Ladies and gentlemen, good day and welcome to the Triveni Turbine Q3 and nine months FY 2019 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 operator by pressing star and zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rishab Barar of CDR India. Thank you, and over to you, sir.
Thank you. Good day, everyone, a warm welcome to all of you participating in the Q3 and nine months FY 2019 earnings conference call for Triveni Turbine Limited. We have with us today on the call Mr. Nikhil Sawhney, Vice Chairman and Managing 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 the 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, Rishab. Good morning, ladies and gentlemen, welcome to the nine-month Q3 conference call for Triveni Turbine. We have some good news to report to you, of course, some explanations that we need to make. The good news, of course, is the fact that we have the highest ever turnover in the nine months that we've ever had. The disappointing news, the news that we need to actually explain, is the fact of our margins. Let me begin with some of the operating results. The net income from operations of the company for the nine months has been INR 9 billion, which is a growth of 18% over the previous nine months. The PAT stood at INR 720 million, which is a growth of 19% over the corresponding period of nine months.
There was a 13% growth in the total order intake, which was at INR 6.45 billion for the nine months versus INR 5.71 billion in the corresponding period. The nine-month period also saw an increase in the order inflow in the domestic market by 26%, and the mix of the domestic order booking in the nine months has gone up to 51% of our order booking as compared to 46% during the corresponding period of last year. The product order booking in the domestic sector has been 40% higher in the nine months, and overall, there has been a growth of 10% in the product order intake during the nine-month period. The aftermarket segment has also performed very well with a growth of 23% over the corresponding period of nine months in FY 2018. In terms of order booking, but while sales have grown by 14%.
During the nine-month FY 2019 period, the mix of exports in total sales has increased from 44% to 51%, while the mix of domestic sales has decreased, of course, from 56% to 49%. The share of aftermarket in total sales is at 27% as against 28% in the nine-month period, even though the aftermarket sales has increased by 14% overall from INR 1.59 billion to INR 1.59 billion from INR 1.39 billion. The overall consolidated closing order book is at INR 7.53 billion during the nine-month period, which is 8% higher than as compared to the previous year. 6% higher than at the beginning of this financial year. The buyback, as you know, has been very successful and has been completed, and all the shares which were bought back have been extinguished on the 5th of February 2019.
In the domestic market, during the quarter and the nine months, the total market inquiry book has been at about 1.5 GW, which is healthy, and we've seen a good traction in this nine-month period to date. There's certain circumspection over the next preceding months in terms of volatility given the impending elections, but we are confident that the overall growth in the market for the full financial year and leading into next financial year for the domestic market will be robust. Of course, it will not approach the markets back in 2010 and 2011. Having said that, there will be a double-digit jump in the market over the last financial year.
On the export market, the product order intake has been healthy, though, of course, it is lumpy from month to month, and we are confident that in the full financial year, we will have a very good performance in terms of order intake, covering a broad segment of operations from waste to energy and sugar plant cogeneration, including other process cogeneration applications and geographies, which are also equally wide. In terms of the international data available, Triveni Turbine has emerged as a leader for the supply of steam turbines into the biomass sector globally. We're very proud of that fact, and I will delve on it further as I conclude my remarks. The order inflow on a quarterly basis has been lumpy, as I talked about.
We believe going to the next financial year, the strength of our order book as well as the order intake augurs very well for the visibility that we have until the nine-month period, one year forward, which is going to FY 2020. This growth in order books is what has led to an increase in sales. Equally, at the same time, we've had a decline in gross margin and an increase in raw material as a percentage of sales to approximately 57.6%. This is a matter of concern for us, and is something that is way beyond any expectation that we may have.
As we have confirmed to our investors in the past, our expectation on the profit before tax margin, which is the number that we look at internally, and our benchmark to keep it around 20% above that, has, of course, been missed to a large extent in this current quarter. This is due to new models that were introduced into the market, which had a slightly higher cost than it was expected, which led to approximately 300-4 00 basis points in terms of the raw material consumption. The balance of it was due to a product mix in terms of what was sold into the market from both an export to domestic perspective, as well as in terms of the balance of plant versus the product of flange to flange, which was sold into the market.
Having said that, we are confident that going into Q4, as well as the visibility of our order book into the first nine months of FY 2020, that this temporary movement and increase in raw material, which has hit us all at once in this quarter, would be normalized back to our normal expected margins. Having said that, we believe that even Q4 would have a reversion to our norm. Now, on GTL. The overall performance of GTL for the nine-month period has been much below our expectation, both from the perspective of order intake as well as revenue. The JV continues to have a significantly lower than expected performance, and this is largely driven by a deferment by customers for taking delivery of their orders, as well as in terms of placement of orders.
We are, of course, constantly and continuously engaging in the market to ensure that we are able to capture as much value as we can from this segment, which we believe to be an extremely lucrative market and something that we would be paying greater attention towards. The JV itself has registered in the nine months a revenue of INR 358 million, with a profit of INR 22 million. Similarly, on the order booking front also, the JV pipeline has inquiries which are in advanced stages of finalization, which have only finalized to the extent of INR 440 million in the nine-month period. The design and development program of the company has been the core of the value that we've been able to create, the position that we have in the market, and the leadership that we have in certain segments and geographies.
We continue to invest in creating new IPRs, new models, and continuous value engineering. The increase in costs that we had, which was driven by certain new model introductions, included one-time costs in terms of learning as well as tooling, including certain mistakes which may have been made in terms of getting the products to market. Having said that, the learnings have been internalized. We have a full grasp of the situation, and they have been remedied already to ensure that Q4 can present a much better picture than we have done in Q3. Having said that, given our growth in order booking and our conviction in getting good orders in Q4 as well, our visibility for the next one year, which includes up to nine months FY 2020, augurs very well. I'd be happy to take questions from investors now.
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 touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Sreemant Dudhoria from Unifi Capital. Please go ahead.
Good morning. My first question is on our product mix. You mentioned that product mix has led to lower margins. Can you elaborate a bit more on that? What percentage of our revenue are from these new products which have lower margins, and is that mix likely to remain going forth? More so, if the margins are lower in these products, are these products more of commodity in nature?
No. It's not a question of commodity in nature. It is a question of actually translating the newer design developments onto the shop floor, the learning that happened on the shop floor, the conversion of raw material at the shop floor level, as well as then installation of the products. Our new product developments are technological intervention into the market, so these will continue. We continuously introduce between five to seven new variants and maybe four or five new products itself into the market every year. So we're quite confident on that strategy. It's just that certain models, in terms of which had a very large increase in efficiency, led to a higher cost, which we have tried to identify and have a mitigation strategy towards. That's why we believe that this to be temporary.
New products always comprise of a larger segment of sales continuously as we go forward because our endeavor is to continuously improve on not only the efficiency front, but also to actually give a better value proposition to our customers. From that perspective, new products will always and continuously have a high percentage of share in terms of turnover for product.
If I were to ask you to quantify in absolute crores, which would have been a one-off expense due to these product developments.
Like I told you, if I look at the material cost at 57.6% and a normal being somewhere around the region of about 51%, then about 4% to 400 basis points could be attributed solely to this criteria. About 1% or 2% was based on the change in from quarter to quarter, the lumpiness that happens in terms of product versus aftermarket dispatches, as well as the mix in terms of what exactly is getting dispatched. That gets evened out towards the end of the year.
Sure. This 4% would not be repeated going forward. Would that be the right way to think about?
Exactly. You are coming to the point that I alluded to, that we believe this to be a one-off and temporary in nature. We believe that by Q4, you would already see a reversion back to normal, and going forward into the next financial year, these same products would be reverting back to the normalized margin structure.
Sure. On that, a follow-up. You mentioned that you continuously have newer products coming in. It is kind of a continuous process. Why is it that in this particular quarter, we have had an impact on raw material? Is it that the number of products introduced was way too high than-
No, I think you have to say that this was a mistake made by us, and the fact that we have realized this consistently and adopted it into our system and practice. The fact that this happened by itself is something of a matter of concern for us. It was also driven by certain cost increases that happened, as you can see, because the majority was exported by local manufacturers, which has also been absorbed into our system, and new products which have been quoted have already been increased in terms of our cost base. We are assuring margins on that front. I think the fact that as far as the company is concerned, we are quite confident that this blip in terms of margin structure for the products and new product introductions would be taken care of going forward.
Okay. On GTL front, I see that there is a stark difference between six-month and nine-month numbers. It seems that in Q3, was there a one-off kind of a thing? Because the profitability for Q3 in isolation seems to be quite high based on the nine-month numbers that you shared and the six-month number that you shared previously.
Yes. GTL has two components of sales. One is the product itself, which is directly related to the order book. The other is services. The services, of course, carry a much better margin. Those are not reflected fully in the nature of the order book, as you would understand. Of course, they are very profitable, and these services are provided to GTL customers only.
Okay. It's around INR 66 million of revenue for INR 13 million of profits. The numbers are not errant here, right?
No, it's driven by high margin execution, as well as a certain reversion of provisioning that has happened in the past. This may happen in the future also, where you would see certain profit being written back just because due to conservativeness, we may have actually taken certain write-offs based on our assumptions on the customers or just on project execution.
Thank you. Mr. Dudhoria , may we request you to join the question queue for any follow-ups, as you several participants waiting for their turn. Also a reminder to our participants that you are requested to limit your question to two per participant. If time permits, you may join the question queue for any follow-ups. Thank you. The next question is from the line of Kirti Dalvi from Enam Asset Management. Please go ahead.
Good morning, sir. My first question is on GTL itself. Given our performance for now almost years in GTL, what is our next strategy in this JV? Where do we see this JV from growth perspective leading us into new markets?
Well, Kirti, thank you for that. I think that our expectations on the joint venture from the beginning have always been very high. We believe that the market between 30- 100 MW is equal, if not much larger, than the below 30 MW. Therefore, the value that we wish to create is equal, if not more, than what we've created in the below 30 MW space.
Sure.
You're right that there may have been underperformance in this segment, but we're very conscious of that and conscious of the interests of everyone on the call. We would, of course, keep you informed every quarter as matters progress, but we are pushing very hard to our partners for a continuous and aggressive push of all the products of the joint venture in all the markets. We will revert back to you. Of course, like I said, it is also below our expectation, the total growth. If you look at it in terms of return on equity and the amount of money that the company's put in there, it has been sufficient.
Any kind of restructuring we can see in the future in this, maybe because we've been strong in our market now below 30 MW, and there are quite high expectations about 30 MW given GE's tie-up, and it has not yet fructified to date. That's the only concern we have.
I think there are conversations which happen continuously. There is never a stable form of any partnership because it has to react to the market, it has to react to circumstances. I think that we are continuously in dialogue to see how best we can create value for our shareholders. I think that is what is of concern to us, to see how best Triveni can approach the market, how it can participate in the market, and how it can be a leader within this space. Of course, we have a very amicable and very close relationship with General Electric. We are in continuous dialogue to see how we can adopt and adapt this joint venture to see how best it can be on a high growth trajectory, how we can actually realize more profit, and ultimately greater market share and sales.
Yeah. The last question, again on harping on the operating margin part, is it particularly relating to any export kind of product, or was it product related to the domestic market itself?
Product development. I think that it was not unique to where the client was or what the application may have been. The learning was from a perspective of new technology introduction into our product line, which we have not only internalized and got the cost structure understood. There's a mixture of many costs that go into it. It is not only a one-time design development cost that was built in. There were certain learning costs that were built in that also factored into the manufacturing process. We believe that a lot of that has been internalized, and we will see in Q4 that is the result that we'll have to wait for to show you.
Got you. Thank you very much. Wish you good luck.
Thank you very much.
Thank you. The next question is from the line of Rahul Garol from Kotak Securities. Please go ahead.
Hello?
Mr. Garol, your line is unmuted for the question.
Yeah. Hi, sir. Sir, good morning. Thanks for taking my question. Sir, can you throw some light on the domestic market? What is driving the growth? Is it the cogeneration part of the business or is it the basic-
You have many different segments which are performing at this point in time. You have the largest segment, of course, which has gained a lot of traction in the news, but may not be providing absolute value in terms of revenue, is the distillery market, which is where we've got 50 new inquiries totaling in excess of 200 MW of orders. I'm sorry, of inquiries in the last nine months. That's a very robust sector, which of course, comes along with the sugar cogeneration market. Equally, you have the paper market, the waste heat recovery market in cement. You have the waste to energy market, which has lumpy orders. All in all, from a market perspective, we have increased our market share in the nine-month period.
The market has increased slightly, but we are of the expectation that given our inquiry book, that we can see some good growth of maybe 10%, 15%, 20% in the coming year.
Right. Similarly on the international market as well, because we have seen a bit of a volatility in crude prices, especially in the last one year. Is there anything internationally demand linked to this, whether in Middle East or some other parts? Any change in trend that you are observing? Our Q1 was quite robust in that trend, just coming from that.
You're right. You see, when you know our total turnover, the fact is that it's lumpy in terms of getting orders in the international market. The trend is of course quite clear. As I alluded to earlier, the real strength that the company has, and what has been recognized even by international journals is its leadership in the biomass segment, which includes renewables. Which includes waste to energy, specifically sugar cogeneration, and other projects which are renewable in nature. Which don't really follow the same CapEx trends which are related to oil. Those are mainly funded based on availability of raw material and funding. Funding is actually quite available for these renewable projects.
Correct.
On the broader process cogeneration markets, those are of course subject to the CapEx cycles that you talked through. Of course, those will be lumpy because of that. Having said that, our focus is largely on the biomass market, and we are very successful in that space. We're able to provide a distinct value proposition to our customers and back it up with a good degree of service. As you may have noticed, is that our international aftermarket has increased quite conspicuously, and we feel that this will continue in the coming quarters and we would be able to add to the growth that we're seeing in our total aftermarket segment, which is extremely profitable to us.
International biomass would be what? Close to 85% of the product sales and the service business in the international arena.
It's in the region of maybe somewhere around what you're saying. It just changes quarter- to- quarter.
Correct. Fine, sir. Thank you. If there's anything, I'll come back with you. Thank you, sir.
Thank you.
Thank you. The next question is from the line of Anupam Goswami from Stewart & Mackertich . Please go ahead.
Hi, sir. Sir, you talked about 50 new inquiries coming from the distillery segment. Sir, I want to know, any of these inquiry has turned into order books, order for you?
Yeah, many have. I don't think we can go into the numbers exactly, but many have. We have a very strong market share in this segment.
Sir, next thing, if a sugar mill is expanding, let's say by 100 KLPD, an investment of maybe INR 60 crores, how much percentage would come for you guys? What is the scope of revenue?
See, that's what I told you. The fact is that even though 50 new inquiries may have come, the total megawatt of the inquiries is about 200 MW. The fact is, on average it is 4-5 MW per distillery. On average it's a 60 KLPD or 80 KLPD distillery, so that gives you an idea of where it stands.
Sir, can you quantify the amount?
Sorry?
Can you quantify the amount, what would 4 - 5 MW be for you guys? What kind of order size?
I think you're talking about INR 5 crore, INR 2 crore, approximately INR 3 crore, somewhere around that. Like I said, the volume is good, the values are low.
Okay. Sir, what kind of growth are you looking at from the next domestic market? As you can see, as we said, the paper and cement industry is also growing at that level. How is it sustainable you're looking at?
See, our strategy has been quite clear. It's to maintain our market leadership in the Indian market and to continuously grow our international and export markets to be able to have a greater presence, have a greater absorption of overhead, have a greater scale of operations, and then also, of course, get better margins. The international markets really do offer us that. The domestic market is important in terms of being able to ensure that we are competitive in what is the lowest price market globally. Very frankly, we are present in every sector and face every inquiry that comes into the market. We're fully aware of which segments and which sectors have inquiries and which are ordering. Given that, and given the status of our inquiry book, we are optimistic that there will be growth. We are over any hump of the bottom of the market.
Really, we're not looking at rapid growth of 50%-60% coming to the market anytime soon.
Okay, sir. I understand better. Thank you.
Thank you. The next question is from the line of Abhishek Pamecha from Vibrant Securities. Please go ahead.
Thank you, sir, for the opportunity. Sir, my question is regarding the EBITDA margins. If we see on financial year 2016, 2017, 2018, the margins have been between 21%-22%. However, the gross margins have been between 43%-48%. There has been wide variation in that. That is because of the product mix in different markets, export as well as domestic. Can you comment on the margins which are there in these segments on ballpark basis?
No, I think it's better not to get into those numbers because firstly, you'll hold us to those numbers. Having said that, it's also very competitive in nature to give. As you know, investors aren't the only people who attend these calls. Having said that, international markets are substantially better in terms of margins than the domestic market. Aftermarket is substantially better in terms of margins than the product market. Also, you bring up the question of EBITDA and gross margin. What you would see is that given an increase in operation and turnover, the fact that we've been able to maintain and constrain and contain our overhead has also been something that we've shown coming into this quarter. We believe that going forward, the increase in our turnover will be maintained at the same overhead level.
More than that is that the depreciation of all our plants, et cetera, have all been fully taken into the numbers at this point in time. Even from a net margin level, we see reversion back to a 20% norm is what we have. A plus is something that is in our calculations.
Okay. Sir, going forward, if we are going to see double-digit growth in the revenue front, our costs are not going to increase that much. We are going to see better margins?
Well, you see, the fact is that we have to continuously spend on sales and marketing and administrative overhead with regard to making sure that our presence in international markets is consistent and able to get us the orders. Now, there's a certain degree of fixed overhead and a certain variable, having said that, you should have a better absorption, is what I alluded to.
Okay. Another thing, sir. We have basically moved to hedge accounting, and because of that, we have said previously that it is going to basically make our margins, basically the Forex gain and loss which we see would be more normalized. Can you comment on that? How do we see that?
Well, in fact, actually, if you see our results right now, you'd see other comprehensive income of about INR eight crores odd in our numbers, which lead to a total comprehensive income somewhere in the region of about 30, 31-
31.
INR 31.3 crores from a PAT of INR 22.8. These are the unrealized gains on hedge, which will come as part of income going forward. Of course, we will take new contracts as we go forward, this number will continue to remain as other comprehensive income, then will be regularized into our profit once it's realized.
Okay. On realization basis, it will come into the P&L, otherwise it would come into the other comprehensive income. Am I correct in my understanding?
All these MTM which are getting into OCI as of now will become a part of the operational revenue as and when the product to which it pertains to gets dispatched.
Okay. We are not going to see difference in the margins?
No. In fact, actually the fact is that, if you look at it, we run a hedge book. Of course, the fact is that the rupee, the orders that we're executing right now from export were hedged at a level which may have been done, say nine months to a year ago. The large depreciation of the rupee has largely happened in the last six months, which will be captured in the orders going forward.
Thank you, Mr. Pamecha. I'm going to request the joiner question queue for any follow-up. Thank you. The next question is from the line of Ashutosh Mehta from Edelweiss. Please go ahead.
Nikhil, hi, this is Amit. I just have one question. On the new models which carefully launched in last couple of months, how does the addressable market change for us both in India and export market? I'm sure we amortize most of the developmental cost of following a conservative approach. How will it help in terms of adding the addressable market for us?
Amit, as you know, we continuously add new products. If you're talking from a perspective of the increase in cost and the lower margins on these specific products which have impacted our Q3 results, those would be absorbed. Those are absorbed and wouldn't impact. Even though the same products will be dispatched and sold and are part of our order book right now, the cost structure has been revisited and has been normalized back to the margin expectation that we have from our regular product lines. In fact, actually the same products would by and large have, if not the normal margins could even have higher margins going forward.
No, Nikhil. I understood that and I appreciate. I think that's not my concern. I think that's fine. The only thing is, I just wanted to understand how does it add to your addressable market?
There are three or four points to this. You see all technological developments, as you know, steam turbine is a customized product and the multiple variables that you have to consider, which the client considers as part of his operations. Paramount amongst everything else which concerns the company is two things. From the customer's perspective is the robustness of the product and reliability, and secondly, is efficiency. From the company's perspective, of course, is the cost and the delivery and structure by which it can install and erect the product itself. Very frankly, developments which happen for condensing needs are different to what it is from the extraction needs.
The new developments that we do come out with incrementally either address a newer market that we can cater to, which may be niche, such as our API developments, which is the oil and gas market or certain other drive market segments which we've talked about, or could actually expand in terms of higher efficiency markets, which allow us to compete more effectively versus our competition. Well, we always consider Siemens to be our primary competition, and that's what we benchmark versus.
That helps, Nikhil. Thank you.
Thank you. Next question is from the line of Ravi Swaminathan from Spark Capital. Please go ahead.
Sir, just wanted to know how the pricing environment is there in the domestic market, given the fact that market has seen some growth. Has it improved compared to last year?
Pricing is unique. It's a customized product, so it actually changes from customer to customer. In general, what we try to say is that in the domestic market, it is a lower price market than we find in actually every other export market that we have. We, of course, benefit from the fact that we have certain export incentives that come through to us. Even then, the domestic market is by far the lowest priced market. Between segments and actually within industries, you could have a wide variation in margin and prices. Within sugar, two customers can order very different pricing. Very difficult to comment on what is the price level. As a whole, it is a low price market.
Got it, sir. Compared to, say, previous year, has it improved?
The pie has not expanded substantially enough. If we look at it in terms of year-on-year and the capacity that exists, I think like we may have told you in the past, in the below 30 MW segment, the peak that we may have seen was about 2,000 MW back in 2010, 2011. The markets that we've seen over the last three, four years have ranged between 600- odd MW to 750- odd MW, maybe going to about 800 -850 MW. Really, we're quite a way away from any peak capacity which will allow us to expand pricing. Having said that, of course, as you would understand, getting product margin is quite unique to Triveni in the rotating equipment space. Of course, once you do have a customer, you get substantial revenue from them from a life cycle of between 25-35 years from the aftermarket.
Got it, sir. In terms of expenses related to after sales, which we were doing outside India. Basically, past one, two years we have expanded in terms of offices, et cetera. Have they plateaued out in those expenses, and are we?
We will not see any increase in those expenses. In fact, we'll see better scale going forward because we'll have better revenue and order booking from those markets. We will have better absorption. We're quite optimistic on, especially the aftermarket segment from the international market. As you rightly point out, that is a market which takes more time. Our inquiries are quite robust, specifically on the refurbishment segment, and our offerings there have also expanded, and our reach into different customers has also expanded. We're quite optimistic that we should have good successes coming into the next year.
Got it. Any new offices we have opened over the past 12 months?
We think our coverage is good now. We feel that we'd always like to be conservative and make sure that our competitive advantage in having a low overhead cost is maintained versus our competition.
Got it, sir. Yes, thanks.
Thank you. The next question is from the line of Anand Bhavnani from Unifi Capital. Please go ahead. Mr. Bhavnani, your line is unmuted. You may please go ahead with your question. It seems there's no response from the line. We'll move to the next question, as from the line of Abhishek Pamecha from Vibrant Securities. Please go ahead.
Hello, sir. My follow-up question is regarding the capacities which we have. At the current capacities, how much revenue can we do?
Well, we have actually expanded capacity quite significantly with our new facility at Sompura, which gives us the flexibility to manufacture somewhere in the region of about 200 odd turbines a year from about 120 earlier. Having said that, at a capacity utilization basis, you'd say that we are in the region of about a little over 50%-60%, somewhere between that. That answers your question. Of course, we get about 25%-28% of our revenue from the aftermarket, which is not really constrained with this capacity. You have to look at our infrastructure from the perspective of product sales, which comprise about 80% of our turnover. I'm sorry, 75% of our turnover.
In that way, this 50%-60% is lesser than that. This 50%-60%, you are basically telling me about the current numbers which we are having. Correct? Which includes everything.
Yes. Our current sales is at this level of capacity.
This capacity I should see from the product segment itself, and in the aftermarket also, the spare segment.
Yes, you'll have to add that. The whole aftermarket.
Okay.
That's a potential. I think that what you should largely see is that this business is not either capital intensive nor capacity constrained. It is a technology business. It is an investment into technology which would further grow the business and the sales of the company. One of your colleagues had earlier pointed out as to why new products are being sold. This is largely because customer requirements are also changing. We have to continuously stay on the ball to ensure that we're able to meet customer requirements and are able to do that quickly and deliver it within the time frame that is required.
Correct. On the services front, it would be basically people's capability only?
Well, there's software and there's certain infrastructure that we put up for testing. It is largely people. It is manpower and skill dependent. We do have a very elaborate and a very thought through training program at all levels within the organization. We ensure that everyone is competent. Of course, similarly, it is with our hiring practice as well.
Okay. The future capacity expansions, which are going to be incremental only, I think so because we have set up a new facility, and wherein we have just now established one line, single line.
Yes. You're right. Two bays are open in the new facility. The flexibility is there for another three to be opened.
Okay. The investments are going to be very incremental. The RoCs are going to be much better on those investments.
Exactly. You see, the fact is our plant has come online in the last year or year and a half. You've seen the depreciation of that being taken right now. Over a period of time, we're confident that the utilization of the new facility will also allow for better absorption. Only once we reach a certain level of capacity utilization in this plant, in the first bay, would we even think about going to the next. Your question comes up in terms of incremental investment and higher return on capital invested for the new lens.
Got it.
Until then, I think we could see a better performance on both metrics of return on equity and return on capital.
Okay. Thank you, sir. That's it.
Thank you.
Thank you. The next question is from the line of Anand Bhavnani from Unifi Capital. Please go ahead.
Thank you for the opportunity. Sir, with regards to our order book, if I were to see quarter-on-quarter addition in order book in Q4 FY, it was INR 257, Q1 it was INR 240, Q2 it was INR 260, and Q3 it is INR 189. Like, the trend has been down for three quarters in a row, order book. Are we seeing some overall deceleration in business environment, and The cost or this is kind of.