Ladies and gentlemen, good day and welcome to the Triveni Turbine Limited Q1 FY 2021 Earnings Conference Call. 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 would now like to hand the conference over to Mr. Rishi Birar from CDR India. Thank you and over to you, sir.
Thank you. Good day, everyone, and a warm welcome to all of you participating in the Q1 FY21 conference call for Triveni Turbine Limited. We have with us today on the call Mr. Nikhil Sawhney, Vice Chairman and Managing Director, Mr. Arun Mote, Executive Director and Mr. Suresh Taneja, Group CFO, along with other members of the senior management team. Before we begin, I would like to mention that some statements made in today's discussion may be forward-looking in nature and a statement to this effect has been included in the invite which was mailed to everybody earlier. I would also like to emphasize that while this call is open to all invitees, it may not be broadcasted or reproduced in any form or manner. We will start this call with opening remarks from the management, following which we will have an interactive question and answer session.
I now invite Mr. Nikhil Sawhney to share some perspectives with you with regard to the operations and outlook for the business. Over to you, sir.
Thank you very much and a very good afternoon to everyone. Thank you for joining the Q1 FY21 conference call for Triveni Turbine. I hope everyone is well and their families are well in this COVID time, but also given the unseasonable rains in Bombay, I hope that you are all well. First off, I'd like to give you a little bit of overview on where the business stands and how we have prepared in this past quarter. Even though we had a call about six weeks ago, I think that you would see that the company's performance has been quite good in this very trying time. The COVID-19 pandemic has impacted not only us but global economies and industries in a very severe way.
While Q1 FY21 has been a difficult quarter due to the restrictions of travel and movement of raw materials, but also the fact that businesses were not allowed to operate and we were also closed as a company in terms of our entire production for a little over three weeks. Our supply chain continued to be impacted and so did our logistics supply chain as well. Given these factors, it is quite commendable I think in our opinion at the performance that Triveni Turbine has put forward in this current quarter, which truly shows the agility that the company is able to operate through while being able to have a low asset base under which it operates, but still deliver in a very dynamic manner to our commitments to our customers primarily, which ultimately hopefully leads to performance for our shareholders.
Again, in this time our top priorities have and will continue to be the safety and security of our employees and key stakeholders along with those with close customer connect. This is all to ensure that we understand and work with our clients through whatever impact the virus may have led and may continue to have on their businesses. The order book for the quarter has also been impacted due to this lockdown. Surprisingly to us, the inquiry generation has been at a similar level and has in fact maybe increased by a couple of percentage points. Our team has worked relentlessly and actually they deserve the entire credit.
The dedication of the employees of Triveni Turbine to be able to deliver satisfaction to our customers really was at the forefront of all the efforts in this past quarter and it has turned out in an extremely fortuitous manner for us in terms of being able to derive the benefits of our transition where we are at this point in time. As part of this new normal, the company has also strengthened its digitization efforts with an adoption of various tools such as augmented reality and virtual reality. I alluded to this in our previous conference calls and as you would tell from these results that it is because of these digital tools that we've been able to achieve whatever performance we have in this current quarter.
We believe our step into digitization is just at its beginning right now and we are at a real transformation of the company where we would be digitizing and where we would hold digitization at the center of all our activities and endeavors to benchmark our activities on efficiency and productivity. We're at a real transformation right now. There's been a lot of thinking internally and we will be taking future initiatives which will truly transform our company to be even more agile in the days and years to come. On the performance itself, the net income from operations for the quarter was at INR 1.65 billion, which is lower by 23%, and EBITDA was at INR 433 million, which is lower by 7%, while PAT was lower by 11% at INR 273 million.
This is of course impacted, the PAT number was impacted by the performance of the joint venture which had a loss of INR 146 lakhs during the current quarter. This is due to the fact that there was no dispatches in the joint venture and by the next subsequent quarters and by the end of the year, the joint venture will display profitability. We are confident on its operations. The outstanding carry-forward order book as on the 30th of June 2020 was at INR 6.78 billion, which is only lower by about 3% when compared with the beginning of the year. The company achieved a total order book of INR 144 billion as against INR 215 billion during Q1 FY 2020.
The decline in order booking, as you well imagine, was due to the lockdown and lower international order booking, as we had also alluded to in the previous conference call. The positive factor is that even during this period, the inquiry flow has been very steady. The company could achieve a higher EBITDA margin of 26% due to a focus on cost reduction through value engineering, supply chain optimization, and a reduction in administrative costs. All of these are sustainable into the future as well. We have been alluding to this over the previous conference calls that the form in which the company is selling its products is more modular, which allows us to have a tighter control on inventories, which has a tighter control on manufacturing expenses, as well as a utilization of raw material inventory.
Therefore, not only does this allow us to be more efficient from a cost perspective, but also to be more agile from a cash flow perspective also. At the same time, the mix of aftermarket along with product sales has positively impacted the company this quarter, and I will go into that in a little bit of detail in a few minutes. The domestic order booking was down by 19%. As you would imagine, that this is impacted with the restrictions that we had in terms of the lockdown in the current quarter. The main segments that we got orders from were the usual suspects in terms of the renewable sectors, waste heat recovery, and specifically process cogeneration. This is a segment that we are still seeing some growth in the domestic industry. We believe that the domestic industry will show us good growth.
Not good growth, sorry. To show us order booking for this current year akin to probably about a total market of about five years ago. At the same time, the inquiry suggests that in the coming year, which is FY 2022, the order booking from the domestic market will pick up again. This is driven by several factors, which I'll be happy to answer once you ask questions around it. At the same time, the export market has seen a decline in order booking of 53%, and some of the export orders that we had on hand, which was stuck at port, were able to be dispatched in this current quarter. We have to say that the company incurred certain costs on those export orders which were stuck at port in the form of demurrage.
Those have been included as part of costs, we believe that those costs will not be recurring in future quarters. The company currently has installations over 70 countries, we are focusing on expanding our presence in a variety of different sectors. Not only in the renewable sector, in which we have a global dominant market position, but increasingly so in the process cogeneration and also in the oil and gas market going forward. The turnover for the aftermarket in Q1 FY 2021 was at INR 426 million, which is 3% higher when compared with the same quarter of the previous year. The share of aftermarket sales to total sales was at 26%, as opposed to 19% in the same quarter of the previous year.
During Q1 FY 2020, the order booking in the aftermarket segment was at INR 401 million, which showed a decline of 35% as opposed to the same quarter in the corresponding year. We have to take great comfort in the fact that the aftermarket segment has led the business in this current quarter, not only in being able to maintain its sales in these trying times. We have to understand that it was because of the urgency that our customers faced in terms of getting their spares, because they may be part of the essential supply chain or part of essential industry themselves, that drove us to get permission to start our operations. The aftermarket is what allowed us to get back in front of our customers and being able to deliver to them.
At the same time, the order booking was impacted, driven by the fact that there was uncertainty in terms of when customers may take their shutdowns, as well as total lockdowns in certain areas did not allow us to have a closer interaction with our customers. Going forward, we believe that the aftermarket order booking will pick up in the coming quarters, and we will display a good result in terms of order booking for the aftermarket segment for the full year, which is FY 2021. Design and development has always been a very strong area for the company, and we always have believed that the value of Triveni Turbine has been its engineering capability and the technology that it puts into its products, and therefore able to cater to its customers' requirements.
We have continued to focus on this and will be investing further in research and development into new areas of rotations or new areas of fluid dynamics and new areas of rotating equipment, whereby we can utilize the best of our abilities, both from a manufacturing perspective, but also from a supply chain and management side. We are optimistic that we would come up with certain areas whereby we can lead to future revenue growth for the company, but this will all be driven by technology and design and development. The outlook for the company is quite good. While we had given an update in the last call about the possibility of having a decline in turnover and profitability, at this point in time, six weeks forward from when we spoke, I'm not in the position to change what we anticipated at that point in time.
We believe that the outlook for the business is quite good. This is driven by not only a decent inquiry level, but also in terms of the focus that we have in the end markets, which have funding and have attraction in terms of customers willing to set up new projects. The problem happens in terms of finalization of orders, and what we find is at this point in time, that customers are looking to bargain. Therefore, while we have a cost advantage over our competitors, we feel that there's not a time for us to be discounting at a level which is not necessary. So therefore, we may even go slower on accepting orders where customers feel that they have a bargaining advantage in terms of being able to pressurize us in terms of pricing.
Having said that, our international travel, we believe would start off again in the next 4- 6 weeks. At the same time, our operations in Dubai and South Africa have started, and this will help cover not only the European and African markets, but also some parts of West Asia. The Thailand and Indonesian operations will be starting soon, and so therefore, we will be able to have more focused efforts in front of our customers at that point. We have a strong inquiry pipeline, like I had said, but specifically for the aftermarket, it is quite robust. We believe that Q2 onwards, the order booking is expected to pick up, and for the full year, the company sees a strong order booking for the aftermarket business.
There's also a strong pipeline between all the segments of the aftermarket, but there will be a greater focus on the refurbishment business. The one segment of the business which will get impacted and may not be able to recover to the same level of its performance of the previous year will be our service, which as we move into a more digitized form of offering service to our customers, it will definitely have a revenue impact because we may not be able to be in front of the customers as much as we may like. From an overall year-on-year perspective, the business will perform well.
The company's foray into the oil and gas market is also gaining momentum, and we are hopeful of getting some large orders in this segment in the coming quarters, and we will be able to display some good results for this current financial year. More than that, this places us very well for this market segment for next year going forward. Due to the COVID-19 impacting the domestic as well as global markets and economies, and based on the current situation, the company may witness a decline in revenue and order booking in H1. It is expected to improve in H2 with the current orders in hand. The company believes that it could limit its decline in revenue and profitability to the extent that we've already spoken about.
While all the attempts are being made to minimize the impact in terms of revenue declines, our attempts from a cost-cutting perspective and operational flexibility will be also moving forward with a very sure footing. We believe that there is still some scope for us to be able to rationalize costs, and we think that from the longer-term perspective, we will take very prudent decisions. I hope to come back to you in the next couple of quarters with some concrete plans as to how we will be able to implement those. Therefore, with a healthy, outstanding order book and with a good pipeline of inquiries, we are confident that the company will fare well in the coming quarters.
Of course, we've been impacted quite severely with this COVID-19 crisis and the lockdowns, and we have lost between 4-6 weeks of revenue, and this will directly impact the company for this current financial year. It places us quite well for the coming year and the coming years. The company has a good cash position of about INR 3 billion, and this is driven by an increased use of our or the reduction in our inventory. We've been able to actually release a lot of cash there. Our operational flexibility has also allowed us to get better cash from our customers in terms of receivables.
More importantly than anything else, that as we move into Q2 and Q3, we are of the opinion that we will move back into a negative working capital environment, which the company had for several years in the past. With that, I am happy to take some questions from the investors and from participants.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take the first question from the line of Ravi Swaminathan from Spark Capital. Please go ahead.
Hi, sir. Good afternoon. Thanks for taking my question.
Good afternoon.
My first question is with respect to the O&G orders that you had mentioned, that they can be pretty big. How large can they be per annum on a steady-state basis? If you could quantify, it would be really helpful.
Well, the market, in my estimation, is a couple of billion-dollar market for a product in any given year. The point is that because of the fact that these products are low in value from the perspective of the end buyer, they don't tend to qualify too many people, and they don't want to go through the process or the bureaucracy of having to qualify because safety and security of the product is paramount for them. They don't mind not having the best cost. Given the change in environment that we have in terms of declining oil prices and the need for everyone to be more efficient in terms of their supply chain procurement, we have actually had good success in getting in to a lot of the qualification that our clients need. At the same time, we are hopeful.
As we currently stand, we are in the process of closing a couple of orders. It all depends on size and scale of what the requirement may be. If it's a new refinery or a new complex, of course, the requirements are large. If it is a question of upgrading or replacement, the orders in terms of value are smaller.
Got it, sir. You had mentioned that it's a couple of billion dollars, which is like INR 15,000 crores. Even 1%, 2% market share can make a huge delta to your order inflow. Do you expect that kind of magnitude of inflow in the first year itself?
Let's wait to see what success we get. We're hopeful that we think that we would be able. This is a new market segment for us, drive markets. If I read the drive market, when you look at the entire market, this has the potential to pretty much double the business that we are getting right now, but that's over the longer term.
Got it. More slightly short term, I mean, the gross margins have expanded this quarter. Is it because of the mix, after-sales service growing at a relatively higher pace than the other segments because of which it is there? Or is it?
Well, we have two reasons. One is that structurally we have reduced costs. This has been through the entire organization. It starts from manufacturing expenses, which is driven by the mix of products that we are selling in terms of how standardized they may be.
At the same time, the administrative costs, as you would imagine, have come down considerably, both from a work-from-home perspective, as well as the fact that international travel was not possible. At the same time, the mix of aftermarket with product has, of course, helped in terms of the EBITDA margins. The decline, the lower revenue also was weighed down by general operating administrative overheads and operational overheads. We believe that as turnover grows, there may not be a potential to expand EBITDA margins. I don't think I would like to give that as a take out to investors here. I think that to maintain margins is something that is definitely enough visibility.
Got it, sir. My last question is with respect to cash levels. I mean, we are sitting on a very comfortable INR 300 crores of cash, which is like 15% of market cap. You don't have big CapEx plans, and you had also mentioned that working capital, in fact, might even go down. Any plans to increase dividends or do buybacks or something of the sort?
Well, at this point in time, the board hasn't taken any decision on it. As it, when it does, we will come back to you. I think the imperative of the business right now is to ensure that we provide greater visibility to its shareholders from a revenue perspective. I think that the ambition that we have in terms of the equity growth is something that really we would like the cash surplus to focus around. Ultimately, the company has de-risked itself in a variety of different ways. As you could see from the fact that it was able to actually deliver this type of turnover in a quarter which was significantly impacted, both in terms of dispatch as well as outreach to customers both in India and internationally.
We think that we have the wherewithal, both from a management perspective as well as the different functions to be able to add value from our revenue.
Okay, sir. Thanks.
Thank you. The next question is from the line of Ashutosh Garud from Ocean Dial. Please go ahead.
Yeah. Hi, can you hear me?
Yes, I can.
Yeah. Hi. I just wanted to understand from a sectoral mix perspective, would you be able to give some sense of your order book mix across sectors?
No, I think we stopped giving that because people are reading too much into it. In general, let's say in terms of outlook, as we look at it from a domestic market perspective, there are certain sectors which are performing well, which we believe will continue to grow well, such as the process co-generation, which is in the food distillery space, pharmaceutical space. We think that the waste heat recovery segment, which is in steel and cement, will take a little bit more time to pick up. In the international market, geographically, we are seeing much greater traction in Europe, and we think that that will be a bigger market for us in the coming quarters. It's basically based on where people have opened up and requirements in terms of the underlying businesses domain.
Our largest market segment is the renewable segment, and so that will be our focus in terms of municipal solid waste consideration, as well as other biomass-based applications.
Okay. On this PLI scheme, do you think that there would be any kind of benefit coming to the manufacturers like us?
You see, PLI is I think for specific industries. We think under Aatmanirbhar there will be other programs around it, such as Well, we've been contacted several times in terms of standardizations and standards. Sorry. We believe that there's a need for us to, as standards are adopted, there'll be certain non-tariff barriers which will come up in the Indian market. As it is, we don't suffer from imports to such a large extent, but even to the limited extent of 5%, 7% of the market which goes to export may possibly come down. At the same time, we think there are certain implementations, certain policies which could end up benefiting the company from the longer term, such as the Capital Goods Policy. We think that there's potential for us to make the most of government schemes and programs as well.
Okay. Sir, if you can elaborate the point of digitization you mentioned earlier. How exactly will that play a role in our business? Will it cut cost or is it going to expand the opportunity size on a demand side?
Both. Firstly, it opens up a new revenue stream and that's what I'd like to focus on, because very frankly, these are ways for us to reach customers when we couldn't reach them previously. This is ways for us to offer services to them, both in terms of reliability as well as productivity to them where we couldn't previously. This is a new offering for us to be able to offer this to our customers, not only in terms of being able to remote monitor, but also to use data in a much more efficient were able to predict where and how our customer may have his problems. This dependability as a service ultimately leads to a revenue increase in terms of newer product lines. This also benchmarks ourselves in terms of offerings with our competitors.
Therefore, it is a step up in terms of being able to cater to our customers better. The second part is the reduction in cost, and this happens through the entire value chain of the company. When you start from places like travel that comes down, you have increased digitization on the shop floor in terms of Industry 4.0. We'd have greater degree of automation and a greater degree of flexibility on the operating floor, which not only leads to a decline in manpower cost or higher productivity, but also leads to higher efficiency and lower turnaround time and less wastage and a variety of different factors. All these factors add together to make the company more agile, firstly, but also increase revenues and lower cost.
Oh, thank you.
Thank you. The next question is from the line of Harshit Patel from Equirus Securities. Please go ahead.
Thank you very much for the opportunity. Sir, I had a couple of questions. The first one was on our-
Mr. Patel, I'm so sorry to interrupt. Requesting you to please speak a bit louder, sir.
Is it audible?
Yes.
Yes. I can hear you.
Sure. Sir, I had a couple of questions. The first one was on our value engineering effort. Sir, could you elaborate a bit more on that as to what exactly we are doing here and what would be its contribution in our overall operating margin improvement? Because since last three to four quarters, we have been witnessing a sustainable improvement in the operating margins from the kind of levels that we have achieved in FY 2019. From FY 2020 onwards there has been a pretty decent progress on that front. If you could elaborate a bit more on that it will be very helpful.
Okay. Value engineering is a continuous exercise whereby we aim to take cost out of a product, both through material cost reduction as well as through manufacturing and supply chain efficiency. It's a more complicated answer than just simply laying it out. Principally for us, it drives around the fact that the steam turbine is a customized engineer to order product. To the extent that you can standardize modules and you are able to actually configure those in a manner they can be used across a variety of different platforms, we are able to then have value engineering from the engineering side. Every discipline has its own different elements. I have our Executive Director, Mr. Arun Mote on the line as well. Arun, would you like to explain a little bit more about your value engineering exercises?
Yeah, sure. Yeah, sure, Nikhil. I will do that. This is Arun Mote. When we talk of total cost to the product, we have the material cost, we have the conversion cost and then we have the indirect material cost. These three, and the last one of course is the overhead. We are, as our Vice Chairman has said, in the business of engineer to order product. What happens is that there is a continuous learning of the product and which entails value engineering. What we mean by value engineering is that we ensure that the function of the product is not compromised, but the material that goes into it is reduced on a continuously basis. About 1.5%- 2% of the material, by value engineering and by supply chain initiatives, is something which is considered to be good for all engineers.
One, we do this value engineering, and it's a continuous process. You'll find that every time we introduce a new product, the cost will keep going down. The second is the conversion cost, which through direct operations and also subcontract, we continuously reduce it. There we get some percentage, maybe 0.5% or 1%. On the conversion cost on the other side, we have been going through a process of rationalization of manpower and other administrative expenses, which we have started, and that is yielding continuous results. As we wanted in FY 2020, that is last year and this year, you rightly pointed out, there has been a continuous improvement in the margin. This is one of the processes. The last one is, of course, on the other expenses of indirect material that we are going ahead.
It's a combination of all the efforts that is giving us this margin. We have also introduced a new initiative of using an inventory, and that is also giving a result which will continue to be there for about one and a half years next. These initiatives in total are giving the company more margins on product as well as on customer care. We would like to emphasize that the current difficulties have shown how an agile organization like us has transformed and given results to the shareholders in a much better manner. Thank you.
Thank you, Arun. I think essentially, if you look at it from the reported results, you'll see that our material cost is somewhere in the region of about 52%, and that's come down from, I think, 58%- 56% levels in different quarters in the previous year. I think that is something that what Arun was talking about in terms of efficiency of operations. The other costs, I think we would be able to work through.
Right. That was very elaborate. Thank you for your response on that. Another continuation of my question would be that you had earlier mentioned that you have started in-house testing of turbines. You had commissioned a test bed sometime in FY 2020. Could you give us an idea as to what kind of cost savings that has resulted into? Earlier when we did not have that kind of test bed, who used to test our turbines?
Well, actually, there's two different things that we commissioned over the previous years. I don't know what you mean by test bed. We installed and commissioned a dynamometer, which is actually essentially giving us greater dependability on our research and development and new models of blades that we would develop. Previously, research houses would have this, and so the cost would be spent in terms of a higher expenditure on R&D there. We decided to do this in-house, not only in terms of being able to do it quicker but also we felt that it is a good capability that we should build ourselves. The cost to it itself isn't really very large. Another large equipment that we did commission in the last, I would say couple of years, was a vacuum tunnel. This is a larger vacuum tunnel than one that we already had.
This augmented our capabilities to the extent that we already had a vacuum tunnel, which allows for high-speed balancing. This increased capacity, that really did help the capacity of our joint venture, which had larger turbines, but also the refurbishment market where we can cater to turbines of a much, much higher megawatt than the range that we currently cater to, which is 0-100.
Sure. Understood. Just last one, bookkeeping question one. For the first quarter, could you quantify what was the share of exports in our overall aftermarket orders and the present order book? That would be all from my side.
I'm not certain if we give that information out. Narayanan, if you have that, you can give it. Otherwise, you can contact him afterwards. Narayanan, are you there?
Yeah, I'm very much here. The aftermarket mix is, or as we said, that the overall dispatches in the international segment is lower than what it was estimated. It is in the range of around 80/20. That is the kind of mix from the aftermarket perspective, both [inaudible] .
Okay. Sure, sir. Thank you. Thanks a lot.
Thank you. The next question is from the line of Kaustubh from RARE Enterprises. Please go ahead.
Yeah, hello. I had a few questions on this GETL JV. How much ever you could answer. I'm sorry I joined the call late also. Just basically three questions. How much of your end profitability does this JV contribute to right now? What is the main topic of debate right now in this whole issue which is going on? What is our stance on it? What is the best possible outcome that we would like to achieve from this legal case which is going on, and what should we base for in the worst-case scenario?
Okay. You've asked a very difficult question because as you do know, this matter is sub judice right now. Therefore, elaborating on this is quite difficult for us to do. Let me try and answer it in whichever manner I can. From a perspective of the profitability of the joint venture. The expectations were, of course, for it to be a larger market, larger turnover, larger profit than the standalone enterprise. As it currently stands, and as for the last several years as we could see, the joint venture really hasn't contributed more than, I would say, a maximum of 10% of profit to Triveni Turbine. The matter is currently in front of NCLT from a perspective of mismanagement and oppression. I think the petition is in public domain, so you can get access to it.
We believe as a company that very frankly, we have certain competencies and capabilities in this field. Our field is not litigation. I mean, sorry. We have competencies in the field of manufacturing and designing steam turbines. Our field is really not litigation. We hope that we would be in a position to move on from this very quickly.
Okay. Yes. Thanks.
Thank you. The next question is from the line of Anand Bhavnani from Unifi Capital. Please go ahead.
Thank you for the opportunity. I have three questions. First of all, in this quarter, if you can give us a sense of how much did we save on travel costs, given that there was almost no travel?
I don't think we give that breakup. I think you're asking for a bit too much of detail, but as you could see from other expenses, other expenses include a variety of different factors. One aspect which has been higher has been our selling cost, which was, like I said, because we had some exceptional costs in terms of damage for port. If we look at it, we could substantially see maybe INR 3 crores- INR 4 crores of reduction in the year on an annualized basis.
This is INR 3 crore-INR 4 crore reduction for the overall other expenses or for the travel expenses?
Travel.
Okay.
No, I mean annualized though.
Please?
Annualized.
Okay, fine.
For one quarter we have Yeah.
With regards to the oil and gas market, you mentioned the overall market size is INR 15.2 billion, so about INR 15,000 crore. As of today, the qualifications that we have from the key players, what is the addressable market size for us out of this INR 15,000 as of today?
You know, we have our President, SN Prasad, on the line. Prasad, would you like to answer that question?
Hello.
Hello. Okay. Arun, can you answer that question on the oil and gas market segment, please?
I would like to give you an overall, as our Vice Chairman has indicated, the overall market is in INR 2 billion. We will be catering to a particular segment, and that particular segment would be up to maybe 3 MW- 5 MW range. It would be in specific applications. It will depend if the overall turnover and the addressable market will depend on which inquiries will be coming. We won't be able to quantify this just like that. Today, our concentration has been on the registration, and more the registration we get, more the inquiries we get, and based on that, we would be doing it. It will not be correct to quantify the market and how we would be getting it, because we are in the very initial phases.
Just wanted to understand what is the current market set up like. I am not asking what we are targeting or not. Of the 3 MW-5 MW segment in the oil and gas, what is the size? Because overall drive markets is $2 billion, but 3 MW-5 MW would be some percentage of it. What percentage it is?
Yeah, it would be roughly, I would say about 15%-20%.
Okay.
Yes.
For us in Q1, how much of the revenues were due to orders which couldn't be shipped in Q4?
I think we had dealt this offline with Mr. Nair.
No, it was not more than about INR 20 crores-INR 30 crores.
INR 15 crores, INR 20 crores?
20 crores-INR 30 crores. We also had sufficient Q1- Q2 also the same way. I think, yes, you're right. There was an impact of that, which was primarily from the export side.
Okay. Lastly, there is some chatter about possible change in MEIS scheme.
Yes
Currently we do get benefit under MEIS scheme, right?
Yes.
What's the percentage of the exports that come to us as MEIS incentive?
We are 2%. I think the question had been asked earlier in terms of the PLI scheme, and so we did allude to that in terms of how the company is representing before government to ensure that this MEIS firstly gets converted into packing credit or other forms of export incentives, which are more WTO compliant. Secondly, is also that specifically according to certain policies that have already been implemented, which have a segment for steam turbines and specifically export of steam turbines, that is a continued incentives to be provided, and this is provided under the Capital Goods Policy, which has been tabled and which has been accepted and passed by the legislature.
Okay. As of now, it seems the incentive would be modified, but broadly it will be retained at the same level, 2%.
I think there's only talk right now, primarily from newspapers, in terms of abolishing MEIS completely and limiting it to INR 9,000 crore from the INR 45,000 crore odd that its current outlay is, through a variety of different PLI-driven schemes. How that is implemented is, I think anyone's guess. I think from our perspective, very frankly, we focus more on being able to derive better profitability from our customers. Because as it is, the refund of money that we get from these schemes is extremely slow and extremely poor. We just look at this as incidental. Yes, it does help our profitability, but from a cash flow perspective, it's really quite delayed. We focus on our business, and I think that's where we should derive more profitability from, better market position, get better orders.
I think all of these things that come along the way are always very helpful. It's not as if we lose focus of them, but it's really not a priority.
Okay. Lastly, before COVID struck, we were anticipating that FY 2021 could be the first year we get to deliver some orders for drive turbines in oil and gas. Is that still a possibility for us, or does it get pushed to FY 2022 now?
Yeah, I think you're right. It gets pushed to 2022. We were hopeful of orders right now that we are in a point of closing, and we hope that by the next call that we have, we should have positive things to let you know about. Let's see how that develops. I think we're optimistic on that side. As you rightly point out, we've been talking about it for a couple of quarters now.
I'll come back in the queue for additional questions.
Thank you so much.
Thank you. A reminder to the participants, if you wish to ask a question, please press star then one on your touchtone telephone. This is a reminder to all participants connected to this conference. If you have a question, please press star then one on your touchtone telephone. We take the next question from the line of Manish Goyal from Enam Holdings. Please go ahead.
Yeah. Thank you so much. Just to clarify on the revenue mix change, what we have seen with higher aftermarket. Within aftermarket also, has there been a beneficial revenue mix in terms of higher sales or more profitable revenues which would have helped the margins improvement?
No, the blended margin of aftermarket is consistent. As you would imagine, the customer-facing element of service is, of course.
Yeah
going to see a level of decline because customers are also not that open to letting service engineers come without proper planning and process, et cetera. We're also in the form of actually moving our digitized offering forward.
Right.
There will be a period of transition within servicing. I think for the entire year as a whole.
Yeah
We look at margins to be consistent as previous years. Order booking should be good going forward. There may be a slight decline in revenue in the aftermarket segment, but broadly it will be in line with the previous year.
Sure. Also, if you can just provide some insight as to how is the refurbishment market developing for us? Especially last call, we were a bit upbeat on the inquiry levels.
Yeah. I have our President of Aftermarket, Sachin Parab, on the line also. Sachin, if you're there, you could provide some visibility into Manish's question.
Yes, this is Sachin Parab. Good afternoon.
Good afternoon.
We have had some very good success in opening up some new markets for the refurbishment business.
Right.
Both on the western side of India and on the eastern side of India. Also we have had good inroads into new segments of the market. Overall, the trend is very positive, and the inquiry levels have gone up for the refurbishment business.
Right. Is it that the restrictions on the travel is kind of a big impediment for us to get the orders in flow right now, and execution part as well for refurbishment?
To some extent, yes.
Sachin, when you answer, please give an idea about the digital services as well, specifically on the refurbishment and aftermarket side, how you're doing there.
Okay.
We are using a lot of digitization tools for addressing the needs of our customer. Yes, travel has impacted us, and we are seeing much more traction on the domestic market where travel is much more feasible. International markets, challenge of travel has affected, we're using digital tools to connect with the prospects and generate more and more inquiries.
Okay. One more question broadly on the order inquiry pipeline. Last time we mentioned that domestic market has somewhat had a market size of 1,000 megawatts. If you can give us a sense in terms of how.
Our belief is.
you quantify the order inquiry pipeline?
I think for this current year, our belief is that domestic market will come down to about 2/3 or little less than that of the previous year in terms of total orders. Yes. There's going to be a decline in the domestic market. I presume you're talking about product here, right? Not aftermarket.
Yeah.
Therefore, as we said in the previous call also, we believe that the first two quarters will be driven by domestic market inquiries and orders which were pent up and backlogged from the previous year. Therefore, we believe that the international market should substantially add to our order booking in the latter half of the year, which is what we're seeing in terms of our interaction with clients.
Okay. Nikhil, would it be possible to quantify what's the international order book, inquiry book? Like usually you talk about in terms of megawatts.
It's in gigawatts. No, it's in gigawatts. It's large. Like I said, that in fact actually our inquiry book this quarter internationally also has grown, but it's only grown by 1% or 2%. That means that that's just a segmentation of it. It is meaning to say that the market exists. The issue that we're facing right now is from finalization. As I had spoken about, customers are also looking at this opportunity to say, "Well, listen, no one has orders, so if you want an order, give me a, whatever, 20%, 30%, 40% discount." That doesn't work for us. We don't price discount. We don't work that way.
Right.
There's no need for us to buy orders.
Okay.
We are in a good position, and I think that to that extent, we'll be proven.
Are you seeing your competition succumbing to that in terms of?
No.
Okay.
You see, as it is, we have cost leadership in this space.
Right.
Very frankly, if there's anyone who could do it would be us. One or two orders here and there obviously have to happen like that.
Oh, sure.
In general, I think everyone understands if you go down that route, it's a slippery path.
Right. Okay. Just last question. From your commentary, it seems that even if we have a little lower revenues in the current entire year, we'll be able to maintain our margins.
Yeah, that's what I said to you earlier. Exactly. Even though you have lower operating leverage, the fact is because of our cost savings and sustainable cost savings, I must add also again.
Yeah.
We think that we will come out in a good manner. Our attempts are, of course, to make sure that we maximize revenue as much as possible because our order book is sufficient for a higher turnover than that.
The note says that there has been some manpower rationalization. Can you quantify in terms of how much people have been laid off?
These are not layoffs, these are rationalization. We're undergoing an exercise which is much more thorough, which is really to benchmark individuals directly on their productivity. That may have some implications, of which I'll come back to you in the next couple of quarters.
Okay.
Give you more details.
Right.
Really the question is that, and what Arun has also tried to point out.
is that we're trying to make an organization which is extremely flexible.
Sure.
I think that demonstrated in this quarter in the way we operate. We believe that we should be even more flexible. That's the way that we'd like to build up.
Does this, in terms of reduction cost, does this involve or probably are you looking to accelerate your process of shifting the facility at Peenya to the new facility, which has been a state-of-the-art facility and has lot of room to expand?
I think you've never integrated. I mean, the basis of the productivity between the two factories is marked.
Right.
It's the learning between the two factories that we want to benchmark both of them at the same level. It is really taking it up to that level where we can have a greater degree of automation and greater degree of digitization in the manufacturing process itself, and see how best we can actually come up with that. Yeah. We'll come up with more details soon.
Okay.
It's only possible for the company. Thank you.
Wonderful. Thank you so much.
Thank you. The next question is from the line, Nirav Shah from Prabhudas Lilladher. Please go ahead.
Good afternoon, sir. It is Nirav Shah. Sir, basically, first of all, congratulations on a recent set of numbers given the pandemic and the situation for the first quarter. Just wanted to understand, since most of the questions have been answered. When do you see the trend of this inquiry level getting converted into actual orders, coming back to pre-COVID-19 levels where the trend was much more smoother? Do you expect that to happen in second quarter or third quarter onwards? One. How fast, whether it can be in domestic market faster or international market. If you could throw some light onto that would be helpful.
Prasad, are you on the line? Are you back?
Yeah. Yes, sir. I'm back.
Would you like to answer?
Yes, sir. I will take this question in two ways. In domestic market, yes, I think slowly we are seeing some traction is happening. As our vice chairman mentioned that even the negotiation process is taking a longer time. We are waiting and watching the scenario. Whereas international markets, what we expect, probably once the international travel starts, that which we are expecting maybe by end of this month or early September. Since the inquiry pipeline is there, all technical alignment meetings are going on virtual platforms. What we feel that probably Q3 traction should be better on international.
Okay, fair enough, sir. Secondly, sir, in terms of our issues such as supply side and logistic issues. They have been resolved completely, right? Are we still facing some?
You're very right. As we currently stand, issues are fine, but if we look at it from a risk perspective, the greatest area of risk for us is our supply chain vulnerability to COVID. I mean vulnerability not from a cash flow perspective, because that is something that we can help with them on. It's really if some of our small subcontractors get large cases of COVID and they're shut down for a period of months. These are things that no one can help with. Certain cities lock down and therefore supply chain gets interrupted. That is the risk that we carry, and that will be there, we think, till the end of the year. Logistics, I think, is fine now. That's not a problem.
Okay. That was really helpful, sir. We had talked about digitalization, and we obviously would have made a huge amount of investment as well. Could you throw some kind of CapEx guidance for the year as a whole, and what part will be digitalization CapEx?
We extend all of this out. As a company which is prudent in terms of any capital expenditure, in any expense, we actually try to minimize these as much as possible. The bigger point is that we have to try to learn ourselves from what our vendors are providing us. We have to internalize the processes that they're trying to implement. From a digitization perspective, it's ongoing and will continue. It is something that we've been trying to do for the last five or six years in different forms of process. I think it's just going to get more accelerated now. From a P&L perspective, we're not going to see anything marked from a cost side to spend more.
Okay.
You'll see some benefits only. The net will be better.
Okay. Thank you so much, sir, and all the best for the future, sir.
Thank you very much.
Thank you. The next question is from the line of Sandesh Shetty from PhillipCapital. Please go ahead.
Am I audible?
Yes, you are.
Yes, sir, you are.
Thank you, sir, for the opportunity. Sir, you mentioned about Industry 4.0 and automation that is being currently implemented by Triveni. Just, sir, if you can explain on that, because it's our belief that usually automation and Industry 4.0 is more applicable to automotive industry and industry where mass production is the scenario. But Triveni being more of a custom-made kind of a thing, if you can explain on that will be helpful, sir.
If you start on the output of what do you expect out of Industry 4.0 is you expect higher productivity, you expect lower wastage, you expect higher quality, et cetera. All of it starts from a matter of process. Automation and Industry 4.0 are slightly different. The degree of robotics that you may have within a company is slightly distinct. Automation for us is a digitized process of ensuring that there's seamless movement of drawings and data between design to the machine. There's no human interference at all. More than that is the fact of how machines are themselves operated and how they're programmed to be able to move between different jobs. There's a huge degree of automation there and learning there, machine learning there, to be able to reduce time, set up time, et cetera.
There's different components as to how you break the manufacturing process down. Of course, this is more easily understood in a sector that is automotive. Our learning also comes from the vendors who are providing it to the automotive sector. I think that there's enough learning for us also as a company where we can actually help with this. Does that answer your question fully or?
Yeah. Got it. My question was mainly because I was trying to understand how it is impacting production. I was on that line. I was thinking on those.
You see, the main thing is that when you have a customized product, what happens is that every component of it is usually, a large amount of it, is customized. The biggest issue that you have is in terms of quality because you need the consistency on every product that is manufactured, but each of those is unique. How can you get that done? Really to have that dependability of quality is extremely important. Of course, it has to be overlaid with cost. Once you get all those factors, you need the repeatability of it.
Okay. Got it, sir. Thank you so much, sir. That was very helpful. Thank you.
Thank you. The next question is from the line of Ashutosh Garud from Ocean Dial. Please go ahead.
Yeah. Hello.
Yes. Good afternoon.
Sir, just one-
Sir, I'm so sorry to interrupt, but your audio is not audible, sir.
Hello.
Yes. A little louder, please.
Do we compete with any of the Chinese suppliers compete with us on international and domestic level?
I'm sorry, I couldn't get that. You're not audible as such. What suppliers?
Hello?
Yes.
I'm saying, do we compete with Chinese players for these products which we have?
Largely, we don't because these are customized orders, and the system by which large manufacturing infrastructure has been built in China has been on a very standardized platform.
Oh.
Actually, we don't see Chinese in the international market or the domestic market. We would not encounter Chinese competition more than, I would say, less than 1% of the time. Great. Thank you.
Thank you. The next question is from the line of Anand Bhavnani from Unifi Capital. Please go ahead.
Hello.
Hi, good afternoon.
Yeah. Just more of a medium to long term of a question. As a company, our skills lie in engineering, and while we are in one segment turbines, we are leaders there, and we tried to get into the same higher relevant events with the GE venture, and for some reason it didn't work out as planned. In terms of adding more revenue streams, what is the thought process at the board level? If you can give us some sense. We have cash. We keep hearing about companies wanting to transition out of China. Is there a possibility that we are contemplating to have joint ventures with some of the leading global companies and our skills in managing lean operations and our engineering skills plus their global demand, can those be combined and can we enter a newer segment?
If you can give some sense on what the thought process.
I think you bring up a very interesting point, and this is thoughts that I think individually we've all had. The board, I have to say, has not considered anything along those lines, and there's nothing in front of the board in that matter. Very rightly, you do bring up a point that there's hunger with management to drive further revenue. I think one of the things that we have built with a lot of dedication is our balance sheet and the ability to be able to have a high return on capital, a high return on equity business, at the same time, have the productivity of good asset turnover, et cetera. Very frankly, as long as we can keep all those factors in mind, we're quite open to see how best we could actually approach future businesses.
Really, technology needs to be at the heart of it because what we've realized over a long period of time is that self-development of technology is extremely important.
Okay. That partly answers the question. More so, if you can give, has this been discussed at the board or rejected certain proposals? Anything. I broadly understand the principle, but if you can get into some nitty-gritty of what all ideas maybe you already rejected, that will also give us a sense of what you're thinking.
No. Right now there has been no plans at all on spending any money from our cash. The company continuously evaluates and is in dialogue with different companies in certain sectors, be it in terms of newer age or different types and non-lithium-ion-based batteries. We think that's a good area to look at from a research perspective as well as from a deployment perspective, especially for utility-grade applications. We think that there is potential there. We've already talked about our development that we're doing both indigenously as well as with academic partners for the supercritical carbon dioxide market. There are certain other developments that we're looking at both with partners as well as independently on that front. We think that there's good scope. We're going to accelerate some of those developments further. There will be some money spent on those. It's something that the company can well afford.
We hope to have commercialization of some of these operations, at least a quote, in the following year.
Thank you. Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for their closing comments.
Thank you very much for joining this call, ladies and gentlemen. I trust all of you will be well between now and our next call. I think the company has displayed some good performance in this quarter given the trying circumstance, and we look forward to taking forward this discussion in our next call. Thank you very much. Goodbye.
Thank you. On behalf of Triveni Turbine Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.