Ladies and gentlemen, good day, and welcome to Triveni Turbine Limited Q4 and FY 2020 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 this conference is being recorded. I would now like to hand the conference over to Mr. Rishab Barar from CDR India. Thank you, and over to you, Mr. Barar
Thank you. Good day, everyone, a warm welcome to all of you participating in the Q4 and FY 2020 earnings conference call for Triveni Turbine Limited. We have with us today on the call Mr. Dhruv Sawhney, Chairman, Mr. Nikhil Sawhney, Vice Chairman and Managing Director, Mr. Arun Mote, Executive Director, 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, 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 will 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. Good afternoon, everyone. In these very troubled times, I hope that you and your families are well. Firstly, as you all may know, and in the reiteration of the investor brief that we sent out yesterday, COVID pandemic is truly a devastating occurrence, and it has impacted not only our economy and industry, but all of us and humans as well. Our priorities at this point in time for the company has been to ensure the safety and security of our employees and key stakeholders. More importantly, and equally importantly, actually, is to ensure that we are close connected with our customers so that we understand their problems and work with them through whatever issues they may have in their businesses, so that we can maintain our life cycle relationship with our customers.
As for the virus itself, we as a business with our global outreach, started feeling the impacts of this in late January, early February, where our key stage and customers started deferring orders or also deferring acceptance of their turbines to the extent that their sites were not ready or there were certain bottlenecks in terms of restriction of movement of people that were instituted by their governments. This further exacerbated in March with most of Europe coming into lockdown and that having an impact both in terms of dispatching as well as certain order bookings. As you know, India went into lockdown in the last week of March. Of course, the impacts were felt from the beginning of March onwards in terms of slowing down of dispatches, as well as sentiment in terms of order book.
I have to say that while our operations were allowed to start in a phased manner from the third week of April, we, in that one month while we were off, were able to work in an extremely digitized format from a work-from-home basis, which has given us incredible learning as to how we could be more productive and leaner in the times to come. In fact, during this one month while we were off, we were able to bring our platforms of design and engineering completely on the cloud to be able to do not only R&D work and simulations, but also detailed engineering, which is on a collaborative mode. More than that, we were able to actually move or institute certain order booking procedures where we were able to gain orders completely remotely and even negotiate remotely with our customers, both in India as well as outside India.
I will touch upon these during the latter half of my opening remarks. Equally, at the same time, and more importantly, we were able to commission turbines in a remote manner. The way in which we have been able to use augmented reality and virtual reality tools to be able to ensure that we are able to give quality service to our customers, while at the same time retaining IP, has been truly commendable by the team. Having said that, I will touch upon some of these interventions and how they will impact Triveni in the longer term further. In the investor brief, we've also given an insight into the steam turbine market in general, and I hope that you would appreciate the market position that Triveni shares.
While this is for the calendar basis, it is something that where Triveni has held a consistent market share over the last five years. According to this market share, Triveni enjoys a 20% market share in the calendar year 2019/2020, as well as for the period of between 2015 to 2019, for the units sold in the steam turbine market. The steam turbine market globally or overall has declined by a CAGR of 13%, from 139 GW in 2010 to 39 GW in the calendar year 2019, a majority of that has been due to the fall in the market segment above 100 megawatts, which is the utility scale market.
The 5 MW to 30 MW market, as well as the 30 MW to 100 MW market, in which the company operates through its standalone operations as well as through its joint venture, have been largely flat. The below 30 MW market has had a change in its mix of fuel source, being dominated now by the thermal renewable segment, in which Triveni Turbine enjoys a considerable market share globally. We also have a situation where Triveni Turbine, as it has turned out, is the largest producer of biomass-based turbines globally. With this market position, it reinforces our value proposition that we've been talking about. While the market between 0 to 30 MW as well as 30 to 100 MW has grown at a CAGR of 3% and 2% respectively over this period of the last 10 years.
The market has significantly moved from a fossil-based market to renewable energy, which is where our style and value propositions of a value for money turbine benchmarked technologically with the global best, really does compete extremely favorably. Let me give you a little bit of idea about the performance of the company over the past year and this past quarter, and give you insight into our views on the year to come as well as the future. For the financial year ended 31st of March 2020, the net income from operations for the company on a consolidated basis stood at INR 818 billion, which is a marginal decline of 2.6%. We had a record PAT at INR 1.22 billion, which is a growth of 21.5%. Domestic sales showed decline of 4.5%, while export turnover of INR 3.92 billion was lower by 0.5%.
The total consolidated order booking stood at INR 7 billion as of March 31, 2020, which is lower by 3% as compared to the previous year closing order book. There has been a significant reduction in the manufacturing cost on account of cost reduction and value engineering undertaken in the manufacturing processes. Similarly, there will be a reduction in certain administration expenses, including travel as well as others. In the domestic market, our order booking has shown a growth of 8%, and while the domestic market may have de-grown, we believe that it will rebound in the second half of this current year. The domestic market inquiries were from cogeneration for about 70%, while about 20% have come from the waste heat recovery segment.
In the domestic market, the company witnessed certain postponement of finalization of orders towards the latter part of Q4, which resulted in a lower order intake by 32% over the corresponding quarter of the previous year. The main segments we saw traction were sugar cogeneration, including distilleries in specific, biomass, IPP, food processing, and waste heat recovery in a variety of different industries. On the export front, export order booking was lower by 23%, which was impacted by the entire month of February and March. We were anticipating certain large orders to come in in the latter half of Q4, which have unfortunately got deferred due to the pandemic. The thermal renewable segment was the majority contributor, 48%, of the total export inquiry base, while process cogeneration contributed about 32%.
On the order bookings from international markets, the Asian countries, of course, started feeling the impact from February while Europe felt it from March onwards. Some of the export orders on the execution front were impacted because of the lockdown in India, which led to certain orders being stuck at port and therefore lack of revenue recognition. We worked with the majority of our clients from February onwards to ensure that we could defer their orders to a point in time where they would find it acceptable for them to accept it. As you must remember, we follow a very strict policy in terms of receivables, and we would not dispatch orders regardless of what our customers may ask unless we are able to get payment security.
Really looking after our customers' financial health as well as their payment ability, we have to work with our customers to ensure that we come to a very reasonable solution in terms of when we would be able to provide them with the product and the commissioning services. On the aftermarket side, during FY 2020, the aftermarket registered an order booking of INR 2.17 billion, which is lower by 4%. This was significantly impacted by the last two months of the quarter. The aftermarket turnover itself was INR 1.86 billion, which is a decline of 10% over the previous year. The share of aftermarket sales in FY 2020 was at 23% as against 25% for the financial year FY 2019. The performance of the aftermarket during Q4 FY 2020 was restricted by international travel, which also resulted in a lower aftermarket business for the quarter by 25%.
Our joint venture, GE Triveni, which operates in the 30 to 100 MW segment, received orders during the year accumulating to INR 861 million. This was a near 40% or 80% increase over the order booking of the year FY 2019. We received orders from both the international and domestic markets. The inquiry base remains strong. This joint venture currently has certain litigation between the partners. The business is continuing. Orders are being quoted for and being received. One of the things that we have been able to differentiate us as versus our competition has been our design and engineering. The company has a very strong focus on technology and dedicates a significant amount of its resources in terms of personnel towards this endeavor, both from a perspective of up gradation of current models and building a technology to further our efficiencies, but also newer projects.
The cost control and value engineering efforts that we started this year are already showing results in terms of reduction in costs, as well as increase in terms of increase in efficiency that we are offering our clients. These will further improve in this current financial year. The company has also undertaken a very novel research and development project, which I'll be happy to explain to all of you. This is in the field of supercritical carbon dioxide. We believe that the chemistry of steam turbines will be disrupted in the years to come, especially for applications which require a condensing mode. We think that Triveni Turbine is at the forefront of global research in this front, and we, with our partnership with the Institute of Science, which has already been signed and formalized over the course of the past year, will move forward on this as a work package.
We believe that this will increase the value proposition to our clients by not only reducing the cost of the overall system, but also increasing the efficiency, which could lead to a near 30%-40% increase in the life cycle benefit to a customer. Of course, we believe that the commercialization and pilot of this is something that we need to work on very quickly, and we believe that in FY 2022, we should have a very strong value proposition to take to the market. We've also done certain capacity enhancement in terms of our R&D from an infrastructure perspective, in terms of installation of a load test facility with a dynamometer. These investments will help us in terms of becoming more efficient in our R&D to be able to meet the market, which we believe exists out there.
In terms of outlook, while some revenue has been destroyed by customers from Q4 FY 2020 to both Q1 and Q2 of this current year, we believe that there will also be certain orders which will be pushed out from this current financial year to FY 2022. With a strong order inflow that we anticipate and we already had within Q1 of this current year, which should exceed Q4 of the previous financial year, we believe that this current year will still be reasonably good. I'll provide some insights into where we think the risks may lie towards a little bit later.
The impact of revenue from uncertainty in terms of travel and commissioning, we have factored in to give a guidance, which for the very first time we are able to give to our investors in a manner to give them a little bit of confidence about where we see the market and where we see the company going forward. In anticipation of what we are hearing from our customers today, which is reasonably pessimistic in terms of their acceptability, we believe that the company would still be able to register a minimal degrowth in terms of turnover, regardless of the impact that we may have in terms of revenue in Q1 and Q2. We would imagine, revenue would be, in Q1, we are anticipating to be better than the revenue in Q4 of this last financial year. We believe from Q2 onwards, we should see a pickup.
This is not counting any significant amount of book and bill for this current year, which we believe should still be possible as we approach even the end of Q2. As you know, this company has orders and installations from over 70 countries, and our focus on newer markets of oil and gas, et cetera, also leads us to have confidence in the fact of getting orders from the international market. The domestic market seems to be showing a great degree of weakness from an order booking perspective. The international market is significantly better for us, and we believe we are optimistic in being able to get some of these orders in the next couple of quarters.
In fact, while under lockdown, we've been able to secure orders from countries such as Italy, for the city of Milan, for waste heat recovery projects and other countries which were in the middle of lockdown as well as with high degree of COVID cases in their countries. While this impact will last, we believe from Q1 and Q2, as we open up more as an economy and as a globe, we think that we should be able to garner all the pent-up demand which we are following up on a regular basis with our customers. The digital format in which we've been able to engage with all our customers and clients and consultants and EPC companies has truly put us in a more confident position in being able to project the long term growth of this business.
We believe that our strong order backlog not only provides visibility for this year, but any carry forward provides us greater visibility for the years to come. The significant reduction in established cost, both from perspective of salary as well as administration, which comes to a total overhead, we believe will be well mitigated with our efforts towards digitization. On the worst-case scenario, we believe that while we may see a revenue decline in this current financial year of between 10%-15%, of course, our attempts are to see a lower degrowth than that. We believe that the profit growth may be also in similar lines.
This is driven by the fact that there will be significant cost reductions, but also there will be certain reversal of provisions that we have taken during the previous year in terms of a variety of different factors which we think can get alleviated in this current financial year. With that, I will be happy to take questions. I will leave it over back to you.
Thank you very much. Ladies and gentlemen, we will now begin the question 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 is tended. We take the first question from the line of Ravi Swaminathan from Spark Capital. Please go ahead.
Thanks for taking my question, sir. First of all, if you can give more color on individual geographies as to how the demand, say, inquiries, ordering is panning out. Geography ways, it'll be really helpful. For example, Europe, which is a sizable segment of exports for you where the pandemic is hard in those geographies. Similarly, Middle East also given the fact that falling oil prices have been there, how drive demand can be. If you can touch upon Southeast Asia also, it would be really helpful.
I have to tell you that India has possibly the greatest and most stringent lockdown that we have seen in any of our global markets. Therefore, you can't use India as a proxy in terms of how work has been happening in other countries. Having said that, for the financial year FY 2020, we saw significant orders coming and a significant increase in our orders specifically from the Latin American market as well as certain parts of Turkey and Europe and Southern Europe. We believe that as we know, our markets change depending on the requirements of our customers. The current inquiry book seems to suggest a strong order booking from Southeast Asia, which we were not able to garner in Q4 because that was the first to go under lockdown. Our indication as we currently stand is that these are reviving quite quickly.
Having said that, our market segments which rely mostly on thermal renewable as well as on process flow generation, more tuned in the export market towards thermal renewable, have very strong incentives from a climate change perspective, which is a more macro trend in terms of investment into these sectors. As we look forward, our international order booking will be stronger, driven by Southeast Asia. We believe that Europe, which has already contributed to our order booking in Q1, would still remain strong because of the heavy investment in the waste to energy segment. These are geographies and market segments. Yes.
Nikhil, I'd like to add a few points to that, if I might, on the markets. One segment that we have found actually which is going against the trend is in the oil and gas sector. We are getting a lot more inquiries than we got in FY 2019. You might ask, how is that if the oil price is down? Actually, oil companies are looking for better deals and where they were having difficulty in establishing and taking our credentials, they've all opened up. The number of firm inquiries we're getting has almost doubled from what it was in the past. We're getting very good traction in oil and gas. You will notice that we have a very small market share in the oil and gas drive market, extremely small. We see a good growth of orders in that segment.
It is not very substantial, but a very good growth compared to FY 2019. The second place which we are seeing very good traction is with consultants. We managed to have a lot of very good webinars, and they have come back to us with this online format much, much better than we had ever got when we were visiting them physically. We believe that this is the new way of working. The sort of serious inquiries we are getting from them in various different places, South America, Central America, in Southeast Asia, as you said, is much more than we had before. How much will we actually turn into orders in this year is something that we'll have to see. We are quite happy with the marketing efforts that we've put in in the last two months during the lockdown.
Ravi, I must add on that is the fact that one is an order booking, the other is in terms of execution of orders because customers still have confidence in us to be able to execute. As you know, the orders that we take are for the product as well as for the supervision of erection and commissioning. While we do the supervision of erection and commissioning both from a physical basis, the confidence that we have to do it on a combined physical as well as remote basis has actually led to a very apt solution for our customers who find it actually a very compelling value proposition.
Got it, sir. Got it. My second question is with respect to the trial of pricing, currency depreciation, and lower raw material cost. Does currency depreciation and lower raw material costs translate into better margins for you given the current situation? Whether is there any pricing pressure from the customers that can offset the benefits that you can see from currency depreciation and lower raw material costs?
We are a customized product, there is no menu price for us from a customer perspective. Any currency depreciation benefits us. To the extent of raw material, again, we are customized, we are not raw material buyers. We buy from our vendors as well as our subcontractors. There's limited raw material benefit availability, I think, into our system because we have longer-term rate contracts. There may be certain cost outs that we may be able to get just based on efficiency and scale. From the perspective of market pricing, we do not see current pressures, we are continuing with what we believe are appropriate pricing for customers in different segments and geographies.
And
That we, because of these cost reductions and increased coverage, we think we'll be able to balance the expected possible drop in turnover with these cost reductions and so not have much effect on the margin.
Got it, sir. Yeah. Thanks a lot. I will come back if I have more.
Thank you. We will take the next question from the line of Anand Bhavnani from Unifi Capital. Please go ahead.
Thank you for the opportunity. I have two questions. Sir, one was you mentioned that for inquiries, the outlook for export market is much better than domestic. Just wanted to understand this expectation. Has it changed post-COVID in terms of potential orders, or you still are having the same level of discussions and the discussions you anticipate to materialize into orders? How's the outlook changed post-COVID?
They're both.
Yeah, please.
Yeah. We are having a very strong inquiry, and we are having a much closer interaction with our customer at very high levels, such as the cement industry, for instance. We don't feel that there will be a drop in orders. What we are expecting is that the delivery will go into FY 2022. That's the risk factor for the current financial year, not order bookings domestically that they will place, but they may because of their own problems in other areas such as not financially, but in getting the project off and getting the sites managed because of the various restrictions that have come about because of COVID-19, that it may take longer for them to implement the project on their own. While our deliveries we can actually make it quicker, the project may not come off in FY 2021.
Order booking, even domestically, will not be too bad in the FY 2022, FY 2021.
Okay. Sir, if I see your inventory levels, now the inventory year-over-year is down by 20% to INR 173. If I were to reduce the inventory for the delay in shipment due to COVID, you said about INR 50 crore worth of revenue was missed. With a gross margin of 50%, I remove INR 25 crore from the inventory to normalize it for COVID. Normalized for COVID, the inventory is about INR 148 versus INR 217 crore last year.
Yeah.
These low levels of inventory to me indicate that there is a lot of deferral for the year. Otherwise, we generally ship in three, four months.
No. Actually, the reason is as we talked about over the course of the past year, that there was a significant attempt to reduce and streamline our manufacturing operations to get it more modular, to get it in a manner where we can reduce costs. We continually talked about how we can reduce our manufacturing costs. One of the outcomes of manufacturing cost reduction is a greater degree of standardization amongst our profiles of products that we sell. Therefore, the inventory does come down to the extent that we don't have so many unique pieces out there. This has been a concerted attempt to bring it down, and this is something which will be sustainable and does not give a direct inference in terms of revenue going forward. You are right that there was a carry-forward of orders from Q4 to Q1 of about INR 50 crores.
At the same time, like I said, once we started getting indications from customers of deferral of orders, we also slowed down our production cycle. Therefore, orders which may be actually placed or executed in Q2 of this current year, which may have been executed earlier, we think that we would be able to minimize that impact on our inventory levels.
Okay. Sir, the changes that you have done, standardization to reduce number of SKUs, as compared to, let's say, previously held inventory levels, what should be the new normal? Should the inventory level be 10% lower, 20%, 25%? What's the number that we should?
I think it's impossible to put a figure on this. It's difficult to put a figure on this. I can tell you that this exercise, which has been a two-year exercise, we're going to the 3rd year now, as you know, we are developing, our R&D is developing more cost efficient and both from the efficiency and cost standpoint models and variants. The standardization process is both what we have and what we are introducing. This is a dynamic process. It's difficult to just give a standardized reduction answer, except to say that the cost reduction is an ongoing process.
Okay. Lastly, sir, we have had excellent cash flows in the year and this cash is built up. What is the plan with this cash?
A very good question. We have about INR 195 crores in cash and investments as of the end of Q4, and we believe that this will only build up in Q1 and Q2 going forward as well. The board didn't consider anything in this current board meeting, because we believe that until we have come to grips with the entire situation in a practical manner, we could then take decisions. We think ultimately matters which will be considered by the board would take the form of what we have considered in the past in terms of being able to give money back to shareholders.
Okay. I'll come back in the queue.
Thank you. Before we take the next question, I'd like to remind participants, if you have a question, please press star then one on your touchtone telephone. We take the next question from the line of Sanjeev Patel from [inaudible] . Please go ahead.
Hi, sir. Thank you very much for the opportunity. Sir, my first question would be, earlier you have mentioned that the domestic 0 to 30 MW market was around 740 MW in FY 2019. Sir, could you give us a flavor of the market size of FY 2020? If you could give us a little bit more flavor on how was the market for different segments such as sugar, process cogeneration, biomass, waste to energy, that would be very helpful.
Okay. We don't give market breakups.
Yeah.
I think you can do some research. The market in India was approximately 1,000 MW, a little bit shy of that in the below 30 MW segment.
As you know from the other industry that you've been looking at, it is extremely difficult to tell what the market is and the timing of the market in the segment which we operate in the FY 2021. We're just going on our inquiry base. We're not worried too much about the market. We feel that our domestic market share is going to be better in FY 2021 to what it was in FY 2020.
I do have to say something. A market segment for us, which is a very large segment globally, which is the waste to energy segment, which constitutes a solid municipal waste incineration market, is very small in India. We do have three, four, five projects that come up, but nowhere near what we need in terms of size and scale for a country of our size. To put it in parallel, China had nearly 60% of its orders that were placed in this segment for the year last year, sorry, in the last quarter, were placed only in the waste to energy solid municipal waste incineration segment. That is a growing market globally, as you know, it's something that India also needs to do. There are reforms which are necessary before that market can develop.
The second market which is growing, which we keep hearing about, is the ethanol, the distillery ethanol market and the biofuel market. There we have a very prominent position. How that's going to grow will depend on government policy on that. The plan is of course to move from our current 5% to 10% and then further on to 20% biofuel. There, both medium term, long term, there's a very, very good future.
Sure, sir. Understood. Sir, my second question would be, sir, our after market order intake was around INR 2.2 billion in FY 2020. Sir, could you split it between domestics and export? Approximate numbers would do fine, sir.
It will be about half. It'll be about 60/40 domestic to export.
Sure. Similarly, for the outstanding order book, what would be the split? I think our outstanding order book was INR 1.2 billion on the aftermarket side.
No. You see the aftermarket, I don't think that's relevant in terms of what the aftermarket order book is because very frankly, these are very short duration execution projects. They will all get executed very quickly. In fact, our largest book and bill happens in the aftermarket segment, as you can imagine. Leading all the way up to Q3. Q3 order intake in the aftermarket segment gets executed within the year. You bring up a very important part, which is the fact that we have order booking of somewhere in the region of INR 2.2 billion annually, which is only increasing with our greater install base. This is a market segment that also provides us in a sense of contribution or PBT in the level of about blended in the region of about 35%-40%.
Very frankly, we are extremely pleased that this is a growing market segment and our international presence from the aftermarket side is also only growing. The cash generation is over INR 100 crores just from this market size annually.
I'd like to just add here that some of our investors have asked us that you've had fairly flat growth in the last two, three years, what do you feel medium term going forward? What this COVID lockdown has shown us is that in certain segments in the aftermarket internationally, the scope is enormous. I just take one as a refurbishment segment. The sort of inquiry we are getting from customers because they are looking to get better value add, quicker returns, so they're going for refurbishment rather than a new project. The scope here, the market share could be 5x, 10x. It's that substantial. We have customers internationally who are saying, "Why are you only doing it on steam turbines? Please start looking at compressors and pumps. We are very happy with your way of operation remotely." That is a segment we are steadily seeing.
Actually, our order booking in the Q1 is going to be more than it was in the other quarters of FY20. There are some areas that we are seeing that entirely have a high growth, such as oil and gas and the aftermarket internationally in the refurbishment area.
Right, sir. Thank you very much for the elaborate response, sir. That was all from my side.
Mr. Patel, does that answer your question?
Yes, very much. That was all, sir.
Thank you. We take the next question from the line of Kirthi Jain from Sundaram Mutual Fund. Please go ahead.
Sir, in terms of Q1, you highlighted the order flows have been good. Sir, any quantification can you do, and what are the segments from where we are getting orders? In terms of FY 2022, how you see the order booking and where are the areas you can see orders, if you can highlight, that would be helpful, sir. That is the first question. Second question is, sir, given that over the last two years, we have done a incredible performance in terms of the cash flow from operations, what is the plan in terms of bringing a new adjacency product, or what is the plan to add products into our basket? Any other engineering product, are we planning in the other Triveni Turbine entity? If we can highlight, that would also be very helpful, sir. These are the two questions from my side.
Do you want to take that, Nikhil, I'll add. Hello? Can I answer that?
Sorry, I'll just come in. I'll take your second question first, if that's fine. I wanted to just touch upon the fact that very frankly, that is, I think, the greatest challenge that we have is how do we expand our market so that we can provide a sustainable visibility to revenue growth. Therefore, not only are we looking at internal R&D processes, but we're also looking at R&D-based projects outside to cater to greater and bigger markets. These will of course be a mechanical equipment line, which should utilize not only our capabilities from a design engineering perspective but also manufacturing. We keep all that in mind while looking at new product lines, et cetera.
We believe that we have to be technology leaders in the field, therefore, it closes many options which the market may perceive to be routes for Triveni's growth. This is something that we look at consistently and constantly. Our efforts in terms of being able to do this on a product basis, such as our development in the supercritical carbon dioxide line, have a market which is enormously large. More than that, on the aftermarket side, actually, it presents many different opportunities. These are not capital intensive, and also, I think that touching upon the previous investor's question that we talked about the aftermarket, we've talked a lot about augmented reality and systems such as that. Really, what we've seen with Triveni Turbine over the last couple of months is that there is a changed normal.
The way in which we do work has fundamentally changed. When we talk about augmented reality, the team has really pulled up its socks and come up with very novel, low-cost solutions where we can provide with a high degree of confidence and capability, accuracy in being able to garner refurbishment-based solutions on these formats. We're quite confident that product lines will grow both laterally as well as vertically. From a perspective of order booking, yes, there was an order booking moved from Q4 to Q1. The market segments in India that we see comes from, like the Chairman talked about, ethanol in India, as well as certain other Waste Heat Recovery-based segments, which are the largest contributors. We believe the carry forward with the orders which were not booked in Q4 will translate into Q1 of this year.
I do have to say that in this entire period of Q4 of the last financial year and Q1 of this year, we would probably lose about two and a half months of both order booking and revenue. If we normalize that over the course of the year, we have to work very hard to pick up on the demand that is there still in the market.
I'd like to just add to this, that your important question of what were you looking at, this is being considered at our board level just recently, a few days ago. The board has cleared a substantial increase in our R&D expenditure, something over 50% to maybe 80% over FY 2020 in this time, because we find that there will be great opportunities of diversification in the mechanical space that we are in. Not just in the areas of refurbishment, which I told you, but in the associated product lines that are coming out through our CO2 program. We are looking at this much more positively because of the fact that we have a good cash flow base, and we have a very stable market and increased reception from our international customers in all these lines.
The company is taking a very positive and maybe even slightly aggressive look at the diversification possibilities.
Sir, in terms of order flow, will we be able to reach INR 800 crore kind of order flow for the year? It will be challenging to reach to INR 800 crore kind of order flow for FY 2021, sir? What is your thought on it? Order booking. I know, we're talking about order booking. Like I said, I think that over this period, we may have lost on a steady state basis, a couple of months over Q4 and Q1, and so that will definitely have its impact. Aftermarket, we are definitely looking at a growth year-over-year because Q4 was subdued and there was a spillover of orders coming in.
On the product side, while we are confident of certain orders coming in through H1, we really need to see to what extent the virus lingers on in the second half of the year, and to what extent it actually impacts business. Having said that, we should be not more than 5%-10% around the number that we gave.
Just to add, [inaudible] I'm looking around at the other industry and the sort of responses we get in forums such as CII and others from other things. We are much more positive about FY 2021 order booking than most other segments seem to be, even in the capital goods space. How much confidence to have is very difficult to say, as Nikhil Sawhney mentioned about H2. We believe we will get very good visibility by the time we have Q1 investor call.
More than that, I think we will have a higher opening order book in 31st of March 2021 than we did it 31st of March 2020.
Sir, in food industry, lot of companies are making good profitability in the recent times. Are we seeing a good traction from the food processing industry?
Yes.
Yes, we are.
Food processing as well as allied segments of other processing, such as chemicals and even fertilizers, et cetera. [inaudible]
Thank you. Before we take the next question, I'd like to remind participants, please limit your question to two per participant. You may rejoin the queue if you have a follow-up. We take the next question from the line of Manish Goyal from Enam Holdings. Please go ahead.
Yeah. Very good afternoon. Thank you very much. Just, you did talk about in terms of our new initiatives in aftermarket. Just want to get a sense that aftermarket is more personalized and team-driven market. Now with team not able to travel or we'll probably have some kind of a restraint in personal contact. How do you see that market changing for you, or you will be able to grow it well?
This is exactly how I said, [inaudible] too. When we talked about how our augmented reality solutions are working out, we are surprised ourselves as to how effective this can be to provide customers confidence for us to deliver our solutions on this front. Of course, we need on-the-ground channel partners which our agents network already provides. We already do have a network of physical on the ground, though you are right, we still have to have a certain degree of physical presence in front of the customer.
Right.
We are working through all of that, and our current estimation is that by the latter half of the year, there should be some easing of travel. That we factored in into our estimations. Really very frankly, until even end of Q2, we are not looking at any travel. So all of this will be met through digital means, which our customers are quite open to accepting.
One more thing I'd like to give. We have reoriented our thinking. Now we are going to have our engineers travel for longer periods overseas. They'll spend more time there rather than making quick trips back and forth. One, it is much more stable to do, and two, they'll be able to have much more coverage. I.e., if they go to Europe and they have a Schengen visa, then they can cover many countries rather than coming back to India. Also, it takes care of their 14-day periods and all the sort of problems that just may happen. Our people are all geared up to do so, and we've tested this out with customers, and they're more than happy to give us both the compensation and facilities for us to stay there.
They are saying that we're one of the people who have given this initiative uniquely. They are very pleased that this is coming from a developing sort of nation like ours, because they're not having the same sort of Certainly not having it from China or from Japan, not even from Europe. It's been taken very well, our service initiative. We've now said we will do this. We want them to stay longer. They said, "Please do that. Whatever you want from us, we are willing to extend it.
Sure. Just one clarification. In opening remarks, it was mentioned that on contrary, we are getting a lot of inquiries in oil and gas sector. Is it for drive turbines?
Yes.
If you can clarify.
For drive turbines. Yeah, drive turbines.
That is why? What was the reason for that?
I'm saying two things. One is it's a long process to get qualified from places like SABIC and others. This has now come through in the last half of FY 2020. Once you get qualified, then you're allowed to quote, you get the inquiry. We're getting a much bigger inquiry base. The second is that earlier, getting the brand of Triveni into oil and gas was not easy. Now they're looking at a value proposition. Because of the oil and gas market, the pricing having gone down, they want a value proposition, and with the fact that we've already got orders and we've executed orders, they're much more confident of looking at us. The consultants are on board, and this is very consultant-based as well as the customer.
That is why, and this is actually, they're much during the lockdown, these are quite hot discussions going on.
Sure. Last question on the new supercritical subcritical technology. Is it that it's going to be a completely new set of customers for us, or is it that we are probably going to leverage on existing customers and existing, say, facilities? How would it work?
No, there will be a new list of customers and the current list of customers. It's even got a very good defense requirement, where we are in touch with the defense forces on this CO2 right now. We are right there with the top international companies in the whole space. We have a very good partner in, as you know, in the industrial side. I think it's a good initiative. It's a little early to say when we are going to be flooding the market, but we've accelerated this program in the last few months.
Right. Really the application would be for power generation and or the process? How would that?
Yes. Power generation and process.
The application is for and small power. Small power generation.
No, it is for all types of power generation. Essentially, if you look at a condensing mode of steam turbine, it is for applications where that can apply.
Sure. Thank you so much.
Thank you. We take the next question from the line of Bhavin Vithlani from SBI Mutual Fund. Please go ahead.
Yeah. Thanks for the opportunity. My first question is, when I actually look at you have a commendable performance on the cash flow front, but you have actually skipped the dividend for this year. Would actually appreciate your thoughts on this.
I think we tried to allude to it because another gentleman had asked the same question. The board didn't consider it at this point in time because very frankly, they want our perspective and forecast of business to sort of come through. It's just trying to be a little bit more conservative. Ultimately, as we've got in the previous years, we believe that it is important for Triveni Turbine to maintain its high return on equity, et cetera. Therefore, if we are not able to spend the money, it should be returned to shareholders. The philosophy remains the same, and I think we can provide greater visibility as we go through the year in terms of what this cash will do on Triveni's balance sheet or not.
The second question is, when I actually look at some of your competitors, they are focusing more on design engineering outsourcing, and you have a very strong R&D team. Any thoughts on the outsourcing of design engineering which can actually add to your industries?
We believe that we want to be technology leaders ourselves. It's the same thing as being outsourced manufacturers. It's the low end of the value chain. There may be a margin in there, but it's not sustainable margin in the terms of the business going forward. We think it's better spent for us to use our design and engineering as well as manufacturing expertise to work on products in which we have a control over or service in which we have a control over.
The second major question, because we've now been able to benchmark our R&D with international firms doing it over in the global market. Our costs are something less than a fifth. They need outsourcing. We need more in-house because it's much better quality, it's quicker, and it's more customer oriented. We do outsource a bit, but our costs are so much less than international R&D in our line.
Just last question. You mentioned about the board actually approving a significant increase in the R&D budget. If you could throw more light on this in terms of maybe numerical terms, if you could highlight that.
Well, no, I think when you see the figure in our annual statements, you can make your own assumptions from there.
How large would be your R&D team, and are you planning to increase?
Millions. Yes.
Okay. How large would be your R&D team currently?
Arun, would you like to come in?
The total engineering strength we have about 70, out of which the development is up, which is R&D, is about 25 to 30, depending on how it's done. The balance are for engineering, and the team is also for technical to account the reverse engineering and refurbishing portion. That's how the total engineering strength is.
Okay. About 20 odd is for new product.
25 to 30 is for the new product.
Okay. Balance actually is engineering and aftermarket.
Aftermarket. Yeah, absolutely.
As a percentage of our total strength, it's quite large because we only have about four.
Yes. The worker strength is less than 100. You can see where we are going.
Thank you. We take the next question from the line of Charanjit Singh from DSP Mutual Fund. Please go ahead.
Hello. Thanks for the opportunity. I just want to understand in terms of the terms for the new orders from the international markets, how are those, and in terms of the payment terms and the execution timeline, are there any changes you are seeing now after this kind of scenario is playing out maybe?
The payment terms we don't compromise on. The commercial terms, which basically is minimizing any liability that we have, but also maximizing and ensuring that we have 100% payment security before it dispatches from us. That is something that we will not accept in any manner. Very frankly, this has not changed significantly from previous to now. These are well-established norms. I think that we are fully capable of meeting them and happy with them. I don't know if the chairman wants to comment. No, I think that's correct. If that's so, I think we have our president marketing India. That's right, Prashant?
Yes.
Good.
Now as international markets continue to be a focus area for us now, incremental pipeline, while you have talked about the sectors, but what are the kind of customers who are, and how is their financing for these projects? Do you see that vector, yes?
Very good. I don't know if you had the option to read our investor brief, but very frankly, our market segment, and specifically our customers, are largely in the thermal renewable segment. Thermal renewable has financing available. They may not have incentives depending on geography to geography, but that balances out over the course of several years. Germany may have a strong waste heat recovery and renewable focus currently, and it may move to Italy and Portugal next year and certain parts of Southeast Asia may be picking up based on their own push towards having more processing of urban municipal waste. The funding, I think, for the segment exists. The demand exists because there is that much waste available. I think the market is steady and sticky for us.
I think another point that we have to keep in mind is that international orders typically for us are much firmer in terms of delivery and shorter. Very frankly, international orders that we would get in Q1 will be executed within the current financial year.
Thanks for that answer. Another thing, sir, on the aftermarket now, what's the portion which you'll be doing for advance plus? When this kind of a scenario has emerged where travel is becoming more and more restricted, while it may become normalized in next, say, second half, but still customers might try to look for some of the options which are more local in nature. How you are seeing that scenario in the aftermarket separately going forward?
Yeah, if I could just answer that.
Sure.
We've adjusted to this, and customers have adjusted to this extremely well. They're paying us very well on an hourly and daily basis remote. They are willing to have us there. We are training them, so rather than them going to local people, they are very happy with paying for training of their own site staff and having us supervise this remotely. As mentioned by Vice Chairman, with AR and VR and new tools coming in, this is a much more efficient system and a much more cost-effective system. For us, the revenue stream could actually be much more rather than less. The margins are very good. It's a win-win for both the customers and us. On the local side, we are using our agents who have the facilities of providing local support in the various areas of electromechanics.
As you must remember, you see even in all international contracts, we only do the supervision of the erection and commissioning. The actual physical labor for the erection and commissioning is provided by the customer or facilitated by us through our agent network. It's the same way now from a perspective of spares, these are already designs well known by us. Really, we don't even need to visit site for installation of spares. The service revenue moves into online mode, and so therefore, there's a different form in which the delivery of that service is happening.
From the refurbishment side, as we were talking about, very frankly, the tools that are now available at a low-cost basis with augmented reality allow you a certain degree of precision in being able to actually work on overhauling and taking dimensions from a remote area such as Bangalore with sites as far as Europe, and it's working reasonably okay. We will get better at this, and this value proposition will further strengthen. It really changes the way in which we do business, and that is what I think that we've been trying to say, is that the way that we're going to be doing business is different. We're going to see how this moves, but the indications are that it will truly transform the way in which our company currently operates.
As you know, two years ago, we started on remote monitoring. We had thought of that as a big opportunity of enhancing after-sales spares and service and remote monitoring. We'd already started on that. That has been very useful. We have the instrumentation packs ready, we have the software, and we're increasing the best part of this R&D, moving into another phase of remote monitoring and analysis of the future of the installations that we have. This is being much better taken in by the customers now, that they have to go on a remote mode in any case.
Thanks for the detailed answer. If I just may squeeze in one question. I just wanted to understand about the domestic market. While you are giving understanding in terms of domestic market sentiment view. One is in terms of any kind of order cancellations you might envisage in terms of your discussions with the customers. Now the revival in the domestic market, I know it's too early, but the entire CapEx cycle would have got pushed out now to a longer timeframe. How do you see that recovery happening in the Indian market? Yeah, that's all from my side.
If I may just take that. The greatest degree of order booking, which we may have in Q1, paradoxically may be from the domestic market. As we look at the full year, and this is primarily driven by the push over from Q4 to Q1, as well as from pent-up demand. As we look forward, the inquiry levels that the domestic market have, and our interaction with customers seem to suggest that they may be pushing these further out. Therefore, the lack of confidence comes from our current estimation of speaking with customers as to where they stand. Having said that, very frankly, from the renewable biomass, bioenergy segments, which we've already talked about, the value proposition is quite consistent because we do need to implement some of these.
From the CPP market, the captive power plant market, in areas such as chemicals, pharmaceuticals, food processing, there's a very strong demand. Equally, there's expenditure that's going to happen in the PSU segment from fertilizers and oil and gas. All in all, the demand will come. It's just a question of timing. We are not able to give consistent timing at this point in time because we believe that that is going to be really back-ended towards the year and maybe even falling into FY 2022 for a significant amount of growth.
I think we've covered everything.
Yes, sir. Thanks a lot for taking our questions. All the best for the future.
Thank you.
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, Kinit.
Okay. Well, thank you very much, ladies and gentlemen. I hope all of you are well and families are well. This is a very concerning time for everyone. We believe as a company, we have showed certain resilience, and the management team and the entire team actually at Triveni Turbine have been working very diligently and in a safe manner to ensure that we are able to meet the expectations of our customers, firstly, and then also of course, to our investors and the larger stakeholder group. We believe that we are in the process of a great transformation within Triveni Turbine, which will position us very well for the years to come. We're quite optimistic as to where we stand right now. We look forward to giving you further updates over the next quarter call, which should be towards the end of July, beginning of August.
Thank you very much.
Thank you. On behalf of Triveni Turbine Limited, this concludes this conference. Thank you all for joining. You may now disconnect your line.