Ladies and gentlemen, good day, and welcome to the TD Power Systems Limited Q3 and nine months FY 2024 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 on date of this call. These statements are not 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, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I hand over the conference to Mr. Nikhil Kumar, Managing Director for TD Power. Thank you, and over to you, sir.
Good morning, everybody. Thank you very much for joining us today on our earnings call. I trust all of you would have received our results and investor presentation. I will move on to the financial performance for nine months ended 31st September 2023. Standalone. Our total income on a standalone basis for nine months was INR 7.32 billion versus INR 6.16 billion over the same period of last year, an increase of 19%. EBITDA for nine months is 18%, including other income, excluding exceptional and treasury income. We will deliver approximately the same for the year versus 16% over the same period the previous year. Profit after tax and comprehensive income for nine months is INR 881 million versus a profit of INR 593 million, an increase of 49%.
The order book for the manufacturing segment stands at INR 11.48 billion. This is INR 6.88 billion for the generator business, INR 4.51 billion for the railway business. The projects group, which was earlier, now has been grouped under spares and aftermarket. This is INR 0.12 billion. We have INR 0.17 billion from the turnkey business. Exports and deemed exports, excluding the railway business, is 56% of the total order book. During our last earnings call, we had indicated about the reduction in the traction order value on account of cost reductions and the localization of raw materials.
After final discussions and consideration and negotiation, we would like to inform that the value now stands reduced by INR 193 crores, and the pending order is now INR 4.51 billion, executable over the next 4.25 years. We would like to reiterate once again there will be no loss of margins since the pass-through has been given only on the actual reduction of raw material cost. Order inflow statistics. Order inflow has increased by 23% over the previous year as follows. Strong order inflow momentum continues. This year is INR 7.62 billion. Last year was INR 6.16 billion for the same period of nine months. Order inflow from direct and deemed exports, INR 4.11 billion compared to INR 3.4 billion last year.
Exports and deemed exports order inflow is 55% of the total order book, 66% in Q3. Our total income on a consolidated basis was INR 7.48 billion versus INR 6.36 billion same period the previous year, an increase of 18%. Profit after tax and comprehensive income for the first half is INR 883 million versus a profit of INR 599 million, an increase of 47%. We continue to maintain a strong cash position of INR 2.13 billion. Order book, market situation and guidance. Overall, the order inflow is very strong for both domestic and export in our generator business. The inquiry pipeline for motors continues to be strong, and some breakthrough orders have been secured by the company in the last quarter.
The rate of order inflow will support the sales guidance that we have given for next year, that's FY 2025. We are now expecting minimum 17% growth with an upside potential of 3%-5% on top of 17%. Margins will grow faster than sales due to operational leverage. I will talk about each segment briefly. Steam turbine. No change in the market situation compared to last quarter, both in export as well as domestic. We see strong demand in both export and domestic, as well as a strong inquiry pipeline. Domestic demand is driven by metals, cement, waste heat recovery, while export is driven by waste to energy and biomass. Gas turbine. We will record the highest sales in this segment. We have been successfully penetrating into this market with our marquee OEMs. We have three major OEMs now with which we are working.
We are still at early stages of penetration in this market, we are excited about the rapid growth and rapid progress that we are seeing in this particular segment. Hydro. We mentioned this last time, we mention this again. Incoming orders for hydro have surpassed our expectations. We expect next year to be the highest year for sales in hydro since the beginning of the company. Gas engines. The order inflow is back in line with projections, the segment has overcome the softness in the market that we had talked about in the last quarter. Order inflow and execution will be in line with the projections made by the engine makers, we expect a good growth to take place for FY 2025. Motors. We are continuing to make steady progress.
In Q3, we secured a large order from a major pump manufacturer for six large 20 MW plus size motors for an irrigation project in Karnataka. We have also got the first order for an oil and gas application in Middle East. We have got a few large fan motors around 4/5 MW in size. The inquiry pipeline is huge for domestic, there are also a number of niche export opportunities which we are well-placed, we hope to make good progress and get good orders in the coming quarters. I will just repeat the last few sentences. For guidance, we are on target with respect to our guidance for FY 2024, with INR 1,000 crore top line on a consolidated basis.
FY 2025, we expect a growth of 17%, as mentioned earlier, with an upside potential of 3%-5% for FY 2025 based on the current order book impact. On the legal case, no development ever since the commercial court has dispensed its stay order on the shares of one of the promoters. 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 a question may press star and one on your 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 a question. Ladies and gentlemen, we will wait for a moment while the question queue assesses. We have our first question from the line of Mohit Kumar from ICICI Securities. Please go ahead.
Hi, good morning, sir, and congratulations on a good set of earnings. My first question is on the, I don't know whether I get it right. I think, the order book has this INR 11,470 crore. Is it right?
Yes.
Sir, I see the decline in the order book sequentially, and the order inflow has increased. Is there something I am missing on the order book?
No. We have made a correction in the order book for the railway business, that I have mentioned in the preset. It is almost INR 200 crores. Correction has taken place in the value of the particular order that we have from our major railway customer. That is the reason why you might see a sequential decline in the order book because of the correction.
Any reason for it, sir? Any particular reason for why we have.
Yeah, the reason is, I have also mentioned this in the earnings call in the speech just a few minutes ago, it is also mentioned in the previous earnings call, that we are negotiating the localization of a lot of imported raw materials, the value per motor has come down because of the localization of some major raw materials. That is the reason why the total price per motor has come down, and the total order value has come down. As far as the margins are concerned, there is no impact on the margins per motor. We will still make the same money as we have made last time, as we were making in the past.
This is overall beneficial to us. Yeah. The order book looks low.
No. The top line will be affected, but we don't see any change in the bottom line.
Understood, sir. Can you just speak on the inquiry side, on the domestic and export side, how things are shaping up quarter after quarter for the next couple of months? Is it going to be a slow, in a sense, order finalization, especially in domestic markets, a bit delayed? Does it mean that order inflow is substantially impacted in this quarter? Is that a fair understanding?
We don't see any change taking place in this current quarter that we are in right now. We see a very strong order inflow in this quarter, and we also have momentum going into the next quarter, right? That's Q1. By which time, elections will have taken place, and I think after that, things will pick up even further if everything goes as per the expectations of the market. As of now, I don't see any reduction in any inflows or any reduction of the finalizations taking place for us. Plus, we have a very diversified product range and very diversified markets base. Even if the domestic market in some sectors has a little bit slowdown or softness, which we're not seeing, but even if it does, we have so many other areas of business and we're able to pick up orders to keep our numbers.
Understood, sir. Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to answer queries from all participants, please restrict your questions to two at a time. You may join the queue for follow-up questions. To ask a question, you may please press star and one on your phone now. We have the next question from the line of Rohit from iThought PMS. Please go ahead.
Hello, am I audible?
Yes.
Yes. Hi, Rohit.
Hi, Nikhil. Happy New Year to you. Nikhil, just two questions. On the direct railways business, if you could basically comment on what you're seeing there and any change or anything additional in this quarter. Also the order this quarter made. Any comments on that will also be very helpful.
First is the new tenders for new freight locomotives. We don't have any information directly from Indian Railways or through our customers, OEM customers. We don't have anything new to report on this. Everything is very quiet on that, and there's no clarity which way it's going to go forward. As far as direct business from Indian Railways is concerned, we have a plan to do, as we mentioned earlier, INR 20 to INR 20 crores this coming year. I think we will achieve that. It's a small percentage of the overall purchases from Indian Railways, so we don't see a problem to achieve what we want to do for next financial year.
The ramp-up, you think, would happen in FY 2026. Is that how we should see it?
Sure. FY 2026, exactly.
Got it. In terms of some of the newer initiatives like synchronous motors, you were also talking about a couple of other new product additions. If you can talk a bit about that, maybe what kind of top line do these new areas have started to contribute, How do you see that shaping up, maybe not in the coming quarters, but maybe, let's say, by the end of this financial or early FY 2026, what kind of contribution do these new areas will start giving for us?
We will definitely see the motor business pick up in a larger way. Not just synchronous motors, but also motors for other applications for the domestic as well as for the export market. We will see that ramping up in a big way this year as well as next year. The relationship that we have with Baker Hughes, the agreement that we signed with Brush, that will also give really good results for the company. We are also going to see ramp-up taking place over there. We have other segments of our business, gas turbine generators also with new customers. We are seeing that also picking up in a big way. There are multiple areas. We are seeing the hydro business also picking up in a big way. We have a fairly strong outlook for this year and next year.
I'm not going to give numbers, but we will see this ramp-up taking place in all these segments in a big way where we are currently, I would say, having very low market shares or low penetration. These are currently relatively new products for us.
Sure. Last question, sir, any other new OEMs that you're signed? Like Brush was one which happened last quarter, or I know it's not like an every quarter addition happening, but anything which is very close to signing or anything which you are very confident of?
No, we're working with gas turbine customers. I think we have made some breakthroughs, so hopefully we will be able to announce it next quarter.
Sorry. Thank you very much. Longer than best.
Thank you. We have our next question from the line of Deepesh Agarwal from UTI AMC. Please go ahead.
Yeah. Good morning, Nikhil, and good morning, ma'am. Actually, first question is, you mentioned in railway you have done some adjustment to Does it mean our revenue run rate, which used to be around INR 150 crore odd annually from that customer, will actually go down to INR 90 crore-INR 95 crore? How much will EBITDA remain same?
It will come down. It will come down to over INR 105 crore-INR 110 crore per year. We have not factored in what we get as the annual increases, but annual increases that we will get over the next four years, which is approximately between 4%-5% that we get based on the index for the price variation clauses that we have with this customer. In effect, yes, what you're saying is right. It will be around INR 105 crore-INR 110 crore. As we mentioned, this is about INR 450 crore, minus, not including the price increases which we can expect in the four years. If you just take today's prices, it will be around INR 112 crore or INR 110 crore for the next four and a half years, or 4.25 years.
Effectively, our EBITDA margin.
The absolute margin will not change per motor for us.
Okay. Absolutely. EBITDA will remain same. Copy that. Sir, the other thing is, if I look at the domestic generator order book, it seems there is some weakness out there or seasonally. What is the reason for the same?
No, I think that there are a number of jobs under negotiation, and sometimes it takes a little bit longer to close some deals, and we don't close the deal in a particular quarter. It will catch up in the next quarter. I'll also ask my colleague, Vinay Hegde, to comment here from the call. Vinay, could you comment? Is there a weakness? Did you see a weakness in domestic market, or it's just a question of timing of order finalizations?
No, the pipeline is really strong, and we are not seeing any slowdown in the domestic markets. Absolutely no slowdown.
Sure. Sir, the other question is on the, I guess you were looking to expand the capacity. Now what is the thought process, the timelines?
Everything remains the same. We have obtained the possession certificate now for the land. Earlier we just got the allotment letter, now we have the possession certificate, which allows us to start the construction. Now we are on the way to finalize the construction company, and we'll start the building of the factory. Already we are in the process of ordering the various equipment and machines. As we mentioned earlier, it will start sometime in Q3 FY 2025.
Okay. Sure. Last question when we expect the revenue to start flowing in meaningfully from the oil and gas customer we acquired recently?
No, this was what we mentioned this company we are working with. We already got a number of generator orders from this customer, and we are bidding for a number of projects with them all over the world. I think we will start seeing impact of this in FY 2025 itself. It is moving really well and we are getting some excellent business, which we would not have been able to get by ourselves. With this relationship, we are definitely making progress and good revenues will be expected in FY 2025. I cannot give a number to you, obviously, but it is going to be quite a substantial number in FY 2025.
Sure. This is actually factored in our guidance, right?
It is factored in the sense that, I have given 17% as a base case, and I have given a 3%-5% upside potential. I think that we are most likely going to be somewhere on the upside potential. How much I cannot say, but all these things will contribute to the upside.
Okay. Sure. Thank you.
Thank you. We have our next question from the line of Himanshu Upadhyay from BugleRock PMS. Please go ahead.
Yeah. Hi, good afternoon. Good morning. Congrats on good set of numbers.
Thank you.
My first question was, if you look at the volume numbers for nine months of generator supply, it has been flat. Okay? The revenue has gone up by 18%. What should be a right understanding here? Is it the higher wattage generators because of which the selling prices have increased, or motors and other segments revenue contribution have increased quite dramatically because of that we are seeing revenue growth much higher? They are high-end machines in terms of specification or industry, because of which the realizations have increased. Some thought on flattish generator volumes and 18% growth in revenue, and how to understand that numbers.
Yeah. Varalakshmi, will you take this question?
The megawatt types that we have installed in Q3 is much bigger compared to previous year. Basically, it is a mix of machines that has been sold in the quarter, which has given us better realization.
Even if you look at the nine months, that is why I did not look at each quarter. If you look at the nine months, numbers have flattish or slightly reduced. Okay? Last year in nine months, we did was INR 378, and in these nine months it is INR 372. Okay?
We had installed in terms of megawatt, it was 2,509, 10 months last year, and this is 2,849 in nine months of this year. It is basically the product mix that has helped us generate higher revenue.
Okay. Second question on this thing, are we seeing the demand improving for the higher wattage generators than what was the demand, let's say, one and a half or two years back? Because what we are selling now or giving delivery would be a year or so back orders which might have. Any thoughts on that or any clarity you can give?
I don't think that. It's not that there is a trend or something. Sometimes there are some big orders in the market, some very large size machines. We take that and that could change the numbers a little bit. Sometimes there are orders for larger numbers of smaller size rating machines. As I said, we have a very wide product range, and we have wide geographies, and we have multiple segments that we're operating in. We are present in many parts of the business. We can't predict what the market is going to offer to us and which ones we're going to win from that. Sometimes we win bigger jobs and sometimes we win smaller jobs. For us, what's important is, we look at the revenue and the revenue guidance that we give, and we have to maintain that.
What megawatts we get. That for us is a secondary consideration.
Okay, thanks, sir. See the numbers what you give for generator supplied, these do not include the motors portion of the business which we give to our railway customers. Also, we sell in the market. These are standalone motors.
These megawatts don't include motors and railways.
Okay. No, I am seeing on the slide 17 what we get the number of generator supply. It is purely generators, not other segments. Okay.
Varalakshmi, please clarify that, please.
It is there supplied to railway. That comes under a different grouping.
Okay. One more thing. When will this Train 18 go for production? Okay. Because the finalization of what business we can get out of the main vendor was to be decided. Has that happened?
Could you please repeat that last question? I just missed it out. Could you please repeat what did you say?
No, I was asking about that Train 18, when will that go for production? Okay.
Train 18.
Yeah. From the main vendor, we were to get some portion of the business for motors, and it was yet to get finalized. Okay.
I don't think that they have signed the contract with the Indian Railways as yet. We don't know what is the reason for the delay, but it's delayed. They've not yet signed the contract.
Okay.
Mr. Upadhyay, I request you to join the queue, please, as we have other participants waiting. You may join the queue.
Okay, I'll join the queue.
Thank you. We have our next question from the line of Dhwanil Desai from Turtle Capital. Please go ahead.
Hi, good morning, Nikhil and team, and congratulations for a very good set of numbers. Nikhil, slightly broader question. I think three, four years back, or since three, four years back, we were purely into generators, and slowly we are doing a lot of work on the motor side, both synchronous and asynchronous. If you can give an overview as to how does it change the overall size of the opportunity for us, is the competition very different? Next three to four years, how do we see this mix between the generators and motors evolving? If you can talk a bit about that.
The motor business segment is, in terms of market size, is many times larger than the generator business in terms of market size, the opportunity size is very huge. While saying this, we are focusing more on larger size motors, mainly, say, around 3, 4 MW and above. We're not looking at the smaller size, commodity size part of the business, which could be around 80% of the business could be the smaller commodity size market. But even the 20% that we're talking about is a very huge market, and it has big potential for TDPS to work in domestic as well as export. We have given projections that this will grow. It could reach something like 8%, 10% of our sales in FY 2025, and it could be 15% in the following year in FY 2026.
Let's see, I don't want to draw a straight line into the future. It could grow faster because there are many opportunities coming up. Even for the hydrogen economy, you need motors for these large compressors, for compression of hydrogen. Oil and gas market also is a big market for motors, especially for compression and for refrigeration, especially in the LNG business. Opportunity size is fantastic, and the motor business will be a key driver of growth for TDPS in the future. How fast is it going to grow? As I said, our numbers I just gave to you is what we're looking at for the next two years, and then we will give you guidance for the following years.
A lot of effort is being put in to get into this lucrative and this higher size, higher range part of the business in the next few years.
Can you tell me in this higher size, higher range, who are the main competitors, both internationally and in domestic market?
Domestic, it is BHEL, there's another company called WEG, W-E-G. They are dominant players who in the market have a big history of being big motor manufacturers. They are the biggest competitors. Internationally, it's WEG once again. There are Siemens, ABB. There's a lot of competition in the motor business internationally. We have as an advantage once again is production base out of India. Our high quality and lower production cost will give us an advantage in terms of pricing, and that will be the key factor for us to ensure that we penetrate the market.
Got it. Second question is: Is there any update on the Turkey side?
No. The economy is still in a free fall over there. We are using that thing as a service center for TDPS, and that's where it's going to be. The market is still in free fall right now.
Okay. We'll be continuing.
Currency. We continue just to hold that facility as a service shop. Market, currency in Turkey is still uncontrollable. It's just getting worse year by year.
Got it. Thank you, and all the best.
Thank you. We have our next question from the line of [Rahil Shah] from Crown Capital. Please go ahead.
Hi, sir. The concern level, given this revenue growth guidance you have, what are your EBITDA margins, ROCE expectations to end the year, but also for the next year?
We said we'll be around 18% for this year, and we are holding that number, say, around 17.5%, 18% next year also. Next year, we will have the third plant coming on stream. We will have additional fixed costs coming in from the third plant. We don't expect that to have more than a 50 basis points or 35 basis points impact on the EBITDA margin in the short term. I mean, say, for a year or so. Once that plant is fully utilized and generating output, then the EBITDA numbers will go to 18 and 18+ .
Okay. Regarding this motor business, which you are focusing heavily on, you said it will be a key driver in the future. Next year, what specifically the motors are going to be key drivers which give you this optimism of how to go this year going forward?
We have a synchronous motor business out of the Indian market. We have a number of opportunities coming in from export. In the oil and gas segment, we have as a captive cycle in India also, it's picking up in a big way. All major cement plants, steel plants, sugar plants, paper factories, all require large number of motors, larger motors also. Demand is very strong and we will capture part of the demand and that's why I'm confident that we will deliver the numbers what I projected.
Okay. Lastly, quickly, you mentioned this new plant, the third plant is also, you said it will reach peak utilization. The margins will go beyond 18.5% to reach the utilization levels.
I think we will come back to 18% in FY 2026. Beyond that, I don't want to give an exact number of the EBITDA margin going to be in FY 2027. It's a bit too far away. We expect to come back to 18% in FY 2026.
I was just asking when you said the plant will be at peak utilization. Actually, if you can.
INR 1,800 crore. With that plant, we get to INR 1,800 crore capacity.
Okay.
That would be three, four years from now. Yeah.
Thank you. All the best.
Thank you. We have our next question from the line of V.P. Rajesh from Banyan Capital Advisors. Please go ahead.
Yeah, hi. Thanks for the opportunity. Most of my questions have been answered, but just to confirm, what was the business contribution to the nine months revenue in this year?
Very little.
Okay. When you recently talk about INR 1,800 crores revenue for the third plant in Tumkur, that would seem a very low growth from what you have guided from FY 2025. Are there any more other growth levers in the revenue in the king chain? Because from, let's say, next year, you're doing around INR 100 crores kind of revenue, and then three, four years out would be INR 1,800. That would sort of slow down the growth rate you have been doing in the last few years. I'm just curious if there are any more growth levers aside from this third plant coming up.
Yeah. I feel that it's really too early to give such a definite forecast for up to INR 1,800 crore and say exactly when it's going to take place. We need to size the plant in a way that it makes sense for us, and we also need to size the plant in a way that we get the maximum capital efficiency for the investment that we're making. That's why we have sized the plant that way so that we can get to this level. I hope we can get to INR 1,800 crore in two years from now, three years from now. It's not that we're going to stop our efforts to get to that level, to that number as soon as possible. What I'm guiding is around 13%-18% compounded sales growth year-on-year.
Based on that, I think we will get there in three years.
Got it. Just lastly, on the CapEx side, what's the CapEx outlay for next year or actually just discuss that.
We're looking this year and next year kind of giving the outlay. Yeah, we'll just wait for her to get back on the call, and then we'll answer this question, Rajesh.
Okay. All right. Thank you.
Thank you. We have a next question from the line of Vivekk umar from Bestpals Research and Advisory LLP. Please go ahead.
Am I audible, sir?
Yes, please go ahead.
Hi, Nikhil. Can you throw light on this Jaisinghya? Two customers we have, Jindakra and Tata Steel. I think many new customers are always in demand. What is your view on how this segment will shape up for us?
We are getting good business from both of them. I don't have any particular comments. We have good growth coming in from both of them for the next financial year. Order inflow is pretty good. No surprises if we are positive or negative from this segment.
Thank you, Nikhil.
Thank you. Sir, we have this Varalakshmi back on the call.
Yeah, Varalakshmi, there was a question from Mr. Rajesh. He wanted to know what is the capital expenses expected this year and next year.
This year it's around INR 40 crores and the balance INR 80 crores next year.
Thank you. Should we move on to the next question, sir?
Yeah.
Thank you. We have a question from the line of Deepen Shah, an individual investor. Please go ahead.
Yeah. Thank you for the opportunity and congratulations on a good set of numbers, Nikhil. I just had one question as a follow-up to what you mentioned in the opening remarks. You said that you received some breakthrough new orders during the quarter. That seems very exciting to me. Is it possible just to throw some more color on what kind of breakthrough orders you have received and probably the potential in those orders? Thank you so much.
In the motor business, right?
Sorry?
I mentioned in the motor business.
Yeah, you mentioned some breakthrough orders you have received in the business.
I mentioned this. We have received a large order from a pump manufacturer for a large irrigation project which numbers at 20+ MW motors for a large irrigation project in Karnataka. We received an order for a big motor for oil and gas industry in Middle East. We have received a few orders for large fan motors for the steel industry around 2 MW capacity. These are the big breakthrough orders that we have achieved.
Thanks very much and all the best.
Thank you. Before we move on to the next question, we would like to remind participants to press star and one to ask a question. We'll take the next question from the line of Rohit from iThought PMS. Please go ahead.
Hello. Nikhil, just within a couple of quarters back, you were talking about us winning some business from an Italian company which does some storage and CO2, et cetera, and it was like a new application for our kind of equipment. If you can just tell me, how is that progressing and has that sort of any sort of opening up of new category et cetera for us, if you can just maybe talk about.
Yes, we have delivered that generator and they are in the process of commissioning the plant. Once they commission the plant and proof of concept is shown, then I think this business should pick up. I think there are some delays from the customer's side in putting this into operation. We delivered the machine, we're waiting for them to commission the plant.
I mean, just from an overall point of view, is that sort of bubble up and become big for us in the coming years if this proof of concept becomes.
It will be. Big means it could be around 10 machines per year, 10 plants per year. That's what we expect, but it is still a sizable business, but it will take some time for it to ramp up to that level. Right now, this company has to show proof of concept, and that's what they have to do, and they're in the process of doing that.
Got it. On the steam side, any comments on the waste to energy opportunity? I mean, how is that coming along? I mean, any comments you can or Vinay can share.
For the domestic market?
Yes. Just for domestic.
Vinay, any garbage burning plant from India, can you give some comments?
Yeah. There are many jobs. We have already got orders, there are good number of inquiries. It's looking good, mainly garbage burning plant and also other biomass plants. There is a steady growth in this segment actually.
Would it be possible to broadly share what the potential for order book would be from this segment? Some very broad number would be okay.
As of today, right now, if you talk about the garbage burning, it will be around
Overall scheme, order book.
Yeah, overall scheme domestically ordered.
Okay. Thank you. Thank you. All the best.
Thank you.
Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone now. We have our next question from the line of Mahesh Bendre from LIC Mutual Fund. Please go ahead.
Hi, sir. Thank you so much for the opportunity. Sir, motor business, just you mentioned that the contribution is very negligible, and we have received many orders now and there is a great thrust on this business. Maybe three years down the line, is it possible that we can get maybe 30% of our sales from motor business?
Hi, Mahesh. I said next year will be around 10%, 8%-10%, the following year, we hope to make it 15%. That's by 2026.
Three years down the line, this business. Sir, we were discussing about the motor contribution. You mentioned that next year could be 10%, after a year could be 15%. Three years down the line, do you expect, there is a huge runway for this kind of business?
Runway, I don't want to use the word runway, Mahesh. I think that there is the market is definitely, as I said, much larger than the generator business. Much larger generator business in general. Of course, there's more competition also. There are certain sectors which are going to grow very rapidly, like hydrogen compression, oil and gas business is going to grow very rapidly. Our products, we are gearing up our products, putting machines into these segments so that we can be part of the growth. It can be 30%-40% of overall TDPS, yes, it can be. Market potential is definitely there. We are going to go after it. If you want to give me guidance today, I can't give you guidance today on that.
No, no. No guidance, sir. I'm asking, you just mentioned.
Potential to reach that segment, potential to reach that level of output, 100% it is there.
You said that we will manufacture the motors 2 MW and above, which is like a 20% of the motor sales in India. That segment is how bigger? I mean, that 20% part is what? Three, four, right?
If you talk about the world business, over 2 MW, it could be, I don't know, it could be $20 billion.
India business?
It's a huge market.
For India business, sir?
India, I don't have the size right now, Mahesh, to tell you that market size.
Okay. This will be definitely higher than the generator market for India.
Yeah, definitely bigger than generator business in India at this moment. Yes.
Sure. Thank you so much, sir.
Thank you.
Thank you.
We have our next question from the line of Mythili Balakrishnan from Alchemy Asset Management. Please go ahead.
Sure. Looking at the numbers, just a couple of questions. One, if you could help us with the market share in the domestic generator market. How is it doing? Has it been roughly stable for us?
Yeah, we have a very high market share. It continues to be stable.
Okay.
We hope to, and we will be fighting to keep it stable.
Got it. At those high levels.
Yes.
In terms of the OEM versus direct, would that be anything to sort of tell us in terms of the mix there?
No, it's largely OEM business.
Okay. Coming to the railway part, right. If you could just sort of help us, give us some direction in terms of what is expected there. Obviously, we have the direct business which will come, but are there any other orders or anything else that is there on the railway side that we would be able to.
Railway business, from the private sector railway business, it depends on our key customers winning some of the tenders which are there in the market, which were there in the market, which also hopefully are still there in the market. There has been lack of action in this railway private sector tendering for quite a long time, almost you can say for six months. We have not seen any major movement taking place, any new orders being taken for the large freight locomotives, either in 9,000 horsepower or 1,200 horsepower. Right now there has been only one 1,200, which custom won almost five years ago. I think last year, Siemens won one order for 9,000. Other than that, there were supposed to be at least three more, but we are not seeing that action.
Even this Vande Bharat trains and the ordering for that is also, we are not seeing any action on that in the market. Based on the budget yesterday, I think thrust is going to be given once again to railways, it will pick up, maybe it will all pick up after the elections. The chances of all these things happening will be clearer I think, once we cross the elections.
Got it. In terms of Vande Bharat orders, et cetera, we would be participating direct or through the OEMs again?
No, we are making only the motor. We'll be working with one major OEM. That's where we see our better chances to get the business. Other competitors in the market have their own motors, and they may not buy from us.
Got it. I also want to check with you on the export part of the business. Is there any impact from this whole situation which is happening in the Red Sea?
The shipping costs have definitely gone up, and the times have gone up for many of our customers. It's not so dramatic where it's affecting the business. We may have to shorten our delivery cycles by two weeks to three weeks to remain competitive. That we can do. We have not seen the cost go up to the point where people are saying that it's changing their buying decisions.
Got it. That's all from my side. Thank you.
I mean, the increase in the freight rates right now is still nothing compared to the increase in the freight rates that took place post-COVID.
Right.
At that time, the freight rates basically went up 300%, 400%.
Still we did not see that business of TDPS getting affected to the point where we started losing orders in the international markets because of freight rates. Now the freight rates because of the Red Sea problem may be up by 15% or 20%.
The time is a little bit longer because it has to go under and go below Africa. On a fundamental level, the amount of new capacity which is coming into the shipping industry is also enormous, which is keeping the prices under control.
Got it. Thanks, sir, for your detailed answers. Thank you very much.
Thank you. We have our next question from the line of Aditya from Securities Investment Management. Please go ahead.
Yeah. Hi. Thanks for the opportunity. On an EPS basis, what kind of scale can we expect in two to three years of time? Can it become a 50/50 rule kind of a business from there? Secondly, sir.
Yeah. Much more than that. I don't want to give you a number, but definitely much more than what you are saying.
Just on a broad basis. On a yearly basis, what kind of business can GE generate, and what kind of market share are we targeting with that?
The amount of business, I can't commit, but margins are in line with what we are offering to the, with what we're getting from the rest of the market. The potential is definitely more than what you talked about. I can't give a number to that right now.
Okay, sir. Sir, what is the thought process behind the addition of Paresh M.B. to our board?
They were looking for a high-quality manufacturer to make these machines below 50 MW. Right now they have one factory in Czech Republic where they make the larger size machines from 60 to 400, and they are booked for the next three years in that factory, so they're completely full. They're looking for someone to make these smaller size machines for them. We also wanted to make sure that this is not a short-term thing, so we have made the agreement in a way that we would have a long-term agreement on these products. Yeah, that's how they came to us. They chose us because of our high-quality manufacturing capability.
Got it, sir. Thank you, sir. Over.
Thank you. We have our next question from the line of Himanshu Upadhyay from BugleRock PMS. Please go ahead.
Hi. Thanks for giving me an opportunity again. My question was on the margins side, okay. We seem to be very comfortable with off 17% margins, okay. A few years back, we were at 10%, 11%, okay. Was there a significant improvement in the product mix and hence the margins that expecting to be much higher? Or you think it's more the economies of scale, and just sustainability of these margins going ahead?
I got the question. Himanshu, I think the question is, I think I'll answer very quickly. We have increased our EBITDA margins from cost reduction activities, from operational leverage, and from intelligent buying of raw materials, and to some extent, we have also got price increases. Price increases won't take place any further. We will see probably stabilization of raw material prices. Our cost reduction activities will continue, and our operational leverage is going to continue. We will see upside potential for the EBITDA margin. We don't see a big potential for any downside.
We expect the gross margins to remain around 33%? Two years back it was around 29, 30.
Yeah, 32%-33%. Yes.
Okay. Yeah. Thank you so much, sir.
Thank you. We have our last question from the line of Rolin, an individual investor. Please go ahead.
Yeah. Thanks for giving the opportunity. I just wanted to congratulate the entire team of shifting from just a generator company, to also being a significant player in the high voltage motors. Congratulations on the entire team on that. I just have one question. I want to double-check on some of the initial comments that you made on some of the demand tailwinds as well, which has been in your core steam generator business, and partially this was answered. I just wanted to understand that in domestic markets, is the demand coming from very broad set of sectors? You called out metals and cement and waste recovery or waste heat recovery. Is it much more broad-based?
Can you also touch upon how big this biomass opportunity can be, given the fact that there has to be some mandatory blending, at least CNG, in the biomass part of it. Can the biomass be as big as waste heat recovery in terms of size of the opportunity?
Biomass will not be as large as waste heat recovery.
Yes.
Waste to energy as a garbage burning plant especially can be as large. If all cities, all municipalities in India start burning garbage instead of putting it in the ground or creating huge garbage piles, then that potential is definitely there. Whether it's actually happened or not is a different question. The potential is there. Although I mentioned a few sectors, the key sectors for driving the growth, we're seeing orders coming in from chemicals, from paper, from fertilizer, from ethanol also. We're seeing a broad-based demand from all parts of the market. We still believe that the initial stages, after the election, things are going to probably move to the next year. It's already moving at a good rate. I think after elections, a lot of people who are waiting on the sidelines will jump into the market further.
The potential for the domestic market to grow from INR 3 trillion GDP to INR 5 trillion GDP is a big potential, big growth opportunity for our country to have. There will be a huge requirement for power generation from all parts of the market, from industry, from consumer. For TDPS, we have such a big high market share in our range of products. We will be a part of this entire growth cycle that takes place in our country. Export is on top, you can say. India will be the shining story for us.
Sure. Just on this waste to energy for any municipality, is there a very attractive payback period for any municipality to put up a plant? Is it like five to seven years where you can get back the money that you have invested and that makes it a very attractive investment? Any comment on that side of things?
I don't know the financial dynamics of that particular picture.
Sure.
I can't comment on that.
Sure. On the international side, again, sticking with the same generated power business, you mentioned waste to heat there as well, and biomass there as well. Is the demand largely coming from Europe? In last two winters, we have seen that they were not severe. The gas prices have come down, and that was a primary source of energy for a lot of use case in Europe. Is that urgency to diversify the energy consumption or supply of energy little bit less versus what it was a couple of years back where the gas prices have shifted? Any reduction in intensity that you have seen, especially from European market when it comes to waste to heat biomass or anything like that?
Nothing in Europe moves quickly. There's a lot of regulation, and everything moves at its own pace. The number of projects which are coming up in this sector, especially waste to energy, are enormous. Biomass waste to energy is enormous. Also hydro. The structural shift towards more renewables is there. It will take place, but it will take place slowly. It's not going to be a vertical line upwards. Year-on-year, we're going to see increased business. I think that it's better for us to have a long cycle with sustained growth rather than to have a very short cycle with explosive growth. What we're seeing is a structural shift, so that means a longer cycle with slower growth, but there will be growth.
Sure. Just one last question. You also mentioned that hydrogen compression, and there would be some motors which could be applied, right? Do we have already some products which we are prototyping, and how different.
We have the product.
You already have a product. Okay.
The products are a little different, but we have the products.
You already have the product in your TP, right?
Yeah.
Okay, great. Nikhil, thanks a lot for giving me the opportunity, and all the best.
Thank you.
Thank you.
As there are no further questions, I now hand the conference over to Mr. Nikhil Kumar for closing comments. Over to you, sir.
Thank you for joining our conference call. We had a good time today answering all the different kinds of questions. Please feel free to get in touch with me or my investor relations team if you have any further questions. We look forward to interacting with you once again at the end of next quarter or in between in some investor conference. Thank you.
Thank you, sir. On behalf of TD Power Systems Limited, I conclude this conference. Thank you for joining us. You can now disconnect your lines.