2, leading to a new record order book for the company. We are pleased to revise our top line guidance for this financial year from INR12,000 — sorry, INR1,200 crores to INR1,250 crores to INR1,275 crores, which will result in an overall growth of 25% to 27.5% compared to the previous year. Margins will grow faster than sales due to operational leverage. Margin growth will be around 2% to 3% more than the sales growth.
Market scenario. The domestic market, domestic market has been flat in terms of order inflow from a Q2 to Q2 basis. This has reversed the shrinkage that has taken place in Q1. Effectively, if you look at H1 to H1, the drop in the domestic order inflow can be attributed solely to Q1. Steel and cement are still ordering large power plants up to sizes of around 100 megawatts, and we expect the market to be driven by these two sectors. Ethanol, sugar, chemicals is showing no growth, but there’s still a base level demand. Overall, we are factoring 3% to 4% growth in domestic market for the next year, that is FY ’26. We’re expecting new tenders for railways, and we are certain to see two large tenders in the upcoming months. However, business for the railway tenders will be realized only in FY ’27.
International market. We had an extremely strong growth in the order book in export businesses from gas turbines, gas engine and motors. Order inflow from direct and deemed exports for the first half is INR4.78 billion compared to INR2.36 billion in the previous year, which is more than double.
Exports and deemed exports order inflow is 73% of the total order inflow. This shows the overall trend of the company in all geographies all over the world, presence in multiple sectors like gas, hydro, traction, clean energy like biomass, heat recovery, etc.. More importantly, we’re cutting deeper into the market and winning greater market share due to greater acceptance of our products. And coming to the specifics, we are seeing a big increase in business in gas engines and gas turbine generators. There’s a huge growth taking place in tracking, data centers, AI server farms, grid stabilization and to a smaller extent the demand coming from Ukraine. Due to this overall demand, we are seeing a huge increase in orders, and we have completely booked out for this financial year.
Our factories are running seven days a week, three full shifts, and we are completely full. Our customers have asked us to be ready for further growth next year, and we have had detailed discussions with them allocation of capacity and load plans. Geothermal plant is another area of huge growth potential. We have received an order this year for three 43 megawatts for a large geothermal power plant in the U.S. for Phase 1.
Now the same company is in the market for 1,000 megawatts in Phase 2. They have signed PPAs with major IT companies and they have indicated 1,000 megawatt per year demand. Since we are in the same — since we’re in the pilot project, we do have a good chance to win these orders in the future. Traction, as announced, TDPS has signed a five-year contract to a supply of traction motors to a major international company with another such contract under negotiation. In this TDPS is very well placed, and we hope to announce this order early by the end of this quarter, Q3 or definitely in Q4. Hydro, the order inflow continues to be strong, all hydro orders are export.
In general, the export business is a key driver for our growth for generators with big orders coming in from gas, hydro and traction. In the U.S., the demand is due to an increase of consumption of electricity; in Europe it’s due to the change in energy mix, even to more demand for gas engines, gas turbine and hydro generators.
In the motor business, we are on track to achieve the numbers that we have indicated earlier. We have a plan of INR80 crores this year and INR160 crores next year. Once again, the markets are mainly the exports, and we see a big pipeline of orders from the Middle East and India. TDPS has also had won a small order for supply of motors to Indian Railways for the last stage of qualification. We expect full qualification sometime next year and ramp up of volumes in FY ’27. Turkey, we’re going to receive some large orders from Turkey after a long pause in the market. All generators are to be delivered next year. We will keep the market informed. However, it is certain that the Turkish plant will deliver good numbers next financial year.
In conclusion, we are poised for another round of growth. We have exciting opportunities in front of us, and the gearing up to meet the demand with our new and existing factories. We have just a small fraction of the overall world market share and our growth potential is huge. On top of this, we are still bullish in the domestic market, and we strongly believe that we have strong growth coming after a short pause. India is still a power deficit country and the macro situation of power has not changed. All large industry needs captive power plants. When the domestic market booms again, our new capacities will fill up very quickly. We are not refusing any order that comes our way, and we will exceed the guidance that we have given for FY ’25 as by — as well as FY ’26.
This brings me to the end of my initial remarks. I’d now be happy to address any questions that you may have.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Mahesh Bendre from LIC Mutual Fund. Please go ahead.
Mahesh Bendre
Hi. Good morning, sir. Thank you so much for the opportunity. Sir, you spoke about the [Speech Overlap] demand from international markets given the gas and projects that are coming up. So, is it possible to just quantify it in terms of what kind of opportunity we see over the next three years?
Nikhil Kumar
It would be difficult for us to give you such a large long-term view guidance on the market, Mahesh. What we’re seeing is that we are seeing the expansion of the business taking place in the gas turbine, gas engine business and our OEMs have asked us to ramp up the capacities based on the next year’s demand, which is significantly higher than what — which we’re going to be doing this year. And we are also projecting that something for ’26. So I think we can — we will not be able to give you exact numbers right now.
Mahesh Bendre
No, no, sir. I was not looking for the number in guidance. I was just asking if we look at the last five years compared to that, over the next three years, how many power plants might be coming up in Europe? Or any capacity addition you see in terms of captive power plants that are to come up in the international market?
Nikhil Kumar
I don’t have that number of power plants, Mahesh.
Mahesh Bendre
But that will be substantial number, sir?
Nikhil Kumar
Yeah, it’s a substantial number because it is being reflected in our growth. So what we are seeing from our OEMs is that we’re seeing that — one is that we are moving towards the core of their businesses. Earlier, we could have been a little bit more on the fringe side. Now we are moving completely to the core of their business. So we’re really getting into projects where earlier, we may not have got the customer approval or our name may not have been in the approved on the list.
Now we’re getting more and more acceptance and then cutting deeper into the market. So we’re seeing — one part is that we’re seeing that they’re getting more into the core of the business. Second is that there’s also a big increase in the demand from the OEM side. So both these factors are driving the big volume growth that we are seeing for our business. I can’t give you an exact number of how many power plants.
Mahesh Bendre
Sure. Thank you. Thank you so much, sir.
Operator
Thank you. Next question is from Ganeshram Rajagopalan from Unifi Capital. Please go ahead.
Ganeshram Rajagopalan
Hi, I hope you can hear me clearly and great performance all-around. I just had a few bookkeeping questions. The first one is on the other operational income. So what’s sort of driving that there growth? You could just explain where that INR3 crores of income is coming from?
And then the second one is just on the new plant, right. When it does get commissioned sometime next year, what sort of impact should we assume on margins like will we have to hire a completely new workforce for that plant, or if you could walk us through what you’re thinking in terms of commissioning that new capacity? That’s it. Thank you.
Nikhil Kumar
Okay. I’ll ask the first part of it. The first question will be answered by Varalakshmi. I will answer the second question. So over to you Varalakshmi.
M.N Varalakshmi
Good morning, everyone. The other operational income includes the foreign exchange gains for the forward bookings that we have done, mainly that amount.
Ganeshram Rajagopalan
Yes. To what extent would that be?
M.N Varalakshmi
Almost full.
Ganeshram Rajagopalan
Full. Okay, got it.
Nikhil Kumar
Coming to the second part — about the second plant. The second plant will be operational in stages. We will start ramping up the capacity in stages. We have three big buildings, and we will — once the first building is ready, we will commission that, second, third. We will have to hire new people, but — the hiring process will start in Q4 itself because they will have to be trained, so we will start training them in our existing plants. And then once the new plants are ready, they will be shifted over there. Of course, there’s some experienced people also will be shifted over there. So there’s going to be a mix of — there’s new people and experienced people in the new factory.
There could be an increase in — temporary increase in costs, but since these are all — many of the people are coming in at entry-level trainees, the impact will not be so high in relation to the increase in the top line. We will give more detailed numbers about this during the February earnings call.
Ganeshram Rajagopalan
All right. Thank you.
Nikhil Kumar
Further as I said, because the people are coming in at entry level positions, the impact may not be so large.
Ganeshram Rajagopalan
Understood.
Operator
[Operator Instructions] Next question is from Jainam Jain from ICICI Securities. Please go ahead.
Jainam Jain
Thanks for the opportunity. So sir, the question I had is, what would be the top line, bottom line and capex guidance for FY ’25 and ’26?
Nikhil Kumar
Yeah, FY ’25, we have given a top line guidance of INR1,250 crores to INR1,275 crores. We have done INR76 crores net profit in H1, but we have done something like only 46%, 47% of the total sales, so we will see a greater — with 53% of the sales taking place in — 52% of sales taking place in H2. We will see more margin coming in H2 compared to INR76 crores that we did in H1. And the capex that we will spend this year would be INR80 crores.
Jainam Jain
Okay, sir, I mean FY ’26?
Nikhil Kumar
FY ’26, we have not yet given the initial guidance. We will give the guidance in February. But tentatively, earlier we had — in earlier calls, we had given 17% to 18% top line growth as being the compounded growth. I think we will definitely exceed that. So we will give you a firm guidance in the February quarter, but it’s definitely going to be higher than what we have earlier guided.
Jainam Jain
Okay, then. Thank you so much.
Operator
[Operator Instructions] Next question is from Himanshu Upadhyay from BugleRock PMS. Please go ahead.
Himanshu Upadhyay
Yeah, hi. Good morning and congrats on great set of numbers. My first question was, what is the increase in labor basis? And have we settled that with the labor union? And for how many years that settlement has happened?
Nikhil Kumar
No, we have not settled this matter with the labor unions. The matter has been referred to the labor court. And these things take a lot of time once it goes through the courts. So it could take a year, maybe more to settle this issue.
Himanshu Upadhyay
Okay. And one thing.
Nikhil Kumar
And regarding the increase in the labor cost, I’ll ask Varalakshmi to talk.
M.N Varalakshmi
Yeah, we have the provision for 8% increase, which we have offered to them initially. So that has been taken care in the wage cost.
Himanshu Upadhyay
Okay. And one thing, in this Turkey, where we were told that good growth is possible in next financial year ahead. And if I look at the order book, is it INR17.4 crores, in last quarter it was INR16.6 crores? So are we expecting new orders win there and hence, good growth in future here? And will be the.
Nikhil Kumar
Yeah, we are negotiating — and these are going to be coming in Q3 or definitely early Q4. But they are sure.
Himanshu Upadhyay
Okay.
Nikhil Kumar
We have completed the negotiation, we are only waiting for the documentation to come through before we can announce the orders to the market, but it will come for next year.
Himanshu Upadhyay
And the product segment remains the same, what we were earlier making in Turkey or the product segment itself has more.
Nikhil Kumar
There will be early geothermal — primary geothermal generators, and there’ll be a few hydro projects.
Himanshu Upadhyay
Okay. And one last question.
Nikhil Kumar
I can say it could be in the region of EUR3 million to EUR4 million for next year.
Himanshu Upadhyay
Okay. And one last question. We have seen gross margin improvement to 36%, okay, and the highest EBITDA margin. Can you give some idea on what is leading to this improvement? Are we seeing raw material price change or the product mix change itself is also happening? What could be the drivers of it? And how sustainable are these numbers? And what would be our future expectations on gross margins, if you can — if you can give some idea on?
Nikhil Kumar
Yeah. So it’s — we have given — we always give a guidance of around 33% to be the gross margins and we do better than that. So we are still going to say that, that we can take 33%, 34% as being the gross margin and the company will better — do better than that. This has been driven by product mix. This is being driven by more export orders, larger machines and also it’s getting better prices because the factory is also full, so they’re able to negotiate better prices. And overall, this is leading to a better gross contribution.
M.N Varalakshmi
Okay. Thanks from my side and Happy Diwali to you and everyone.
Nikhil Kumar
Happy Diwali, Himanshu.
Operator
Thank you. Next question is from Deepesh Agarwal from UTI AMC. Please go ahead.
Deepesh Agarwal
Yeah. Hi, good morning, Nikhil and ma’am. So firstly, congratulations on good numbers. Sir, one question I have is on the traction motors. I think last week, you put up a press release on the order win on export side in traction motor. Can you help us understand how is the scale up expected? And is it with the existing customer only?
Nikhil Kumar
No, this is not with the existing customer. This is a new customer. This is based — this is a customer — it’s a large international company. It’s a large power company in the CIS region. These motors are going to be delivered to — we need to deliver the first set of motors and we have mentioned INR18 crores as the first trial order in April and May next year.
And then they’ll be sent for qualification here and then we’ll ramp up to start somewhere around Q2 or even Q3 next year. And we are looking at something like INR60 crores, INR70 crores per year, business for around five years. We should see some numbers coming in, definitely maybe — INR18 crores, of course, we have the order on hand for next year, maybe another INR20 crores will come for FY ’26 and then FY ’27 on the INR60 crores per year will come.
Deepesh Agarwal
Okay. And are we looking at a similar such opportunity in the international market?
Nikhil Kumar
Yeah. So I have mentioned in the earnings call to be just one more opportunity that we are very close to announcing. Of course, the contract signing may not happen this quarter but it will happen next quarter. And that is with an existing customer, and this is again for the export market. This is taking a little bit more time because we are negotiating with multiple entities across the world, and it’s not always possible to get the right time and the negotiations are taking a little bit longer for the contract. But we are the chosen party. But until the contract is signed, we really cannot announce it. We hope that we should be able to do this by — target is to finish this quarter before the Christmas holidays. If we don’t do it, then I think it will be done in Jan.
Deepesh Agarwal
Sure. And I think you were also positive on the domestic traction motor ordering. Anything happening out there now?
Nikhil Kumar
Yeah. So we have heard from very reliable sources that the current factory where our customer is currently building the 12,000-horsepower locomotive. It is also 26% owned by the government of India, by Indian Railways. That specially cannot — they have to do something to that facility after FY ’28. So we have got reliable — very reliable information that there are two more tenders coming up for freight locomotives. And we should be hearing about this, I think, in the next month or so.
Deepesh Agarwal
Sure. And sir, in the remarks, you also mentioned 43 megawatts of geothermal order now you’re executing and there is a possibility that there is a 1,000 megawatt geothermal order is also in the market. I want to understand how is our capability to cater to such large orders of, say, 1,000 megawatts?
Nikhil Kumar
So there will be multiple units leading to a total of 1,000 megawatts. So it will be multiple units of 40 megawatts or multiple units of 50 megawatt. It will be either 80×12 or it will be 40×24.
Deepesh Agarwal
Okay. And usually, the realization in geothermal would be comparable to your hydro business?
Nikhil Kumar
No, no. As you — we make much better margins in geothermal. It’s a very special machine.
Deepesh Agarwal
Yeah, would it be possible for you to quantify roughly per megawatt kind of the thumb rule, how is it more?
Nikhil Kumar
No. Because it’s too customer-specific and to — no, its confidential information for the company. So we don’t want to give this number out.
Deepesh Agarwal
Okay. No, worries. Thank you and all the best.
Operator
Thank you. Next question is from Khush Nahar from Electrum Portfolio Management. Please go ahead.
Khush Nahar
Hello, sir. Thank you for the opportunity. I have one question. The new plant that we are planning to establish, what would be the revenue potential at the utilization from this plant?
Nikhil Kumar
We are putting in an investment of about INR220 crores and the investment ratio is 1:3.5. So we should get another around INR400 crores of turnover from this plant.
Khush Nahar
Okay, sir. And sir, any guidance on over the next three, four years, what kind of growth you are targeting? Or you mean 20% — towards 20% EBITDA margins, what type of top line growth?
Nikhil Kumar
So we have given a — earlier they have given a conservative guidance of around 17% to 18% top line growth, but we’re definitely in a situation where we will be able to revise that because this year itself, we are going to be — we’ve already given a revised guidance of 25% to 27.5%. And next year, we will give a revised guidance for next year. So we — I’ve already said it will be better than 17% or 18%. But — to shift to a higher guidance for a little bit longer period, I will do that when we talk in February.
We do want to give a fairly accurate picture of where we are in the market. And we want to give — obviously, the numbers are much better. The company is doing a lot better, we’re in a better position worldwide for getting better orders. Obviously, we would like to communicate this to you. It’s going in that direction very positively is all I can say. Exact numbers or more accurate numbers will be given when we talk next quarter.
Khush Nahar
Okay, sir. Thank you.
Operator
Thank you. Next question is from Manoj Dua from Geometric. Please go ahead.
Manoj Dua
Good afternoon, sir. Happy Diwali, first of all. My question — my question is on Turkey. So I want — potential was there in Turkey, the past itself, but there were some problems due to some reason this quarter was not coming, and we have to stop it down. What other fundamental changes has happened in the overall market in Turkey? Or is it a customer-specific order that it went? So I want to understand what change has happened in the Turkey market?
Nikhil Kumar
The Turkish market has — was always — it’s a power deficit country. So there is always — there is a requirement for more power plants. It’s also one of the largest geothermal markets in the world because they have a lot of sites where geothermal power can be — geothermal power plants can be set up. They have those reservoirs, it’s a gift of nature.
They could not put up those power plants, mainly because they had a very high inflation in the country, and they had very highly depreciating currency. So when they had to borrow in euros or dollars to put up the power plants and get paid for the electricity in Turkish lira, the depreciation in the currency was so rapid and so large that it was not financially feasible for them to repay any debt which was in euros or dollars. That situation is now changing because inflation has stabilized, currency has stabilized to some extent, so the market is reviving once again.
Manoj Dua
Okay. What is the size of the order? And is it from one customer or more customers?
Nikhil Kumar
No, these are multiple customers and I’ve given an indication that initially, we’re looking at something like EUR3 million to EUR4 million next year, top line.
Manoj Dua
Okay. Thank you and best of luck.
Nikhil Kumar
Thank you.
Operator
Thank you. Next question is from Kiran [Phonetic] from Table Tree Capital. Please go ahead.
Unidentified Participant
Thank you for the opportunity. I been an investor for more than seven years in your company and I remember the days when you were struggling for 7%, 8% EBITDA and now we are comfortably crossing 20% EBITDA. Many congratulations for your team and your efforts in turning around this company.
I have two questions. One strategic, one operational. So the strategy question, Nikhil is, I mean, I’m getting a sense of deja vu of being an investor for a longer period of time, 2011, ’12, we put up a new capacity, 50 megawatt to 200 megawatt and then the cycle kind of down, right?
So in this scenario, I hope it doesn’t. But in terms of your conversations, again, I’m not looking for any numbers per se, but more on a strategy perspective, in your conversations with your clients, OEMs and other customers, we’ve gone from single-product, single geography, single segment in the last 12, 13 years to multi-product, multi-segment, multi-geography kind of company, which is fantastic, right?
So is there — because you’re putting up the new capex, so if you could just tell me, are you seeing a sense of peaking out in the next year or so in terms of orders and in terms of — in terms of the cycle kind of peaking out or the clients that you’re talking to are basically saying, look, this is going to continue for three to five years. Numbers just on a conversation basis.
Nikhil Kumar
So that’s a good question. I think that this is something that we also — obviously, we’ve asked this question 100 times within our factory before we put up new capacities because, yes, we have been influenced by the past. But you’re right.
But one thing is we are a multiproduct company, multi-geographies, multi-verticals and we’re working with different OEMs across the world. So what we see is that, especially in the gas turbine, gas engine business, that this is more of a structural kind of demand, which is coming driven by artificial intelligence, data farms where different kinds of numbers have been thrown around. But wherever you read, wherever you see talk about demand for electricity from this sector alone becomes those huge numbers like 200 gigawatts to 400 gigawatts, 500 gigawatts of power required, gigawatts of power required just for this segment. And this is — this cannot be met by large, let’s say, gas turbine power plants in the region of, say, 200-megawatt to 400-megawatt because there are only a few companies making them. They’re all booked out for the next three to four years. The large part of this demand is going to come, be met by the smaller sizes between 20- and 50-megawatt. And that’s what we see. That’s what our customers are also saying.
Our customers meaning our OEM customers. So we feel that this cycle — in this particular segment itself is going to be a big driver for growth. Then, of course, it is oil and gas, it’s fracking. The replacement for Russian gas is still a continuing issue in Europe. So Americas is going to be a major supplier for — to Europe for gas. So there’s going to be more exploration taking place. That is also driving demand for these volatile gas units. Then there is the risk stabilization units. So these are the structural — the demand is coming from these things. We believe that this is not the peak. This is actually probably the start or middle of the cycle where we’re seeing these — this demand staying up for many, many years going forward.
On top of that, the renewable to push hydro is always going to be there. And the domestic market, while today it would be a little bit subdued, I don’t think it is — I don’t think by any standard is gone, of course. It is — probably there is some backlog from the elections that took place earlier this year, but the market is strong. It’s going to come back. India is a big economy. We plan to double our GDP in the next five to seven years. So it’s — we will need electricity. And this demand for electricity in India is going to continue for some more time. So I — then we have a motor business where we’re just starting to grow, and it’s a much larger business compared to the more generative business.
So we have a lot of scope to grow over there. I believe that we are in a very unique situation where we have multiple areas to grow. And I think that we have multiple areas to keep sustainable growth for a longer period of time. I don’t — by no standards do I believe that we are in the middle of a bubble.
Unidentified Participant
Perfect, Nikhil. No, thanks so much for an elaborate answer. That was brilliant. The operational question, Nikhil then is because U.S. keeps talking — when you talk about data centers, U.S. keeps talking about new peer, and U.S. keep talking about solar, using wind. Are these opportunities are on all these variations like nuclear, is it a variation of a steam turbine for us, how it translates to us?
Nikhil Kumar
Yeah. See, nuclear, whatever people are talking about nuclear, right? So yes, there’s an order being given for nuclear, 500 megawatts, that’s what we know. And that’s going to be delivered somewhere around 2030 or ’27, ’28, ’29, ’30, it’s far away. The technology has not yet been established.
What’s really happening is that you see that there’s such a huge demand for electricity, we’re talking about, as I said, 300, 400 gigawatts of power, that these large companies who are driving this demand, they’re trying everything. They’re putting their finger into — they said designing PPAs for the geothermal. This big geothermal opportunity I talked about, the PPAs are being signed by guys like Google, Microsoft, Meta and so on and so forth. So they’re putting their fingers in geothermal. They’re putting their fingers in small nuclear. But today, their requirement is being met by gas. And so they are talking about changing the mix in the future, but these technologies and scaling up to the level that they want is going to take some time. They want everything to be done in the next five years or seven years, right? So I don’t see things like small nuclear and everything really affecting the medium-term demand from our point of view.
Even if it does become a success, and I hope it does become a success because we’re talking about unit sizes of 75- to 80-megawatt. That’s — TDPS can make these generators. So if this technology does become widespread, that small nuclear becomes a commercially viable thing. Then it’s a huge new sector of demand for TDPS because we are right there in the 80-megawatt range. And we will deliver those machines then for the next, I don’t know, 20 years.
Unidentified Participant
Perfect Nikhil. Thanks so much. Was very. Thank you so much.
Operator
Thank you. Next question is from Rahil Shah, [Phonetic] who is an Individual Investor. Please go ahead.
Unidentified Participant
Hello, am I audible?
Nikhil Kumar
Yes.
Operator
Yes.
Nikhil Kumar
Yes, sir. You are audible.
Unidentified Participant
Sir, congratulations, first of all, for a strong set of numbers and robust business outlook. My question is regarding while the EBITDA for the first half is impressive, the cash flow from operations has been weaker due to increase in inventories and receiveables. Can you please explain why the inventories are so high? Also, likely was the inventory is largely in raw material or in finished goods?
Nikhil Kumar
The ramp-up in production is taking place. We are ramping up our production to a very high level. So we had to secure the raw materials because the factory is running so full that we cannot afford any disruption of time due to logistics issues or getting raw materials. So we have booked up raw materials.
Second is that as far as the steel — electrical steel is concerned, which is a major part of our total buying, we are buying from outside India. And there are indications that the imports of these — of steel may be restricted next year, there are strong indications that we have. So to — and domestic steel is far more expensive compared to the steel that we are buying from outside India.
So in order to avoid a situation where we are stuck with buying expensive steel, which will definitely affect our margins, we took a decision to buy a lot of steel even for next year, not only to cover the demand for the next two quarters, but also to cover a large part of the demand for next year just to protect our — to protect our margins and also to protect our supply situation.
Now this has eaten up a lot of cash. So the ratio of the increase in inventory, about 58% is in raw materials and 42% is in work in progress. There’s hardly any increase in inventory due to finished goods.
Unidentified Participant
Understood, sir. Sir, my second question is on — we understand that the motor business segment is growing at a robust pace. Where are we getting these orders from? And how sustainable is it? What the growth outlook for next three to five years on this segment?
Nikhil Kumar
We’re getting the motor business, exports and domestic, and we’re focusing on the larger sizes. Exports, we are focusing on oil and gas compression, hydrogen and things like that where we see a very good scope for growth. The market is simply huge. It could be $10 billion or even more. So our share is miniscule. Any growth that we show, although it will be impressive for us, it’s still a drop in the ocean as far as the overall market is concerned.
Plus we have domestic, then we also have asynchronous motors, which time to time, we get some — there are some big orders in the market. So all these put together is driving the growth for our motors. So we said 60 going — it’s 80 going to 160 for next year. And I don’t want to give a guidance for FY ’27, but it’s going to be another big increase for FY ’27. There’s a lot that we’re doing to establish ourselves in various parts of the market. This motor business will grow for TDPS. It can be as large as a generative business, and that’s what we are trying to make it.
Unidentified Participant
Understood, sir. Sir, my last question is, are we still investing in robotics and automation as we did over the last three, three to four years?
Nikhil Kumar
Oh, yes. In fact, we are — the new plant will have more of it. The new plant — when you put up a new plant, you have a chance to do design it exactly the way that you want without having any constraints of disrupting production and putting in new processes and things like that. So the new plant it’s going to be just as much automation as possible. We’re going to have more robotics, more automation, more efficiency, and we are going to use all our knowledge, all our experience to put up the most modern and most beautiful factory that we can think of.
Unidentified Participant
Wonderful, sir. Thanks a lot and all the best for the good luck.
Nikhil Kumar
Thank you.
Operator
Thank you. Next question is from Nikhil [Phonetic] from SIMPL. Please go ahead.
Unidentified Participant
Yeah, hi. Good afternoon. I’m audible.
Nikhil Kumar
Yes, yes. Hi, hi, Nikhil.
Unidentified Participant
Yeah, and congrats on the good set of numbers. This question is basically, my understanding would be a little bit off, but just one thing. If we go back two years, when the commodity inflation was very high. At that time, we had repriced our contracts in such a way that commodity was a pass-through for us. As a result — so that our margins could sustain around 30%, 32%.
Now today, when we see the steel prices are low, is the realization also fallen for us? Because initially in one of the questions you said, our pricing today is — like we’re getting better prices. So have the prices become independent of the commodity prices now?
Nikhil Kumar
I don’t see a big correction taking place in electric steel prices or copper, which is — or other special forging steels and things like that we use compared to post-COVID. We see the prices more or less flat or in some cases, like copper it is maybe even higher. So we are arguing with anyone who talks to us on this line saying that no, please show us the proof, and there’s no reduction for us in terms of — no relief for us in terms of raw material prices. Our gross contribution expansion is taking place due to better product mix. Export has always been more profitable for us compared to domestic. So more — better product mix and also doing more aftermarket work and things like that, it’s also leading to better margins for us.
Unidentified Participant
Yeah. So just one thing. So in one of the previous questions you said — getting better prices because our plants are running full. [Speech Overlap]
Nikhil Kumar
In some cases, definitely, when we are bidding for new jobs, sometimes we’re not so desperate to take this order. So we’re getting — in some cases, we’re getting — it see that the better gross contribution is a summation of a number of small things. There’s no one or two big things. It’s 12, 0.2% by for this reason number one 0.3% for reason number two, 0.3% for reason number three. So it’s a number of smaller reasons which overall accumulates in getting say 1.5% better. Okay.
Unidentified Participant
Okay. Sure. Thanks a lot.
Operator
Thank you. The next question is from Alisha Mahawla from Envision. Please go ahead.
Alisha Mahawla
Hi. This is Alisha. Thank you for the opportunity, sir. Just a clarification, the new capacity, you said it will come in phases. Is the Phase one of first building expected in H1 of ’26 or H2?
Nikhil Kumar
Around May, June for first, July for the second, August for the third.
Alisha Mahawla
Okay. So the full capacity or the new plant should be operational by H1, great. The Turkey plant — the next question is Turkey plant has been shut since the last — more than one year. Will it require any investments because we’re witnessing an uptick in orders again, and I believe that we would almost like to liquidate that plant. So will it require any fresh investments?
Nikhil Kumar
No, it was not. It was just — it was a — we had taken a factory on rent and we had just basically put a lock and lock and lock the door you know we just shut everything. Now we open the door, we clean everything and start that basically what it is.
Alisha Mahawla
So no incremental investments will be required to start back up the operations.
Nikhil Kumar
No. No.
Alisha Mahawla
Great. And sorry, I must have missed this, but any update on the brush order that we had won a couple of quarters ago?
Nikhil Kumar
No, so we are getting — Vinay, do you want to talk about the brush business, especially the generators that we’re supplying with our own design?
Vinay Hegde
Yeah. Brush business is going good, and we had their top management visit last week and they have given some good indications for next year. And the first order, we have already tested and dispatched. And we have a couple of more orders under execution, and we are expecting three, four orders in this quarter, Q3. And also, so far, it is going very well. And for next year’s business, they have given a good indication this business with TDPS designed machines.
Alisha Mahawla
Understood. So in light of everything that we’ve been seeing, the brush orders expected in Q3, the Turkey orders expected in Q3, the incremental gas engine orders expected in Q3. We’re expecting very strong inflow in H2?
Nikhil Kumar
Yeah. We — I already gave an indication in my opening remarks that we had a INR360 crores order inflow, which is the highest ever for the company in Q2. We have — I’ve already said, we’re going to exceed that in Q3.
Alisha Mahawla
Okay, great. All the best. Thank you.
Nikhil Kumar
Thank you.
Operator
Thank you. Next question is from Rohit from iThought PMS. Please go ahead.
Rohit Balakrishnan
Good afternoon, Nikhil, and Happy Diwali to you and your team. So anything you add? So Nikhil, just two questions. On the traction motor side, we got this order of INR300 crores over five years. You also mentioned that you’re looking at — so you mentioned two things. One, there is a similar order that you may eventually get. And also in terms of the Indian Railway’s order, which is sort of getting over in the next couple of years. That also you may get something. So will we have enough capacity or in the new plant, then probably take care of that. So in case all these things get certified.
And then also, I think in your presentation, you mentioned that you’ve started to win something from the Indian Railways as well. So if you can maybe explain that a bit. I was not very clear if the capacity is going to be enough or if you can just maybe explain that.
Nikhil Kumar
Yeah. We are getting ready to — once the qualification is complete for these jobs, we may need to have a separate facility for traction business, completely separate facility, meaning a separate shed only for — or separate building only for the traction business. It’s on the — it’s in our planning. And we will execute on that as soon as these qualifications are completed, and we have passed the stress and then putting up that additional shop is not a problem. We will do it.
We will have to do it. It’s not — restructuring motors tend to be small machines. So the — we don’t need a big building with a very heavy crane capability, and it can be put up very quickly in, say, three to four months’ time. So we are — it’s in our plan, and we are just waiting for some milestones to be crossed. And once we are 100% sure that business is going to come, we’ll make these investments.
Rohit Balakrishnan
And that you think is like two, three quarters away or more than that?
Nikhil Kumar
Just a reference. Maximum two quarters away.
Rohit Balakrishnan
Okay, understood.
Nikhil Kumar
I mean, definitely we will have the investment decisions taken by Q1 next year.
Rohit Balakrishnan
Okay, understood. A
Nikhil Kumar
And look, I think the way things are going, Rohit, is that we have this — we have the lineup, right? So we have the business. We signed the contracts. We have the business. We have to make the prototypes. And once the prototypes are cleared, then the volume production will start. So just be a little conservative, we are waiting for the prototypes to be clear before we take the decision to put the factory. But we will have that time — after the prototypes are cleared, we will have some six months’ time to ramp up. And so we will do it that way. We are not — we have the prototype orders. We are not going to let this go. We will make it successful.
Rohit Balakrishnan
Sure, Nikhil, no, that’s very encouraging to hear. And the second question was on geothermal. So I mean, you mentioned that you’ve gotten some orders in the U.S. long — I mean a few years back, I think three, four years back you had talked about getting some strategic customers like you got in gas engines. I mean, I just wanted to get a sense on that. Is that something that is, I mean, happening?
I mean, earlier in the call, you mentioned that the entire space is sort of growing crazy in terms of demand, whether it is energy, whether it’s geothermal, everything. So I was just trying to understand, are you also trying to get some strategic customers so that you have like a steady stream of business in those verticals as well? Or is it just a bit too early to think about those things?
Nikhil Kumar
But the OEMs who are — our OEMs who are bidding for these larger geothermal plants in the U.S. are the same ones that we have been — that we have developed and working with for the past four or five years. Because the generator is installed with the turbine by these OEMs to the end user. But these larger-sized geothermal specialties, what we’re talking about, these are based on a different method of drilling which is — they’re using the same techniques as fracking, horizontal drilling to exploit the wells and get more heat out of these wells and better utilization of the geothermal wells and power.
It’s a very interesting technology. I can name the top end user also. There’s a company called Servo, that’s the end user. And it’s very — it’s very well known in the U.S. right now, what they’re trying to do. You can check on the Internet, and it’s all available. TDPS is the generator vendor for their Phase one prototype power plant. And they have signed the PPAs with a number of large, as I said, IT companies. There will be others who will do the same thing down the line. So it’s not — the technology is not rocket science, but they’re the first to do this. So I think the geothermal market in the U.S. has a lot of potential.
Rohit Balakrishnan
Okay. Got it. Got it. And just if I can maybe ask one more question. I think a few quarters back you talked about orders on — from a start-up, which is backed by a global oil major about the carbon capture — on the carbon capture, I think you supplied a motor to them. How is that ramping up? And anything that you want to share on that?
Nikhil Kumar
They are commissioning the plant right now and then — I think it’s going to get commissioned this month or next month and then they will start ordering some more.
Rohit Balakrishnan
Okay. Got it. Thank you so much and fantastic numbers and all the best for the coming quarters. Thank you.
Nikhil Kumar
Thank you, Rohit.
Operator
Thank you. Next question is from V.P. Rajesh from Banyan Capital Advisors. Please go ahead.
V.P. Rajesh
Hi. Thanks for the opportunity and congratulations, Nikhil, wonderful results and outlook. Just some of the traction models that you were talking about, the capex you’re planning, is that part of INR150 crore capex? Or that would be separate? And if it is separate, what is the number?
Nikhil Kumar
No, no, that — we will new capex next year for next year. If we have to do these things, we will have to have incremental capex over the INR120 crore that we have talked about.
V.P. Rajesh
I see. Okay. And then in terms of the — in your deck, you talked about getting some orders from Japan for waste-to-energy. So is that similar to what you had gotten from Germany a couple of years back? And if you can just give a little more color around these opportunities?
Mahesh Bendre
I’ll leave this question to you.
Vinay Hegde
Yes. These are the same way to energy power plants, which basically now we have got one order from Singapore for a waste-to-energy plant. This is also mainly for a data center, which is being put up by Google. There are many such — are going come in the market because everybody is moving towards carbon net-zero and these countries like Japan and Singapore, they also have their limited land available. So they had to use the waste and generate the power by using that.
There are many projects coming up like this, and Japan is the main market for us as of now. And — we are getting orders from Japan. And the Singapore one is mainly for the data center from Google. These are mainly coming for cloud computing, artificial intelligence and visualization. These data centers require huge power, and they also have to have carbon reduction demand that they have to meet. So this sells both markets. So it has good potential in the company.
V.P. Rajesh
Yes. That’s very helpful. So one question is that we are getting opportunities from data center coming up in the export market. But data centers are coming up in India also. So is there any specific reason why we are not getting those orders? Or are we getting those orders? I just wanted to check that.
Vinay Hegde
See, there is a data center coming up from Reliance, but the problem is India, this waste energy, this market is not mature. There are a few plants commissioned in India and there are many in the pipeline, that is one issue. And there is no gas available in India for putting up the gas power plants. So these data centers in India still they depend on either the grid and as a backup, they go for a huge diesel power plant. So we also have got some good inquiries from data centers for the backup power plants, which they use diesel power plants.
For example, Reliance is coming up with a very big data center, we have those inquiries. But these things are going to take time and we can’t go for this kind of renewable energy in India, either they had to go for solar or wind that is again connected to the national grid and they get the power from the grid.
Nikhil Kumar
So what we’re seeing in India is we are seeing that it is still diesel. And diesel means it is 1 megawatt, 2 megawatt size, multiple 1 megawatt, 2 megawatt size and that is not the core area of business for TDPS.
V.P. Rajesh
Thank you. Okay, got it. Great. Thank you and all the best.
Vinay Hegde
Thank you.
Nikhil Kumar
Thank you.
Operator
[Operator Instructions] The next question is from Manav Singhal, [Phonetic] who is an individual Investor. Please go ahead.
Unidentified Participant
Hi, sir. Thanks for the opportunity and congratulations on a great set of numbers. So I wanted to understand what’s the market size for hydro generator as well as the gas engine generators? And since we are going at these segments in the rapid pace for the last three, four years, are the markets for these segments also growing at an rapid pace globally?
Nikhil Kumar
Yeah, it is difficult to get an exact number on this growing market, but definitely the — both the hydro market and the gas engine business market are growing at probably — world market is growing at more than 10% per year. And we have estimated the gas engine business market. I don’t have the exact number, but it could be around $1 billion in our sizes itself and hydro could have been something like $500 million, $600 million market and growing very rapidly. So there’s a lot of scope for us to grow within these spaces.
Unidentified Participant
Okay, got it. And my other question was that like we have been installing the generators from 2000 onwards. And it’s been 25 years for us since then. So other than that, are we also seeing traction in the aftermarket segment? And also, would there be a replacement demand coming soon in the future?
Nikhil Kumar
Vinay, can you take this question?
Vinay Hegde
Yeah. Yes. So yes, you are very right. But we started in 2001 and the volume started picking up from 2008, 2009 for our own machines. But we are not focusing on our own machines, which are not quite old. And these machines that we produce are very robust machines. But there is a potential for machines supplied by others like BHEL and other competitors and Chinese machines which have been supplied in India. There are good potential of machines. And if you see our aftermarket business is also growing at 23%, 25%.
And recently, we have got some very good orders outside India for replacing our competitors’ machines. That we do on a regular basis and there are very good number of inquiries. We have already participated in the tenders. There are some government jobs. One big hydro project we are now executing, there are three machines in that project. So we are seriously — we are focusing. And since last three years, we have started looking at this market and it is yielding results. So there is a good market for not only our machines, for replacing and upgrading and refurbishing our competitors’ machines as well.
Unidentified Participant
Okay. Okay, understood. Thank you, sir. That’s it from me. I wish the TDPS team very, very happy Diwali.
Nikhil Kumar
Happy Diwali, Manav.
Operator
Thank you very much. Due to time constraints, we’ll have to take that as the last question. I would now like to hand the conference back to the management team for closing comments.
Nikhil Kumar
Yeah. Thank you very much, everybody, for joining this call. We have answered a lot of questions today, and it was a very active conference. We thank you all for your time. I wish you all a very, very happy Diwali and your families, and we look forward to meeting all of you in some upcoming investor conference face to face in the next couple of months. Thank you very much, and see you next quarter. Thank you very much.
Operator
[Operator Closing Remarks]