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Triveni Turbine Ltd
Earnings Call Analysis
Q1-2025 Analysis
Triveni Turbine Ltd
In the first quarter of FY '25, Triveni Turbine reported an impressive revenue increase of 23% year-over-year, reaching INR 4.63 billion. The company's earnings before interest, taxes, depreciation, and amortization (EBITDA) grew by 36%, and profit before tax (PBT) increased by 37%, with margins expanding by 240 basis points to 24.8% from 22.4% the previous year. The profit after tax (PAT) surged 32% to INR 804 million, indicating robust operational performance.
The company achieved its highest ever quarterly order book at INR 6.36 billion, a remarkable growth of over 40% year-over-year. Notably, export orders drove this growth, contributing 66% of the total order bookings this quarter. The segmented growth indicates a healthy recovery and prospective future revenue streams, particularly in the renewable energy and industrial applications sectors.
Exports accounted for 47% of the total sales in Q1 FY '25, aligning closely to the last year's figures. The export order book saw tremendous growth, growing 74% to INR 4.2 billion. This represents a strategic advantage as the company captures market share internationally, particularly in regions focused on renewable energy investments.
The product segment's order booking increased by 58% year-over-year, supported by international deals. Meanwhile, the aftermarket segment order bookings reached INR 1.5 billion, up 3% compared to the previous year. This growth in the aftermarket reflects the company's commitment to customer relations and lifecycle support, which can enhance long-term revenue stability.
Triveni Turbine is committed to investing significantly in research and development (R&D) to support new product lines, particularly in steam turbines over 100 megawatts. With a keen focus on expanding capabilities, there is confidence that these investments will drive further growth. The overall medium-term business outlook remains robust due to a substantial backlog of orders across various sectors, including renewable energy.
Despite historical volatility regarding commodity prices, the predictability of costs has improved, allowing Triveni Turbine to maintain healthy margins. The company's strategy to focus on export markets and aftermarkets, which typically yield better profit margins, is expected to continue supporting overall margin health into the coming quarters.
While domestic order bookings were relatively muted at INR 2.16 billion, representing a modest 2% growth, the inquiry pipeline is strengthening. The management highlighted an increase in inquiries, indicating a readiness among customers to initiate capital projects. This presents a positive outlook for domestic market growth in the near future.
Overall, Triveni Turbine’s strong first quarter results and the record order book provide a solid foundation for future growth. The company's strategy of enhancing export capabilities, investing in R&D, and capitalizing on the robust inquiry pipeline places it in an advantageous position to capitalize on emerging market opportunities.
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Ladies and gentlemen, good day, and welcome to the Triveni Turbine Limited Q1 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Rishab Barar from CDR India. Thank you, and over to you, sir.
Good day, everyone, and a warm welcome to all of you participating in the Q1 FY '25 Earnings Conference Call of Triveni Turbine Limited. We have with us today on the call Mr. Nikhil Sawhney, Vice Chairman and Managing Director; Mr. Arun Mote, Executive Director; Mr. S.N. Prasad, Chief Executive Officer; Mr. Sachin Parab, Chief Operating Officer; Mr. Lalit Agarwal, CFO; and Ms. Surabhi Chandna, Investor Relations and Value Creations, 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 now 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 request Mr. Nikhil Sawhney and Mr. Arun Mote to share some perspectives with you with regard to the operations and outlook for the business. Over to you, Mr. Sawhney.
Thank you very much, Rishab, and a very good afternoon, ladies and gentlemen, and thank you for joining the investor call for Triveni Turbine for the first quarter of FY '25.
This has been a remarkable quarter 1, not only in terms of financial metrics, but also on all operating metrics, including order booking. We've had multiple years of notable quarters where improvements have been witnessed on prior periods. And now we had nearly 17 quarters of growth, and we're very happy that this augurs extremely well in the first quarter of this financial year because it gives us visibility towards the rest of this year. I'll be happy to talk more about this during our conversation.
The revenue for this quarter grew 23% over the previous year to reach a record quarterly level of INR 4.63 billion -- sorry, revenues. EBITDA and PBTs reported a robust 36% and 37% year-on-year growth with a margin expansion of 240 basis points. PAT for the quarter was at INR 804 million, an increase of 32% year-over-year. And we also had the highest ever quarterly order book of INR 6.36 billion during the first quarter, which was a growth of over 40% year-over-year.
Before I get into the details, I wanted to take you back on the business that Triveni Turbine does, what do we sell and what are the markets that we cater to. This will provide you a little bit of a greater insight into where we are as a company and where you could actually see the potential for this business.
Triveni Turbine sells heat and power solutions, both for industrial as well as renewable-based applications. And the growth areas where our products fit is into the fixed capital formation that happened in end-user industries as process industries, which requires steam as part of the process, but also for renewable-based applications and independent power production.
We, of course, have stopped giving a split of our sales between below 30 megawatts and above 30 megawatts, but suffice to say a lot of our growth and visibility is coming from these larger megawatt turbines, which we're increasingly getting a better market share in. And as it happens, our R&D is now taking our product range in excess of 120 megawatts, and we are very happy that we're able to cater to the global market for these product ranges.
Our refurbishment and aftermarkets also present a huge growth opportunity, as we've seen in the growth of the business over the last several years, not only in terms of being able to provide a life cycle relationship to our customers, but on the refurbishment side, this allows us to stretch it to other OEMs, which have not been able to adequately service their customers.
We feel that being -- putting the customer at the center of all of the activities that Triveni does, be it in terms of our sales initiatives or projects and execution, but also specifically in the aftermarket and aftercare is the heart and core. And we do abide by that principle to make sure that the customer is delighted in every interaction that they have with Triveni.
Now, coming back to this current quarter, the domestic sales increased by 27% to INR 2.47 billion, while export sales increased by 19% to INR 2.16 billion. Export as a percentage of sales stood at 47% in Q1 FY '25 as compared to 48% in the previous year. This is, of course, a reflection of the order book that we had in previous quarters, apart from the aftermarket, which has a shorter book and bill cycle.
EBITDA for the quarter increased by 36% to INR 1.15 billion in the first quarter of '25 as opposed to INR 843 million in Q1 FY '24. And margins increased by 240 basis points to 24.8% as against 22.4% in the last period -- in the period of the last year. And profit after tax grew by 32% to INR 804 million.
Margins have not been a problem, and as we've spoken about in our previous conference calls, we do not see margins as being the biggest issue as the composition of our order book, and therefore, the resultant composition of our revenue will be skewed more towards exports and aftermarkets, which offer us better margins.
More than that, the volatility that we have seen in commodity prices over the COVID period has come to an end. It's not as if there isn't any commodity inflation, but the predictability of that is far more, and so we can have longer term and better contracts with our partners and suppliers and vendors, which gives us visibility into costs as we go forward. This allows us to then operate at margins at higher levels which are commensurate with the type of technology business that we are.
Order booking for the quarter grew by 40% to INR 6.36 billion, with exports contributing 66% of the overall order booking. Domestic order booking was muted at INR 2.16 billion in the first quarter and grew by 2%. However, the company has a healthy inquiry book, and we expect order finalizations in coming quarters. As we had said in the previous conference call at the end of the financial year FY '24, Q4 had also seen a muted order booking in the domestic market due to what we can only assume was a slight risk of -- for the elections.
We've seen the same in Q1. So having said that, and we'd be happy to get into this in the Q&A, there is an increase in the inquiry book for the first quarter. We are, in fact, seeing customers wanting shorter deliveries, and we think that the domestic market will be a source of growth for Triveni Turbine, not only in the coming quarters, but in the years to come.
We feel that there is an immense opportunity, not only in terms of this energy transition for companies and corporates who are part of -- who are growing their capacity to be more energy efficient, but also for their own captive requirements to be met, Triveni Turbine has adequate solution.
Our green solutions also have a role to play in the growth of the power consumption in the economy. And you can -- I'm sure you're aware, this is an area of increasing focus for everyone, not only the government but for citizens alike.
Our growth in order book from the export market was truly remarkable this year. But I do have to caution that we do operate in a lumpy industry where orders come in -- at sometimes in a lumpy manner. While this growth of order book to INR 6.36 billion is truly remarkable, I would caution you to be -- to extrapolate this for the rest of the year, though we are confident that we will have good growth in both order booking as well as revenue for this current year.
The end order book for Triveni Turbine gives us comfort not only for the revenues for FY '25, but in fact, actually, because of some of the larger megawatt orders that we have in our order book, this provides us visibility stretching into FY '26 as well, which is new for a company which has typically had a product delivery cycle of between 9 to 10 months.
And so now having visibility of over a year, even more predictability in the way that the company will be able to perform, and given our book and bill that happens within the year anyway, plus the short delivery that we have from the aftermarket, provides us good visibility.
As I was saying, export order booking was a record of INR 4.2 billion in this quarter, which grew by 74%, and exports contributed 66% of the overall order booking in the first quarter.
Coming to the segments. The product order booking increased by 58% year-over-year and which includes prestigious international orders. While Q1 has registered a good performance in order booking, it is generally lumpy, as I had already stated. The key drivers for growth in the product order booking were finalizations of orders from the renewable and industrial customers, power customers as well as API customers, both in India as well as internationally.
The product segment turnover was INR 3.7 billion (sic) [ INR 3.07 billion ] during the quarter. The Aftermarket segment order booking for the quarter stood at INR 1.5 billion, which is a growth of 3% when compared to the corresponding period of the previous year. This growth will -- this is a high-growth segment for the company, and we are confident that this is a segment that will continue and contribute to the growth of the business in the short term as well as the medium and long term.
We are investing into capabilities to be closer to our customers internationally so that we can cater to their third-party product requirements, but also to be closer to our customers so that we can offer them the spares and service solutions that are required for our product. However, there has been -- in this current quarter with the notable surge in inquiries, we believe that order booking in this segment has a potential to accelerate during this current year.
The company is making healthy progress in its newly commissioned U.S. facility in Houston, Texas, and we believe that this could further provide a fillip in this segment, both in the current year, but especially in the years to come. The Aftermarket turnover was a strong INR 1.56 billion, registering a growth of 21% over the previous year. The Aftermarket contributed a healthy 34% of total turnover in Q1 FY '24.
The total consolidated outstanding order book stood at INR 17.26 billion as on the 30th of June 2024, which is higher by 23% when compared to the previous year. This is again a record for the company, and a huge credit has to be given to the entire team at Triveni Turbine to be able to get this order booking.
More than that is the fact that our technology is being able to provide even more relevant solutions to our customers. The domestic outstanding order book stood at INR 7.21 billion, which is lower by 9% as compared to the previous year. And the export outstanding order book stood at INR 10.05 billion, up 65% and now contributes 58% of our closing order book. As you know, the export market will continue to be a growth driver for us, and we see exports as a percentage of our order book as well as exports as a percentage of our sales to continue to rise in the quarters and years to come.
Of course, this may be lumpy quarter-to-quarter. But in general, the trend will be to increase that. Investments, including cash, stood at INR 10.37 billion, an increase of 17% from 31st of March 2024. And this quarter saw a further reduction in working capital as this business operated increasingly in efficient manner.
I'd now like our Executive Director, Mr. Arun Mote, to say some words about people as well as outlook, and then, we'll open it for question-and-answers. Over to you, Arun.
Good morning to all of you. As we have been saying in the past, and what our Vice Chairman has said, people continues to be our strength. It is a driving force behind the ability to innovate, adapt and deliver exceptional value to our customers and stakeholders. We continue to focus on the growth and development of our employees, both domestically and now internationally also. As you know, we are expanding into the different geographies.
As regards to outlook, expectation for medium-term business performance continues to be robust, supported by substantial backlog of orders in all the sectors, that is, renewable, API and IPG.
As regards aftermarket, in all the areas, that is spare parts, supplies, services and refurbishment, we are broadening our range and also giving services to not only the industrial turbines, but into the utility range and also into different types of turbines, like geothermal. Domestically, the outlook remains promising, which is likely to ensure that the capital expenditures, especially in private sector will improve and which will result into substantial higher orders in the coming quarters.
As regards development in the company, right from, as I said, people, the research and development, new product lines, innovation, customer engagement and infrastructure supported by digitalization is the strategy which our company is adopting, and we would be ready to take on the new areas and also the expanded business.
We believe the opportunity landscape in front of us is immense and is expanding rapidly. We remain committed to taking Triveni Turbine to newer heights globally, that is domestically and internationally also. The company remains on sustained growth path. Thank you.
Thank you, Arun. We can now open it up for question and answers.
[Operator Instructions] The first question is from the line of Amit Anwani from PL Capital.
Congratulations for the great set. So first question, in the opening remarks, you did highlighted about the products for 120-megawatt range. So I wanted to understand more with respect to which areas you're going to cater, which industries and what is the addressable market. And have we started selling this product or still this is slightly away with respect to the commercial sale and production?
No, you're right. This is a segment that is again for industrial. We do not make utility turbines, and the turbines that we make for independent power generation is in the renewable sector. So this, as you would imagine, is not for the -- for renewable requirements. This would be for industrial requirements for a variety of industries that have high power requirement.
They would also require -- also industries that require processed steam or high processed steam. These are sizes of turbines that are typically not used in India and industry. Indian industry industrial capacity is far more decentralized than what would be required apart from our metals and steel sectors. But I'll have our CEO, Mr. S.N. Prasad, talk a little bit about this.
It's a segment that we've developed, and we are hopeful of sales in the near future. But I have to tell you that all our technologies are scalable. So these are developments that are something that we're quite confident on, but Prasad, would you like to provide some visibility?
Yes. As our VCMD mentioned, these technologies are scalable, as we are focusing in the industrial steam turbine space because wherever the requirement crosses 100 megawatts, what we have seen in the industrial range, we are seeing the range up to around 110, 120 megawatts. So that is basically the product line what we are having can cater up to 120 megawatts, which we are seeing a traction in large integrated steel plants as a large oil and gas size plants or pulp and paper mill, so we have a product line. As going forward, we have to see how these inquiries queue up and take us to that level.
But in general, the market is the same industrial market. So we do not distinguish between the sizes of particular markets. So suffice to say that it fits into the larger industrial market that we do cater to. And this is just a product extension, which allows us to cater more comprehensively to that market.
Sure, sir. And export, we did very well. You did highlighted that there was large order, lumpy orders, which had come. So I just wanted to understand the current quarter, did we saw any large order and which, in the area, if you could highlight more with respect to exports and large order? And what is the typical timeline for these large orders? Is there any additional risk, payment terms, which are different than the base orders?
No. See, the risk is something that we do not compromise on. The fact is that we operate in a space where we get our payment on dispatch, and our commercial terms are quite consistent on that. As a responsible customer, we, of course, take -- ensure that the customer is happy with our product for an extended period of time. So that is the confidence that we need to have in our technology.
The lumpiness of orders, as you did point out, is we did have some larger orders in this current quarter, which were from the -- which I'll ask Prasad to speak about again, but these are things that I think are -- present no exceptional risk than what we normally do. Prasad?
Yes. These lumpy orders are basically from oil and gas segment from Middle East region from some of the prestigious refineries. And here also our payment terms and all these things, as our VCMD mentioned, these are all as per our standard payment terms. There are no risks envisaged. Whatever our current risk profile is more or less it is maintained in the framing.
Sure. Lastly, if I may, on the domestic inquiry book, we have given very strong outlook. If possible for you, to further bifurcate which segment areas of product we are seeing strength in domestic inquiry? And any percentage increase over last year if possible for you to highlight?
No, the inquiry book has grown by about 14%, but you have to recognize that we've had a fall in inquiry book sometime last year the same period. Having said that, overall, on a year-on-year basis, we do see growth. Q1 has been extremely muted. So we were expecting more growth to happen in Q1. But if you look at it on a year-on-year basis, we may probably end up at FY '25 with a small growth over FY '24.
The segments will be the usual culprits, which I think fixed capital formation. There are 2 areas where you see this demand coming from, which is from industries such as steel and metals, cement, some renewable plastic, packaging paper, et cetera. But you have it in 2 forms, one is greenfield and brownfield expansion, which is for captive power generation, but you also have it for energy efficiency, for waste heat recovery and applications such as that.
So you have 2 types of investments that are happening in different sectors. We do have the inquiries which has restarted from sectors such as distilleries, which give us very good demand in the years past, but we'll have to wait and watch because the finalization of the sector may take a little bit more time.
Prasad, would you like to add anything on this?
Yes. More or less, we covered all the sectors, like steel, cement and municipal solid waste to waste heat recovery from cement and steel plants in addition to distilleries. These are the segments, which we have seen a traction in quarter 1 with a good growth.
The next question comes from the line of Prolin Nandu from Edelweiss Public Alternatives.
Slightly long-term question, Nikhil, for you would be that if I -- as I see things, right, our company's performance in the last 2 quarters is a testament to Triveni is very resilient business model, as despite the slowdown in domestic market, you have reported very early numbers. So Nikhil, if I -- if you can recap the last 5 years' journey, right, like say, where we were pre-COVID, where, if I'm not wrong, we were highly dependent on a single demand driver, which is the captive power for industries.
And as we stand today, there have been multiple growth drivers that we have been benefited from. So if you can let us know what has been the key 2, 3 factors that led us to where we are -- a very strong position where we are and if we were to look forward, right, for the next 3 to 5 years, we have reached a scale and ask rate for the company to now outperform on such a high base is much more steeper, much more difficult, but you have been highlighting your commitment to getting Triveni to new heights globally. So if you can help us understand like what -- because from, let's say, where we were in 2020 to where we are right now, will we be having a similar kind of a game plan or template or there would be some changes required?
And if you can add some more texture to your comment on investment in people, R&D, innovation and this ever-expanding opportunity size for us. So a slightly long question, but it will help us understand your next 5 years -- how your next 5 years will look like.
I think you gave the answer in your question itself, which is the investment in technology and people. We are not an asset-intensive company. And so very frankly, we are people-dependent, the quality of people, the quality of research and the focus of our research and priority on that has been something that has got us to where we are. This is not a development. This is not something that has happened over 2, 3 years. It's happened over 10, 15 years, both in terms of a culture to be able to put technology first.
We have a long way to go in terms of being able to achieve a global aspiration of being a technology company and to be even more derisked than on this particular market or product. Right now, we are product-dependent on obviously steam turbines, a variety of different applications. And we think over the long term, we would have to be a multiproduct company on similar principles. But that is not something that I think will happen immediately. So if you're looking at a time frame of 5, 7 years, that is eventually what we'll have to get to.
But as we currently sit, it's obviously a people strategy. When we look at, for example, and I'll ask Sachin to contribute a little bit here, our investments into the United States, for example, the strategy has been to be close to people. But it's an investment-heavy strategy where we're going to probably incur a loss of maybe INR 20-odd crores on the subsidiary this current year. But that's fine. That's something that we would be able to absorb as a company and still report the results that we have to. But this is an investment in people, an investment in the capabilities that are required for us to be able to ensure that the customer has an adequate service level at every different points of engagement with the company.
Sachin, do you want to just add on that point as to how you're viewing this view?
Yes. Good afternoon, everyone. This is Sachin Parab. Referring to the U.S. market, that's an investment our company has done with a very long-term perspective. Right now, we have been successful in attracting extremely good talent, people who are domain experts in this industry with a proven track record. They have been encouraged to join us. And with their joining in, obviously, this is an investment in people that we are making, and that's where most of the costs are.
And that is going to help us in the long run. Definitely, in the first quarter itself, we have seen a remarkable increase in the inquiry generation with the acquisition of this talent, which is local talent in the United States. And we are very encouraged that going forward, this investment, even though in the short term, we may be making losses, we will start seeing the returns in the short term and long-term returns will be definitely very positive.
But Triveni Turbine operates in this space where we provide, like I said, industrial heat and power solutions, and it fits into the larger market of energy transition that is actually taking place. Captive power plants and captive requirement of power is something that we've alluded to in our annual reports and given data that despite the energy transition, it's something that, that requirement from this sector has been quite robust, in fact, has been growing based on the capital stock globally.
So what you find is that the company operates in a space where you have power requirement. And if you add that to the energy transition CapEx, which over the next 25 years, could be opening in excess of $100 trillion globally. We are in a space which is globally prominent. We also have a factor where you currently have a push towards renewables that you were going to have excess capacity being set up because of balancing -- at the balancing stage, you will always have excess capacity at the grid level. So what this means is that there is additional source of demand, which is the fact that you have excess capacity, which is being set up. So we're in a market which I think provides us visibility. We want to be in a space which has wind behind its sales in a sense that global momentum and capital is flowing into it.
We now have to invest in our capabilities to ensure that we're able to be closer to our customers. There will be -- the risks for the company are quite large. We have to get our people strategy right, we have to be able to internationalize properly, we have to ensure the reliability and robustness of our technology platforms is there. We are increasingly competing at the highest levels with the largest of companies. And so we need to be able to make sure that our value is apparent in front of customers to be dynamic and nimble, to be able to be quicker in response, to be able to not -- to cater to all our customer's requirements in an entrepreneurial manner while still keeping the standards of quality that are required and demanded of the best of companies.
So I think there's a lot in your question. Hopefully, the only way I think that we'll be able to answer it more comprehensively is for people to listen to our conference calls over a period of time to see how we're delivering on what we've talked about.
No, that's very helpful. 2 quick follow-up questions, right? I mean, one is you have been talking about this expansion of your TAM, right? And this quarter, you have talked about 120 megawatts of also opportunities opening up for us. So in terms of quantifying this TAM, let's say, if 3,200 is a 100 number we put at -- put the demand size to be, so from 100 to 120, would it be 5% or 10%? And similarly...
Actually, we put the number of 100 as a general number. Like Prasad has said, this technology is always scalable anyway. It's a question of the market. You see the fact is the market didn't exist. These are few and far between the orders that come in this range. But in general, it's the same market that we cater to in the past that we cater to today. I just made it a point to point out that specific megawatt size because I know that our investors may not be as conversant as we are on how we view the market. So just to say that...
Right. And on this -- something that you mentioned in your presentation as well, on sCO2 and tCO2-based solution, could you slightly elaborate on this? Is this domestic opportunity or global opportunity? And also on this 374 global IP filings, how should one read this in terms of higher demand, higher margins? What -- how can these...
So I think that the IP point is to say that we are at the forefront of what we're doing and the fact that these are globally relevant technologies that we've patented not only in India but internationally. So the point is to say that we have a key focus on technology, that is what we should read out of it. In the specific areas of the carbon dioxide developments, those are areas which we think present enormous opportunities in the years to come. They play very well into the larger theme of energy transition and decarbonization and also providing an unsubsidized use case for carbon dioxide.
But the commercialization of these technologies is underway. We -- it does not represent any meaningful part of our order book right now. We are hopeful, of course, that this will present markets in the future, but we have to do a lot of development of markets, and it will take some time. When we have more to report, we will give you more visibility behind these developments. But suffice to say that the R&D team is very engaged, the commercial team in terms of being able to push these products is also there. And we report to you when we have any developments here.
[Operator Instructions] The next question is from the line of Ravi Swaminathan from Avendus Spark.
Congrats on a very good set of numbers. My first question is related to the overall global addressable market size. In the last quarter's presentation, you had mentioned that the global steam turbine market in 2023, excluding China and Japan, was somewhere around 6 kilowatt. My question is -- I mean, the number wouldn't have changed that much. How is it likely to grow? And what is our share there, if you can? And is this for the 0 to entire 100-megawatt range?
Yes. So I think that's reasonable in terms of the size that we've talked about. What you have to remember, Ravi, is that fixed capital formation is lumpy, and it is dependent on multiple different factors, be it instability, geopolitics, interest rates, et cetera. You have a more consistent demand that comes from the renewable energy space and that also we've tried to give some clarity over. So what you have to recognize is that the total addressable market is -- will be volatile or should be volatile by the factors that I've said. But empirically, what's happened is that it's been quite stable, actually. Over the last decade or like 15 years, we've seen it to be quite stable.
So we play in a market which I think is where we have a relevant solution, a cost-effective solution to be able to cater to our customer's requirements. Ultimately, I think the growth of this market will probably happen -- you see what you've had over the last several years is the growth in terms of requirement of pure commodities because of localization of supply chain basis, debottlenecking, et cetera, et cetera, moving away from China, so you've had -- and as well as the fact that this whole energy transition requires a lot of base metals and so you have had -- and infrastructure, in countries like India, it requires a lot of infrastructure commodities.
So you have -- you had a push in terms of industrial commodities over the last several years, and we don't see that coming down both in India and globally. But there will be a limit, it's not something that can continue forever. You also have a lot of replacement CapEx that is happening in developed economies. So that, coupled with fresh investment, coupled with renewable investment, gives us confidence that the market should remain stable. We're not assuming that it would grow disproportionately.
You have -- what you have from Triveni's side, as you said, our total addressable market will increase as our products become more relevant, as we have higher megawatt turbines, as we go and establish greater capability with our API customers and have greater relations with them. So that should provide better opportunities for us and better opportunities for us to close orders. I think over a -- as you see with our inquiry book -- order book, that is what leads to the order conversion and into our revenue. So I think that we should see good growth this year. It may be less than the previous years. But margins, because of the product mix, will be quite robust. What we find is that the medium-term story for Triveni Turbine to grow remains quite robust right now.
Understood. And what is the size of the U.S. market in this, so is there any estimated size that is assumed there?
Yes. Well, I think -- surprisingly, what we had estimated to be the U.S. market has come out to be much higher than what we had put done in the figures that you may have gotten from our literature. And this is as we're discovering it, it's more from the service, spares, refurbishment market. And it's something that has to -- requires much more work from us. We see the refurbishment market as a growth opportunity for us, but we may have to invest more to be closer to customers so that they're able to display the capabilities that they want from us. But I hesitate to give direct market numbers because, very frankly, a lot of it is something that we've had to work very hard to develop. You could take this offline and discuss it with Surabhi.
Understood, sir. And any sense on the current realizations on a blended basis across turbines on a megawatt basis that you can share? I mean, I just wanted to think how it has trended across years. I think a few years ago, it used to be in the 70 lakh to 80 lakh per megawatt range...
No, I don't think we've ever given that number. You may have calculated something. But you have to understand that every customer is unique. Every -- and it's quite analysis in terms of pricing with other industries. The more sophisticated the requirement from a customer, the more bells and whistles, the higher the margin and the higher the price.
Geography has its own implication as well. The -- certain economies just report better margins. But that's driven by higher specifications. It just doesn't happen because your -- in the Middle East that you get -- had better margins. You get better margins because there's more specifications, there's more details, there's more effort and time and bells and whistles that are required on your product.
Indian customers don't want anything, and that's why they have more failures. So you have this -- you have a flip side of the coin on every -- with every factor. So we -- what we're seeing is that the price has obviously gone up because general commodity prices have gone up. So our steel price has gone up, labor prices have gone up, conversion price has gone up, and so obviously, our sales price per megawatt has also on average gone up. But that is the same with all capital goods industry and it's all capital goods players. How competitive are we is a better question? And the fact is our competitiveness versus competition is still compelling, and we are still equally relevant in front of the customer.
Yes. My last question is with respect to the API turbine market, any sense on the global market size of this? And what would be our share...
Ravi, we hesitate to give market size numbers because, very frankly, it's not broken up by anyone. And I have started to think that our numbers may actually be wrong. But this is also quite -- it's quite a confidential number for us in terms of how we track it. But I would suffice to say that this is a market that is entry market for us. We've had -- both in the drive turbine market and the power turbine market for API, we have a lower market share than we would in the industrial power generation, in the renewable power generation market.
And so we have room to grow here for sure. What we do have is a good customer acceptability. And this is because of years of hard work to be able to convince customers to put us on their reference list. But this is not only internationally, but even in India, the API market is quite robust.
And, Prasad, I don't know if you want to add anything on the API market in specifically?
No, API market, yes, there is one market as it is an entry market for us and we believe that, yes, we can play a bigger role in this market, as just we entered 3, 4 years back.
The next question is from the line of Mohit Motwani from Tara Capital.
My question is on the U.S. piece. So you mentioned about how you've started building up the sales/service team, attracting talent and also got inquiries. Can you just elaborate on what kind of conversations? And what do they indicate when you would speak to the customers given that U.S. currently is facing a tough macro? So what kind of visibility you have for any future incoming orders that can contribute many to print the order book? So anything on that side will be helpful.
No, actually, our feeling is a little opposite to what you are saying. Firstly, we're operating in a micro segment. So when -- the real macro flows are not really coming down to impact the steam turbine market for Triveni Turbine. Like I said initially, there are 2 demand drivers for us. One is fixed capital formation in the end user industry, which may be either due to greenfield/brownfield expansion or due to replacement.
But also what you have is through initiatives such as IRA, which is an Inflation Reduction Act, a great focus on renewable energy-based investment, and that is agnostic to macro policy. So what you find is the inquiries from sectors like that is quite robust. The U.S. has never been a great investor because its energy price has always been so low, it's never been a great investor in energy efficiency. Now it is incentivized to do so.
But besides that, our entry is also -- and our real focus was on the aftermarket to be able -- for the U.S. And so there is a large market for refurbishment of equipment, which currently stands. And despite whatever macro environment there may be, if a capital stock needs investment so that it can run, that will happen. So the refurbishment and spares market and service market is, as always, a more stable market in whichever industry you participate in.
Understood. And given that your order book has been more skewed towards exports, can we expect more margin expansion going forward or the investments in tech and people can keep it range bound around the current margins? I would just want to understand that.
Yes. Like we've said that we don't see margins as being an issue. We said that in Q4, and we ended up with whatever results we had in Q1. But I think that we don't see margins as an issue because of exports as being a larger percentage of our order book, and therefore, a percentage of our revenue, but also the aftermarket will also contribute quite meaningfully. And so margins is fine. We're not going to guide towards a higher -- we don't guide firstly, but I think that we would rather get more predictability on our topline growth than to push for extracting as much as we can from a customer.
We need to be quite credible in front of a customer as well. We need to be able to rationalize our prices. But we will have a lot of investment, you're right. People is a very strong investment. We will probably double the number of people that we have as a -- at Triveni Turbine from what we had in FY '23 -- FY '22. And our investments into R&D will continue. We need to have a better infrastructure and reliability on our R&D investments, and we will continue to push into that.
And then, of course, we have the investments that we have to do in our localization strategies through our subsidiaries to be able to have a more -- a better offering for our customers on a local basis. And so -- but all of this said, we do think that our return on capital, return on equity is something that we will not compromise on. And so those are factors that we would aim to -- especially post cash we would aim to maintain.
The next question is from the line of Chirag Muchhala from Centrum Broking.
Congrats for a very good set of numbers. So the first question is actually on the Europe and Southeast Asia, which have traditionally been our main regions for exports. So can you also speak a bit about how the demand trend is emerging from those geographies? That would be helpful.
Yes. It's a very good point you bring up, Chirag, because actually Southeast Asia is an area which has underperformed. But, Prasad, would you like to...
Yes. So Europe is still quite a strong market for us because the areas of our operation are very niche areas there into some of these biomass waste to energy projects and all these things. Even our inquiry pipeline is strong.
Coming to Southeast Asia, we have a good traction from our refurbishment opportunities. Yes, product-wise, still, we believe that there's a lot of scope to increase our numbers there, but we are seeing a good traction from our service business, that is a refurbishment business as the fleet -- old fleet is still in operation there. So going forward, we see that this will be an interesting market for refurbishment, and still there is a room for us from the new product push in these markets.
Sure. So basically, sir, some of the countries in both these regions are facing some challenges, some economics, some geopolitical, so do we see any risk of any order finalization getting postponed or we feel that the growth will continue to be very healthy from both these regions?
No, no, no. That's too much of a generalization. The world is in a lot of flux. So the point is that we are quite diversified geographically. And so what we say is that within the overall macro theme of higher commodity prices and greater fixed capital formation on the industrial side as well as investments in the renewable energy space, that overall, we fit in that space. Country-to-country, it will change quarter-to-quarter, half-year to half-year and year-to-year because of local factors. So like -- but surprisingly, while Southeast Asia may have some flux, countries such as, say, Turkey, which has a different type of flux and high inflation is showing robust demand.
Now, what are we -- I don't think we can actually relate that to geopolitical or other stresses. We can only react to the demand that comes from the economy and what -- and why it comes and may be unique to that specific inquiry. But we are cognizant of that. There will be finalizations, which will get deferred. But having said that, it will get made up by other inquiries and other orders. The disappointment really was in the Q1 order intake for India. But we believe that, that should pick up in the quarters to come.
Okay, sir. And on the second question, on the API turbine side, so you mentioned that this quarter there was healthy orders from Middle East from refineries, so I would assume this is from API turbines. So would it be possible to get into more details regarding -- we had diversified into this product category a few years ago. And over the years, based on our experience, obviously, we would have ramped up our various technical approvals, et cetera. So how large has this segment become in terms of our order book or our revenues?
And over a medium term of, let's say, 3, 4 years, how do you see this segment further scaling up? So is it more likely that this would end up becoming something like 20%, 25% of our total order book? Is that a fair expectation or it will continue to remain in low single-digits only?
No, it could go up, but we see growth in all segments. It's just because our market share in this segment is lower, so we had -- it will be a higher growth segment for us. But it is a market that exists. There is investment that goes into the sector. It is an intensely competitive sector as well, but we don't unfortunately give data on the breakup of our order book segment-wise or geographically, neither do we give market size data on this, as I just told a previous speaker.
But suffice to say that it is a focus market for us, and we think that, as Prasad has said, also, it will contribute meaningfully going forward. We don't really target a 20%, 25%, 30%, 40%, 50% market share for anything. We have to make sure that we are relevant to our customers because it's a comprehensive solution that we bring to our customers. It's -- not only is it a solution for the product, but we have to be able to cater to the aftermarket requirements also for them and in the geography.
And so if we look at it in an overall manner, we aim to be diversified as a company between both industrial power generation, renewable energy power generation as well as API, both in small ranges, drive turbines and large ranges by equally offering aftermarket solutions for both products and service, but also to cater to other third-party rotating equipment solutions.
Yes, sure, sir. And last question is on our cash and investment balance, which has again, I mean, expanded to very good levels of INR 1,000 crores-plus. And since we have been generating very healthy free cash flows, so just wanted to know that over the next 2, 3 years, what are our capital allocation plans in terms of CapEx or further backward integration or any other things that we might have plans of?
Yes. So like I said, when we talk about investment, obviously, people investment is going to be on the P&L. But we had announced a dividend in Q4, which will get paid out of this money because it will wait till the AGM. So that is -- so therefore, the level of the cash is also a little artificial until we have this liability to pay off the dividend.
So we are consistent on our dividend policy, and I think that that's something that will continue. The CapEx, we will continue with our strategy of being asset-light. But wherever investments are required for us to be close to the customers, we will not shy away from that because we see the overall return, especially over the medium term to be quite robust.
We will increasingly be spending more on R&D. And those are data that will come out through our annual report, so you'll be able to see what the investments are. But suffice to say that the strategy as a company to be free cash flow generative will continue. So I think what our strategy has been in the past will continue in this future. Just the fact that we have more free cash flow available, we will still invest more. Therefore, proportionately, we will invest more into areas such as R&D.
The next question is from the line of Teena Virmani from Motilal Oswal Financial Services.
Congratulations for a good set of numbers. Most of my questions have already been answered. Just 2 sets of questions, one on domestic and one on margins. On domestic, you mentioned that there are a couple of industries which will start finalizing the orders for domestic segment. So how closer are we in terms of finalization of orders? Because last 4, 5 quarters, on an average if you see, the inflow run rate for domestic has been more or less flattish only, so why is it taking that long for the user industries to kick start investments? Is there any delay from their side to decide on whether they actually want to do the CapEx or not?
I'll ask Prasad to comment on this as well. But my opinion is that we really haven't seen any commodity price increases. A lot of CapEx actually typically happens with the increase in commodity prices over a sustained period of a number of quarters.
Also, there was a risk event last quarter. But having said that, and I started with this in my introductory remarks, which is that the inquiries that are coming up now, people are asking for short deliveries. So they're -- not only are they back, but they're back in the water quickly. So it's very funny. But, Prasad, do you have any comment for this?
Yes. As you rightly said, yes, out of this thing, 2 quarters, basically, we lost, that is a Q4 and Q1 because of the election because majority of these customers, they want to wait-and-watch sort of a thing, so that is pushing us back now for short-term delivery sort of a thing. But now, by seeing the inquiry pipeline, whatever we are having, especially from all those infrastructure investments, so leading to steel, cement and -- these sort of inquiry pipeline is getting built up. So what we believe is, yes, coming quarters is going to be an interesting quarter from domestic side based on this pipeline.
And at this point...
So these will be the main sectors which will be contributing in the coming...
Yes, yes, this is -- it's contributing from all sectors. You have API investments in refinery, petrochemicals. You have certain fertilizer requirements, et cetera. You have steel, cement -- not large steel, we'll have more smaller steel, and cement requirement is there. But those are requirements, which I think towards the end of the year, if things work out fine, will reemerge from the distillery segment and from other biomass and renewable energy-based investments.
Waste-to-energy and municipal solid waste incineration, which is a municipal issue, is robust. That's something that we desperately need as an economy. So I'm quite -- well, we need more investment than what we're seeing because our cities are filled with garbage, so -- but having said that, at the overall level, I think that we can see this sort of demand from India continue and continue to grow in the years to come.
Got it, sir. And also on your Middle East orders, which you got in this particular quarter, what is the execution timeframe for these orders? And are these orders more on a sustainable basis or they are like normal product orders?
No, they're normal product orders, but -- and so, therefore, they're sustainable in terms of the years to come. But as -- you asked a good question, this is something that I alluded to in my opening remarks that some part of our order book will give us visibility into FY '26 as well.
Now, as you know, our products [Audio Gap] as well as balance of plant. The balance of plant includes a variety of different equipment, so some part of that will be built in this year, some part will be built next year. But that is something that we do with the customer based on customer readiness and customer availability. The customer has to have it available -- the site available also for him to accept the products.
Got it. Got it. And lastly, sir, on the gross margin sustainability, like this quarter, there was a good jump in the gross margin on a sequential basis also because of the change in the product mix. So is it something that we can -- can we expect it to sustain in the coming quarters looking at the product -- looking at the order book mix of the company?
Yes. What we've typically said is, as a capital goods company, every quarter will be different from another quarter because of either the product mix between export and domestic, between aftermarket and product as a split, you also have other issues in terms of certain investments that may have got -- happened in certain quarters in terms of personnel and R&D, et cetera. You'll have certain expenses that have been taking place in our international subsidiaries, which will impact. But overall, we don't see margins as a problem. And so overall, net-net, I hesitate to give any guidance here on the matter, but it's not a problem for us so much.
The next question is from the line of Shyam Maheshwari from Aditya Birla Mutual Fund.
Congratulations on a great set of numbers. I wanted a little bit more clarity on your comment on R&D expense. So I understand you are planning to incur more R&D. Is there any product cap as such or any other new product or certifications that you are working on which would entail this R&D.? Can you give a bit more color on that?
Yes, R&D is a broad expenditure, both on new product introduction with our current product lines, which include steam turbines, both in terms of higher megawatt ranges, different applications, different configurations. And the internals of those, which is the type of blades and the way that they are put out and the series of blades and the efficiencies within them. The investments, which will be required stretch from not only the certification level but actually the physical testing.
The expenditure on people is something that we cannot capitalize and so that is something that we expense, though we have to wait and see what the new R&D scheme of the government will be. But suffice to say that the testing requires the actual CapEx into that. This is done principally at our own facility, but also at third-party facilities, which include academic institutions, both in India as well as outside India.
Now apart from that, we also have new technology introduction based R&D that we do, and this is something at this point in time where it's sort of routine for us to do in multiple different technology lines, so as to see where this goes and see where the commercialization of products can happen within that. But they're all adjacent as sectors. They're all rotating equipment. They're all areas where we have certain capabilities.
And at this point in time, they don't present a substantial market for us to talk about and no substantial focus. So at this point in time, these are things that we have to keep ready for the years to come to ensure that we have a development of most solution orientation to our customer and something that we feel that will allow us to be even more diversified because we're already geographically diversified, but to be more diversified from a product perspective also.
Understood. And sir, secondly, on our export inflows, which has seen quite a bit of surge even if we compare it, let's say, against Q1 FY '23 from about INR 150-odd crores of inflows to now more than INR 400 crores of inflows. So can you give me a little bit of more granular detail within renewable energy or waste-to-energy systems what is exactly driving this growth? Is it like garbage burning plant, waste to energy, waste to recovery systems with geographies? So a little bit more color on the export side of things as well, sir.
Yes. Unfortunately, we don't break that up. But I think the way that you should look at our export initiatives and where we've been successful is where we've been able to be closer to the customer and provide confidence to them. The demand comes from generic sectors, like I said, you have renewable-based energy investments; you have API, which is oil and gas investments as well as industrial power generation investment. And we will have strength in different geographies for different sectors.
The Middle East principally sees more investment, as you would imagine, into the oil and gas sector rather than into the renewable waste sectors. It's not that they don't have any renewable-based investments. Europe for us sees much for renewable-based investments. The Americas right now will have more in industrial power generation as well as renewable-based investments. But our order book also constitutes the aftermarket. The aftermarket includes both products and -- both parts and service as well as refurbishment.
Sachin, maybe you can just provide a little bit of color on the refurbishment market and how that is looking.
So our market development activities in any regions for the refurbishment business over the last couple of years and our strengthening of the sales and business development task force has started resulting in good number of inquiries. And our Vice Chairman also alluded to the fact and our CEO mentioned that we are seeing good traction on refurbishment in Southeast Asia. So that's a very, very positive sign, and we feel that our investment in this sector has started yielding results.
I'd be happy to take some of your questions off-line also if you have them on specific things.
Ladies and gentlemen, we will now take the last question, which will be from the line of Prateek Giri from Subh Labh Research.
Nikhil, congratulations on a good set of numbers. Nikhil, I just wanted to get your sense on the exports growth and how these have been panning out for our competitors globally? So is it that for them also it is similarly good or is it a market share gain for us, if you can help me understand that?
Yes. Well, pretty much we could say that since we're seeing the overall market to be quite constant, this is obviously market share gain.
You mean, it's a market share gain for us, so the competitor's growth is not as high as ours with that...
I wouldn't be able to comment on that because I have no idea what it looks like. But suffice to say like in areas such as API, where our market share has been low, that's something that obviously it's come from somewhere else. Historically, for countries like India, where we have much better market share data, where every inquiry or orders are across our desk. We've seen the growth of the market. And so market share has been reasonably evenly split between the 2 principal companies which operate in India.
So thank you, ladies and gentlemen. Thank you for joining the Q1 FY '25 earnings call for Triveni Turbine. On behalf of Arun, Prasad, Sachin, Lalit, Surabhi, Satya, et cetera, I hope -- I look forward to hearing from you in our next conference call. If there are questions that we have not been able to get to, I hope that you'll be able to pass them on to Surabhi who can answer those. But we look forward to interacting with you in the future. Thank you very much.
Thank you. On behalf of Triveni Turbine Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.