Ladies and gentlemen, good day and welcome to the TD Power Systems Limited Q2 FY 2025 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. As a reminder, all participant lines will be in the listen-only mode, there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nikhil Kumar, Managing Director for TD Power Systems Limited. Thank you, over to you, sir.
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 margin, highest-ever PAT, and highest-ever order inflow. On a consolidated basis, our total income was INR 5.89 billion versus INR 5 billion, an increase of 18%. Profit after tax and other comprehensive income for six months is INR 764 million versus INR 584 million, an increase of 31%. We continue to maintain a strong cash position of INR 2.35 billion. Standalone.
Our total income on a standalone basis for H1 was INR 5.77 billion versus INR 4.94 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 INR 720 million versus a profit of INR 600 million over the same period in the previous year, an increase of 20%. Order book. The order book for manufacturing segment is INR 12.34 billion. Regular manufacturing business is INR 3.7 billion. Sorry, regular manufacturing business is INR 8.33 billion. INR 3.7 billion is the railway business.
Spares and aftermarket is INR 0.14 billion, INR 0.17 billion is 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 INR 3.6 billion. This is the highest-ever order booking in the history of the company. Order inflow has increased 41% on a Q2-to-Q2 comparison basis, 33% over an H1-to-H1 comparison basis. The H1 order inflow total for the current year is INR 6.58 billion versus the previous year, INR 4.93 billion. Strong order inflow momentum continues to drive our top line. I'll talk about the order book market situation and guidance. The order inflow continues to be very strong from export 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 INR 1,200 crore- INR 1,250-INR 1,275 crore, which will result in an overall growth of 25%-27.5% compared to the previous year. Margins will grow faster than sales due to operational leverage. Margin growth will be around 2%-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 100 MW, and we expect the market to be driven by these two sectors. Ethanol, sugar, chemical is showing no growth, but there's still a base-level demand. Overall, we are factoring a 3%-4% growth on domestic market for the next year, that is FY 2026. We're expecting new tenders for Indian Railways and we are certain to see two large tenders in the upcoming months. However, business for these Indian Railways tenders will be realized only in FY 2027. International market. We have extremely strong growth in the order book in export businesses from gas turbine, gas engine, and motors.
Order inflow from direct and deemed exports for the first half is INR 4.78 billion, compared to INR 2.36 billion in the previous year, which is more than double. Exports and deemed exports order inflow is 33% of the total order inflows. This shows the overall strength of the company in all geographies all over the world, present in multiple sectors like gas, hydro, traction, clean energy like biomass, heat recovery, et cetera. More importantly, we're cutting deeper into the market and winning greater market share due to greater acceptance of our products. 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 fracking, 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 are completely booked out for this financial year. Our factory is 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've had detailed discussions with them on allocation of capacity and load plans. Geothermal plants is another area of huge growth potential. We have received an order this year for three into 43 MW for a large geothermal power plant in the U.S. for phase I. The same company is in the market for 1,000 MW in phase II. They have signed PPAs with major IT companies and have indicated 1,000 MW per year demand. Since we are 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 supply traction motors to a major international company. There is another such contract under negotiation, in which 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 is due to the change in energy mix leading to more demand for gas engines, gas turbines, 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 INR 80 crore this year and INR 160 crore next year. Once again, the markets are mainly exports, and we see a big pipeline of orders from the Middle East and India. TDPS also has 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 2027. Turkey. We are 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 we are 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 there will be a 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 2025 as well as FY 2026. This brings me to the end of my initial remarks. I will now be happy to address any questions that you may have.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask questions, please press star and one. The first question is from Mahesh Mendre, from LIC Mutual Fund. Please go ahead.
Hi. Good morning, sir. Thank you so much for the opportunity. Sir, you spoke about the-
Thank you Mahesh.
Demand from international market. Given the gas and many projects that are coming. Is it possible to just quantify it in terms of what kind of opportunity we see over the next three years?
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. Our OEMs have asked us to ramp up the capacities based on the next year's demand, which is significantly higher than what we're going to be doing this year. They're also projecting that something for 2026. I think we will not be able to give you exact numbers right now.
No.
But definitely-
Sir, I was not looking for a number or guidance. I was just asking if we look 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 going to come up in the international market?
I don't have that number of the number of power plants, Mahesh.
That will be substantial, that number.
Yeah, it's a substantial number because it's being reflected in our growth. What we are seeing from our OEM side 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. 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 vendor list. Now we're getting more and more acceptance, and we're cutting deeper into the market. One part is that we're seeing that we'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.
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 packs.
Sure. Thank you so much, sir.
Thank you. Next question is from Ganesh ram Rajagopalan from Unifi Capital. Please go ahead.
I hope you can hear me clearly, great performance all around. I just had a few bookkeeping questions. The first one is on the other operational income. What's sort of driving that INR 3 crore? If you could just explain where that INR 3 crore of income is coming from. The second one is just on the new plant. When it does get commissioned sometime next year, what sort of impact should we assume on margins? Will we have to hire a completely new workforce for that plant? If you could just walk us through what you're thinking in terms of commissioning that new capacity. That's it.
Okay. The first question will be answered by over to you by .
Good morning, everyone. The other operational income includes the foreign exchange gains through the forward bookings that we have done, mainly that amount.
Yes. To what extent would that be?
Almost full.
Okay. Got it.
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 once the first building is ready, we'll 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. We will start training them in our existing plants, and then once the new plant's ready, they'll be shifted over there. Of course, there's some experienced people also will be shifted over there. There's going to be a mix of new people and experienced people in the new factory.
There could be a temporary increase in cost, but since many of these people are coming in as entry-level trainees, the impact may 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.
All right. Thank you.
As I said, because the people are coming in at entry-level positions, the impact may not be so large.
Understood.
Thank you. Before we take the next question, a reminder to participants that you may press star and one to join the question queue. Next question is from Jainam Jain from ICICI Securities. Please go ahead.
Thank you for the opportunity. Sir, the question I had is, what would be the top line, bottom line, and CapEx guidance for FY 2025 and 2026?
Yeah. FY 2025, we have given a top-line guidance of INR 1,250 crore to INR 1,275 crore. We have done INR 76 crore net profit in H1, but we have done something like only 46%, 47% of the total sales. We will see a greater with 52% of the sales taking place in H2. We will see more margin coming in H2 compared to INR 76 crore that we did in H1. The CapEx that we will spend this year would be INR 80 crore.
Okay, sir. You mean FY 2026?
FY 2026, we have not yet given the initial guidance. We will give the guidance in February, but tentatively, in earlier calls, we have given 17%-18% top-line growth as being the compounded growth. I think we will definitely exceed that. 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.
Okay. Thank you so much.
Thank you. Participants who wish to ask questions, please press star and one. Next question is from Himanshu Upadhyay from BugleRock PMS. Please go ahead.
Yeah. Hi. Good morning. Congrats on great set of numbers. My first question was, what is the increase in labor wages? Have we settled with labor union? For how many years that settlement has happened?
No, we have not settled this matter with the labor unions, Himanshu. The matter has been referred to the labor court, these things take a lot of time once it goes to courts. It could take a year maybe or more to settle this issue.
Okay. One thing.
Regarding the increase in the labor cost, I'll just ask Varshini to talk.
We have made a provision for 8% increase, which we have offered to them initially. That has been taken care of in the wage cost.
One thing, in this Turkey, where we talked that good growth is possible in next financial year and ahead. If I look at the order book, is it INR 17.4 crore, and last quarter it was INR 16.6 crore. Are we expecting new orders when there and hence good growth in future years?
We are negotiating. These are going to be coming in in Q3 or definitely early Q4. They are sure.
Okay.
We have completed the negotiation. We are only waiting for the documentation to come through before we can announce the orders to the market. It will come for next year.
Is that product segment remains the same what we were earlier making in Turkey or the product segment itself is more changed or more diverse?
It will be primarily geothermal generators. There'll be a few hydro projects.
Okay. One last question.
They could be in region of EUR 3-EUR 4 million for next year.
Okay. One last question. We have seen gross margins improvement to 36%, okay, and the highest EBITDA margins. 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 or what could be the drivers, okay? How sustainable are these numbers and what would be our future expectations on gross margins, if you can think of, if you can give some idea on it?
Yeah. We always give a guidance of around 33% to be the gross margins, and we do better than that. We are still going to say that you can take 33%, 34% as being the gross margins, and the company will try to do better than that. This is being driven by product mix. This is being driven by more export orders, larger machines, and also we're getting better prices because the factory is also full, so we're able to negotiate better prices. Overall, this is leading to a better gross contribution.
Okay. Thanks from my side, happy Diwali to you and your team.
Happy Diwali, Himanshu. Thank you.
Thank you. Next question is from Deepesh Agarwal from UTI AMC. Please go ahead.
Yeah. Hi, good morning, Nikhil and ma'am. Firstly, congratulations for 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?
No, this is not with the existing customer. This is a new customer. This is a customer, it's a large multinational company. It's a large power company based out of CIS region. These motors are going to be delivered. We need to deliver the first set of motors. We have mentioned INR 18 crores with the first trial order in probably April or May next year.
Then they'll be sent for qualification, and then we'll ramp up to start somewhere around Q2 or even Q3 next year. We are looking at something like INR 60- INR 70 crores per year business for around five years. We should see some numbers coming in definitely maybe INR 18 crores. Of course, we have the order on hand for next year. Maybe another INR 20 crores will come for FY 2026, and then the FY 2027 orders, INR 60 crores per year will come.
Okay. Are we looking at a similar such opportunity in international market?
Yeah. I have mentioned in the earnings call speech that there is one more opportunity that we are very close to announcing. Of course, contract signing may not happen this quarter, but it will happen next quarter. 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 is not always possible to get the right time, and the negotiations are taking a little bit longer for the contract. We are the chosen party. Until the contract is signed, we really cannot announce it. We hope that we should be able to do this. Target is to finish it this quarter before the Christmas holidays. If we do not do it, then I think it will be done in January.
Sure. I think you were also positive on the domestic traction motor ordering. Anything happening out there now?
Yes. 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, the Indian Railways. They have to do something to that facility by 2028. We have got very reliable information that there are two more tenders coming up for freight locomotives. We should be hearing about this, I think, in the next month or so.
Sir, in the remarks, you also mentioned 43 MW of geothermal order now you are executing, and there is a possibility that there is 1,000 MW 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 MW?
There will be multiple units leading to a total of 1,000 MW. It will be multiple units of 40 MW or multiple units of 80 MW. It will be either 80 MW into 12, or it will be 40 MW into 24.
Okay. Usually the realization in geothermal would be comparable to your hydro business?
No, no. We make much better margins in geothermal. It's a very special machine.
Would it be possible for you to quantify roughly per megawatt, kind of a thumb rule? How is it?
No. It's too customer specific and it's confidential information for the company, so we don't want to give this number out.
Okay. No worries. Thank you, and all the best.
Thank you. Next question is from Khush Nahar from Electrum Portfolio Managers. Please go ahead.
Hello, sir. Thank you for the opportunity. I have one question. The new plant that we are planning to establish, what will be the revenue potential at peak utilization from this plant?
We are putting in an investment of about INR 120 crores, and the investment ratio is 1 to 3.5. We should get another around INR 400 crores of turnover from this plant.
Okay, sir. Sir, any guidance on over the next three, four years, what kind of growth you are targeting assuming towards 20% EBITDA margins? What type of top-line growth?
Earlier, we have given a conservative guidance of around 17%-18% top-line growth. Definitely in a situation where we are going to revise that. This year itself, we're already given a revised guidance of 25%-27.5%. We will give a revised guidance for next year. I've already said it will be better than 17%, 18%. 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. Obviously, the numbers are much better. 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.
Okay, sir. Thank you.
Thank you. Next question is from Manoj Dua from Geometric. Please go ahead.
Good afternoon, sir. Happy Diwali, first of all.
Happy Diwali.
My question is on Turkey. The 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 are the fundamental changes has happened in a overall market in Turkey? Or is it a customer specific order that it went in? I want to understand what change has happened in the Turkey market.
The Turkish market, it's a power deficit country, so 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 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 a very highly depreciating currency. When they had to borrow in euros or dollars to put up these 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 is stabilized to some extent, so the market is reviving once again.
Okay. What is the size of the order, and is it from one customer or more customers?
No, these are multiple customers, and I have given an indication that initially we're looking at something like EUR 3 million-EUR 4 million next year top line.
Okay. Thank you, and best of luck.
Thank you.
Thank you. Next question is from Kiran from Capital Tree. Please go ahead.
Thank you for the opportunity. I've been an investor for more than seven years in your company, and I remember the days when we 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. Strategic question, Nikhil, I am getting a sense of deja vu, being an investor for a longer period of time. I think 2011, 2012, we put up a new capacity, 50 MW-200 MW, and then the cycle kind of peaked down, right?
In this scenario, I hope it doesn't, but in terms of your conversations, again, I'm not looking for any numbers, but more on a strategic 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? Because you're putting up the new CapEx, 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 the cycle kind of peaking out? Or the clients that you're talking to are basically saying that this is going to continue for three to five years? Numbers aside, just from the conversation basis.
That's a good question. I think that this is something that obviously we ask this question 100 times within our factory before we put up new capacities because, yeah, we have been influenced by the past. You're right. One thing is we are a multi-product company, multi-geography, multi-vertical, and we're working with different OEMs across the world. 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. Wherever you read, wherever you see talk about demand for electricity from this sector alone, we come across huge numbers like 200-400-500 GW of power required just for this segment.
This cannot be met by large, let's say, gas turbine power plants in the region of, say, 200 MW-400 MW, because there are only a few companies making them. They're all booked up for the next three to four years. A large part of this demand is going to be met by the smaller sizes between 20MW -50 MW. That's what we see. That's what our customers are also saying. Our customers, meaning our OEM customers. We feel that this cycle in this particular segment itself is going to be a big driver for growth. Of course, there's oil and gas, there's fracking. There's the replacement for Russian gas is still a continuing issue in Europe. America is going to be a major supplier to Europe for gas. There's going to be more exploration taking place.
That is also driving demand for these smaller size gas units. There is the grid stabilization units. Demand is coming from these things. We believe that this is not the peak. This is actually probably the start or middle of a cycle where we're seeing this demand staying on for many, many years going forward. On top of that, the renewables push, hydro is always going to be there. The domestic market, while today it could be a little bit subdued, I don't think by any standard has gone off course. 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. We're going to need electricity.
This demand for electricity in India is going to continue for some more time. We have a motor business where we're just starting to grow, and it's a much larger business compared to the more generator business. 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. By no standard do I believe that we are in the middle of a bubble.
Got it, Nikhil. Thanks so much for an elaborate answer. That was brilliant. The operative question, Nikhil, when you talk of data centers, U.S. keeps talking about nuclear, U.S. keeps talking about solar using wind. Are these opportunities or all these variations, like especially nuclear, is it a variation of a steam turbine for us? How it translates to us?
Yeah. See, nuclear. What are the people talking about nuclear, right? Yes, there is an order being given for nuclear, 500 megawatts. That is what we know. That is going to be delivered somewhere around 2030 or 2027, 2028, 2029, 2030. It is far away. The technology has not yet been established. What is really happening is if you see that there is such a huge demand for electricity, we are talking about, as I said, 300, 400 GW of power, that these large companies who are driving this demand, they are trying everything.
They are putting their finger into, they said they are signing PPAs with 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. They are putting their fingers in geothermal. They are putting their fingers in small nuclear. Today, their requirement is being met by gas.
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? I do not 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 they are talking about unit sizes of 75MW- 80 MW. TDPS can make these generators. If this technology does become widespread, that small nuclear becomes a commercially viable thing, then it is a huge new sector of demand for TDPS because we are right there in the 80 MW range. We will deliver those machines then for the next, I do not know, 20 years.
Perfect, Nikhil Thanks so much. That was very elaborate. Thank you so much.
Thank you. Next question is from Rahil Shah, who is an individual investor. Please go ahead.
Sir, am I audible?
Yes, sir. You are audible.
Sir, congratulations, first of all, for a strong set of numbers and robust business outlook. My question is regarding-
Thank you.
While the EBITDA for the first half is impressive, the cash flow from operation has been weaker due to increase in inventories and receivables. Can you please explain why the inventories are so high? Also, let me know whether inventory is largely in raw material or in finished goods.
The ramp-up in production is taking place. We're ramping up our production to a very high level, 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. We have booked up raw materials. Second is that, as far as electrical steel is concerned, which is a major part of our total buying, we are buying from outside India. There are indications that the imports of steel may be restricted next year. There are strong indications that we have. Domestic steel is far more expensive compared to the steel that we are buying from outside India.
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 margins and also to protect our supply situation. Now, this has eaten up a lot of cash. 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.
Understood, sir. My second question is on, we understand that the motors business segment is growing at a robust pace. Where are we getting these orders from, and how sustainable is it? What's the growth outlook for next three to five years on this segment?
We're getting the motor business exports and domestic, and we're focusing on the larger sizes. Export, we are focusing on oil and gas, compression, hydrogen and things like that, where we see very good scope for growth. The market is simply huge. Could be $10 billion or even more. Our share is minuscule. Any growth that we show, although may be impressive for us, is still a drop in the ocean as far as overall market is concerned. Plus, we have domestic. We also have the synchronous motors, which, time to time, we get some very some big orders in the market. All these put together is driving the growth for our motors. We said it's INR 80 going to INR 160 for next year, and I don't want to give a guidance for FY 2027, but it's going to be another big increase for FY 2027.
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 the generator business, and that's what we are trying to make it.
Understood, sir. My last question is, are we still investing in robotics and automation as we did over last three to four years?
Oh, yes. In fact, the new plant will have more of it. When you put up a new plant, you have a chance to design it exactly the way that you want without having any constraints of disrupting production and putting in new processes and things like that. 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.
Wonderful, sir. Thanks a lot. All the best sir. Best of luck.
Thank you.
Thank you. Next question is from Nikhil from Simpl. Please go ahead.
Yeah. Hi. Good afternoon. I'm audible?
Yes. Hi, Nikhil.
Yeah. Congrats on the good set of numbers. This question is basically, my understanding could be 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%. 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, we are getting better prices. Have the prices become independent of the commodity prices now?
I don't see a big correction taking place in electrical steel prices or copper, or other special forging steels and things like that we use compared to post-COVID. We see the prices more or less flat. In some cases like copper, it is maybe even higher. We are arguing with anyone who talks to us on these lines saying that, "No, please show us the proof, and there's 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. Also doing more aftermarket work and things like that, it's also leading to better margins for us.
Yeah. Just one thing. In one of the previous questions you said getting better prices because our plants are running full.
In some cases, when we are bidding for new jobs, sometimes we're not so desperate to take this order. In some cases, we're getting See, the better gross contribution is a summation of a number of small things, there's no one or two big things. It's 0.2% for this, reason number 1, 0.3% for reason number two, 0.3% for reason number three. It's a number of smaller reasons which overall accumulates in getting, say, 1.5% better.
Okay. Sure. Thanks a lot.
Thank you. Next question is from Alisha Mahawala from Envision. Please go ahead.
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 1 of first building expected in H1 of 2026 or H2?
Around May, June for the first, July for the second, August for the third.
Okay. The full capacity or the new plant should be operational by H1. Great.
Yeah.
The next question, this Turkey plant has been shut since the last more than one year. Will it require any investments because-
Okay
We're witnessing an uptick in orders again, and I believe that we were almost ready to liquidate that plant. Will it require any fresh investments?
No. We had taken a factory on rent, and we had just basically put a lock and locked the door. We just shut everything. Now we open the door, we clean everything and start. That's basically what it is.
No incremental investments will be required.
No
ramp up the operations. Great. Sorry, I must have missed this, but any update on the BRUSH order that we had won a couple quarters ago?
Vinay, do you want to talk about the BRUSH business, especially the generators that we're supplying with our own design?
Yeah. BRUSH business is going good. We had their top management visit last week. They have given some good indication for next year. The first order we have already tested and dispatched. We have couple of more orders under execution. We are expecting three, four orders in this quarter, Q3. So far it is going very well, and for next year's business, they have given a good indication to the business with TDPS design machines.
Understood. In light of everything that we've been seeing, the BRUSH orders expected in Q3, the turbine orders expected in Q3, the incremental gas engine orders expected in Q3, we're expecting very strong inflow in H2?
Yeah. I already gave an indication in my opening remarks that we had INR 360 crores order inflow, which is the highest ever for the company in Q2. I've already said we're going to exceed that in Q3.
Okay, great. All the best. Thank you.
Thank you.
Thank you. Next question is from Rohit from iPoT PMS. Please go ahead.
Good afternoon, Nikhil, and Happy Diwali to everyone in your team.
Yeah. Thank you.
Nikhil, just two questions. On the traction motor side, you got this order of INR 300 crore over five years. You mentioned two things. One, there is a similar order that you may eventually get. In terms of the Indian Railways order, which is sort of getting over in the next couple of years, there also you may get something. Will we have enough capacity or will the new plant then probably take care of that? In case all these things get ratified. I think in your presentation, you mentioned that you started to win something from the Indian Railways as well. If you can just maybe explain that a bit. I was not very clear if the capacity will be enough, or if you can just maybe explain that.
Yeah. 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 building only for the traction business. It's in our planning, and we will execute on that as soon as these qualifications are completed and we have passed this test, putting up that additional shop is not a problem. We will do it. We will have to do it. These traction motors tend to be small machines, so 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. It's in our plan, and we are just waiting for some milestones to be crossed. Once we are 100% sure that business is going to come, we'll make these investments.
That you think is two, three quarters away? Or more than that? Just a rough idea.
Two quarters away. Maximum two quarters away.
Okay. Understood.
Definitely, we will have the investment decisions taken by Q1 next year.
Okay. Understood.
Look, I think the way things are going, Rohit, is that we have the lineup, right? We have the business. We signed the contract, we have the business. We have to make the prototypes, and once the prototypes are cleared, the volume production will start. Just a little conservative, we are waiting for the prototypes to be cleared before we take the decision to put the factory. We will have that time after the prototypes are cleared, we will have some six months time to ramp up. We will do it that way.
Sure.
We're not going to let go. We have the prototype orders. We are not going to let this go. We will make it successful.
Sure, Nikhil. That's very encouraging to hear. The second question was on geothermal. You mentioned that you've gotten some orders in the U.S. a few years back. I think three, four years back, you talked about getting some strategic customers like you got in gas engine. Just wanted to get a sense on that. Is that something that is happening? Earlier in the call, you mentioned that the entire space is sort of going crazy in terms of demand, whether it is waste-to-energy, whether it is geothermal, everything. I'm just trying to understand, are you also trying to get some strategic customers so that you have a steady stream of business in those verticals as well, or is it just a bit too early to think about those things?
Our OEMs who are bidding for these larger geothermal plants in the U.S. are the same ones that we have developed and working with for the past four or five years. The generator is coupled and sold with the turbine by these OEMs to the end user. These larger size geothermal facilities that we're talking about, these are based on a different method of drilling. 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 end user also. There's a company called Fervo, F-E-R-V-O. That's the end user. It's very well known in the U.S. right now what they're trying to do. You can check on the internet, it's all available.
TDPS is the generator vendor for their phase one prototype power plant. 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. This technology is not rocket science, but they're the first to do this. I think this geothermal market in the U.S. has a lot of potential.
Got it. Just if I can maybe ask one more question. I think a few quarter back, you talked about winning an order from a startup which was backed by a global oil major, about the carbon capture. On the carbon capture, I think you had supplied a motor to them. How is that ramping up, and anything that you want to share on that?
They are commissioning the plant right now. I think it's going to get commissioned this month or next month. They will start offering some more.
Okay. Got it. Thank you so much, and fantastic numbers, and all the best for the coming quarters. Thank you.
Thank you.
Thank you. Next question is from V.P. Rajesh from Banyan Capital Advisors. Please go ahead.
Hi, thanks for the opportunity. Congratulations again. Wonderful results and outlook. Just on the traction motor that you're talking about, the CapEx you're planning, is that part of INR 150 crore CapEx or that will be separate?
No, we will need some new CapEx next year. For next year, if we have to do these things, we will have to have incremental CapEx over the INR 120 that we have talked about.
I see. Okay. In terms of your deck, you talked about getting some orders from Japan for waste-to-energy. Is that similar to what you had gotten from Germany a couple of years back? If you can just give a little more color around these two opportunities.
Vinay, I'll leave this question to you.
Yes. These are the same waste-to-energy power plants. Basically, now we have got one more 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 power plants that are going to come in the market because everybody's moving towards carbon net zero. These countries like Japan and Singapore, they also have their limited land available. They had to use the waste and generate the power by using that. There are many projects coming up like this, Japan is the main market for us as of now. We are getting good number of orders from Japan. The Singapore one is mainly for the data center from Google. These are mainly coming for cloud computing, artificial intelligence, and virtualization.
These data centers require huge power, they also have to have carbon reduction demand they have to meet. This serves both purposes. It has good potential in that.
Yes. That's very helpful. One question is that we are getting opportunities from data center coming up in the export market. Data centers are coming up in India also. Is there any specific reason why we are not getting those orders, or are we getting those orders? I just wanted to check that.
There is a data center coming up from Reliance. The problem is India, this waste-to-energy, this market is not matured. There are few plants commissioned in India and there are many in the pipeline. That is one issue. There is no gas available in India for putting up the gas power plants. These data centers in India, still they depend on either the grid and as a backup, they go for huge diesel power plants. 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. These things are going to take time. They can't go for this kind of renewable energy in India.
Either they have to go for solar or wind, that is again connected to the national grid, they have to get the power from the grid.
You would not have guaranteed power with solar and wind.
Yeah.
What we're seeing in India is we are seeing that it is still diesel. Diesel means it is 1, 2 MW size.
Multiple units
1, 2 megawatt size. That is not the core area of business for TDPS.
Mm-hmm. I see. Okay. Got it. Great. Thank you, and all the best.
Thank you.
Thank you.
Before we take the next question, a request to participants to please limit your questions to two per participant. The next question is from Manav Singhal, who's an individual investor. Please go ahead.
Hi, sir. Thanks for the opportunity, congratulations on the great set of numbers. I wanted to understand what's the market size for hydro generators as well as the gas engine generators. Since we are growing at these segments in the rapid pace for the last three, four years, are the markets for these segments also growing at a rapid pace globally?
It is difficult to get an exact number on this growing market, but definitely, both the hydro market and the gas engine business market are growing at World market is growing at more than 10% per year. We have estimated the gas engine business market, I don't have the exact number, but it could be around $1 billion that is in our sizes itself, and hydro could have been something like $500 million-$600 million market, growing very rapidly. There is a lot of scope for us to grow within these spaces.
Okay. Got it. My other question was that, we have been installing these generators from 2000 onwards, and it has been 25 years for us since then. Other than that, are we also seeing traction in the aftermarket segment? Also would there be a replacement demand coming soon, in the future?
Vinay, can you take this question?
Yes. You are very right. We started in 2001, and the volume started picking up from 2008, 2009 for our own machines. We are not focusing on our own machines, which are not quite old, and these machines what we produce are very robust machines. There is a potential for machines supplied by others like BHEL and other competitors, Chinese machines which are being supplied in India. There are good potential of machines. If you see, our aftermarket business is also growing at 20%-25%. Recently, we have got some very good orders outside India for replacing our competitors' machines. That we do on regular basis, there are very good number of inquiries. We have already participated in the tender. There are some government jobs. One big hydro projects, we are now executing. There are three machines in that project.
We are seriously focusing, since last three years, we have started looking at this market and it is yielding results. There is a good market for not only our machine, for replacing and upgrading and refurbishing our competitors' machines as well.
Okay. Wonderful. Thank you, sir. That's it from me. Wish the TDPS team a very happy Diwali.
Happy Diwali, Madam.
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.
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 happy Diwali, you 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.