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Triveni Turbine Ltd
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Ladies and gentlemen, good day, and welcome to the Triveni Turbine Limited Q2 FY '25 Earnings Conference Call. We have with us today on the call Mr. Nikhil Sawhney, Vice Chairman and Managing Director; Mr. S.N. Prasad, Chief Executive Officer; Mr. Sachin Parab, Chief Operating Officer; Mr. Lalit Agarwal, Chief Financial Officer; Ms. Surabhi Chandna, Investor Relations and Value Creation. [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. We will now 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 to share some perspective with you with regard to the operations and outlook for the business. Over to you, Mr. Sawhney.
Thank you, Rishab. Apologies, ladies and gentlemen, on starting this call a little bit late. But it's with good news that we have this call for another record quarter for Triveni Turbine. This is the 18th straight quarter of record results, and I'm very happy to take you through our results.
This is again the highest quarterly revenue and EBITDA, along with a record closing order booking, providing very good visibility for the near term in this Q2, H1 FY '25. We've had the highest quarterly revenue in the second quarter of this financial year FY '25 at INR 5.01 billion, which is an increase of 29% year-over-year. Domestic sales increased 32% to INR 2.79 billion, while export sales increased by 26% to INR 2.22 billion.
This is also the highest ever quarterly EBITDA with INR 1.31 billion, up 47% year-over-year, with a margin of 26.1%, which increased 320 basis points year-over-year. PAT for the quarter was at INR 910 million, an increase of 42% year-over-year and we also had a very healthy order booking of INR 5.72 billion during the second quarter, which is a growth of over 25% year-over-year.
It was a record outstanding carryforward order book as of the 30th of September of INR 17.96 billion, an increase of 22% year-over-year. The P&L highlights for the half year, the revenue from operations grew 26% to INR 9.64 billion, which is a record for the company.
As far as the sales mix between domestic and export goes, we had a domestic sales increase by 29%, while export turnover increased by 22%. In the half year, the mix of domestic versus export sales was 55% to 45% as compared to 53%, 47% in the previous corresponding period.
EBITDA increased by 42% to INR 2.46 billion in the half year as opposed to INR 1.76 billion in H1 FY '24. Margins for the half year versus previous year increased by 280 basis points to 25.5% in H1 as opposed to 22.7% in the last corresponding period.
I'd be happy to take questions because I'm sure a lot of you will ask you about the sustainability of these margins. As you all know, the company operates in a customized engineered-to-water segment. And has different margin profiles for export orders as well as domestic orders. And between our Aftermarket and product, we also have a different margin structure, where there's -- it's more weighted towards the Aftermarket.
As you can tell from the sales mix, which is still currently more domestic focused, but our order booking is more export focused. We don't seem to have really issues with our margins at this point in time. And so we're happy to -- with these margins, and we think that they may be somewhat sustainable in the short term, though in the medium term, we imagine that we would like to expand sales and having sales as a focus for the business and sales growth for the business is really the greater priority. As I said, order bookings of Q2 FY '25 ended at INR 5.72 billion as against INR 4.59 billion during the second quarter of FY '24.
This is a growth of 25% and export order booking grew by 50% year-over-year at INR 3.04 billion. The domestic order booking grew by 4%. Order bookings for the half year was at INR 12.08 billion, which was an increase of 32% over the half year FY '24. Domestic order booking for the first half grew 3%, while export order booking grew by 63%. This augurs well for the execution of these orders, which will happen in the subsequent quarters as well as in the next financial year as well.
Coming to the segments. Product sales in Q2 FY '25 grew 30% -- sorry, order booking for product grew 30% year-over-year to INR 3.98 billion and for the half year, grew at 44% to INR 8.85 billion. The product segment turnover recorded a 26% year-over-year growth in Q1 and 25% growth in the half year compared to the previous year. The Aftermarket segment grew 13% in terms of order booking to a record high of INR 1.74 billion in the current quarter and grew by 8% in the half year FY '25 -- H1 FY '25 compared to the previous period of the previous financial year.
This, again, augurs very well for the short-term execution of these projects and the Aftermarket contributes a very healthy 33% to the total turnover of H1 FY '25 with the high contribution of Aftermarket to turnover as well as a robust and healthy growth in our order booking for the export segment, we -- the company seems to be making good headway in its newer market geographies in higher megawatt categories and the API segments as well as in both renewable as well as industrial power generation segments.
To take you through the total outstanding order book position, which stands at INR 17.96 billion as of the 30th of September 2024, which is higher by 22% compared to the previous year. This augurs very well. The domestic outstanding order book was lower by 16% at INR 7.09 billion, while export order booking -- order book stands at INR 10.87 billion, which is a growth of 71% year-over-year and contributing to a robust 61% of the closing order book.
The company continues to focus on R&D and technology. Our investments there continue to bear fruit. Our developments happening on the carbon dioxide fronts have already been commercialized, and we have good success in certain applications.
I'd be happy to go through some of those if there are questions along those lines, but it provides us visibility and commercialization of new technologies and newer product introductions, which Triveni Turbine will be bringing out in the subsequent quarters and provides a good medium-term and long-term runway for diversification of our product mix over and above the diversification that we already had in terms of going into higher megawatt categories going to API and newer market segments as well as focusing more on refurbishment as a specific growth driver to our Aftermarket business.
All of this is only possible with a great focus on people. We are expanding our resource base in terms of people and investing significantly in training and development. We not only take a good intake of GTs, Graduate engineers and the diploma engineers to be able to augment our staff and provide adequate succession planning for intermediate levels of professionals, but we do it at higher levels as well.
If you find people who are good, please do encourage them to apply to the company for jobs and the sites and the job positions are available on our website. As far as the outlook goes, we expect to maintain a robust business performance in the medium term. As I said, this is our 18th record quarter in a row and we aim to maintain that momentum going forward as well. The expectation is supported by a substantial order bookings in both the renewables, API as well as industrial power generation segment.
The Aftermarket business is also showing good promise in terms of growth and is bolstered by the standard range of offerings, including spare parts, services and refurbishment. These services are also being augmented with our digital offerings, and we aim to enable all of our services with a certain degree of digital offering as we go forward, so as to be able to provide a greater value to our customers.
Ladies and gentlemen, Triveni Turbine operates in the space of industrial heat and power. If we look at the incremental amount of energy consumption that is going to happen in this -- in the consumption of heat, we are very aptly poised to be able to leverage the positions that are transforming the market, both from a perspective of energy transition, as well as the growth that will happen in terms of the replacement of the current capital stock that is currently in play mostly in developed countries.
With that, I'd be happy to open the -- open the floor for question and answers. And I hope to be able to answer them.
[Operator Instructions]
The first question is from the line of Harshit Patel from Equirus Securities.
Sir, my first question is, how are our domestic and overseas inquiry books? How much they have grown on Y-o-Y basis at the end of second quarter?
Well, if you look at it for the half year performance, the inquiry book is -- for our overall level is somewhat flat. If you -- you have to remember that the domestic order booking in the previous financial year, Q4 financial year '24 as well as Q1 financial year '25 has been muted due to the election situation.
But having said that, we said that the inquiry book has grown, and it has again grown in this current quarter for domestic. Mr. S.N. Prasad is with me, can you give some visibility as to the segments that you are seeing growth in the domestic inquiry book.
Yes, sir. Yes. So on our domestic inquiry book, basically as a Q1, muted Q1, we saw a strong recovery in Q2 in terms of inquiry. So again, the inquiry requires our process core generation where combined heat and power is one of the key segments where we are operating quite strongly.
The other opportunity is like municipal solid waste-based power plant, cement and steel, we are seeing the traction is increasing compared to the earlier things, of course, chemical and petrochemical plants. So that way stronger inquiry pipeline from different segments getting added into Q2 in domestic market.
So just to finish on the domestic market before I touch on international, you should remember that H1 order bookings, which was impacted by the inquiry books pretty much Q3, Q4 of the previous year. We believe that the growth in the inquiry book that has happened in H1 in Q1 and Q2 of this financial year, it will translate into better order booking in Q2 -- Q3 and Q4.
But having said that, the point is that we anticipate this growth in the total market to be along our expected lines of maybe a 15% to 20% growth year-on-year in the total market domestically. But we -- and what is quite encouraging is that we believe that this is a sustainable growth. This is not any sudden peak. We see consistent demand coming right now from certain segments as Prasad has pointed out, be it in the cement space or steel space. There are obviously, newer market requirements that are happening both from renewable municipal solid waste as well as biomass-based applications.
And specifically on the energy efficiency side, we see a lot of interest, both domestically and internationally. Internationally, our order book is -- our inquiry book is an effort of our endeavors and our salespeople and partners reaching out to expand it. The inquiry book is still quite robust. And for the half year represents, I must say, a consistent market to what we had in the previous year. And as we currently stand, we believe that the inquiry book is sufficient for us to give the growth that we need in our order book, which will then translate into turnover in the coming quarters and coming years.
The segments for international, which are contributing is the API segment, which is oil and gas. As we said, that was a big contributor in the first half -- in the first quarter of this financial year, but we believe that this segment will continue to contribute in the coming quarters as well. We have good requirements from both industrial cogeneration, which is both heat and power applications from a variety of different industries, including paper and pulp. And we also have requirements coming from renewable-based applications such as municipal solid waste incineration as well as other waste to energy-based applications.
Sir, secondly, I wanted to get some color on 2 specific end markets in India. First, on distilleries. I believe we expected a pickup towards the end of FY '25, do you still see that happening or there is some slack in the new investments, which are happening in this particular sector? Secondly, you also alluded to a little bit towards answering the previous question. Are there any green shoots in the waste to energy team in India? Have we booked any such orders so far in financial year '25?
Let me ask Prasad to answer.
Yes. Coming to waste-to-energy plants, yes, we build -- we supplied turbines to some of the waste-to-energy plants in India, recently one plant commissioned in Ahmedabad also with our turbine and more than 8, 9 plants with our turbine are in operation and the inquiry pipeline is strong in waste-to-energy.
Coming to distilleries, yes, Q1 is a muted quarter for us. But based on the inquiry pipeline, there is a small growth we are seeing from the distillery. And we are seeing some sort of a traction in finalization in Q3 as we moved the last 45 days. So that way, we are hopeful on our distillery. Otherwise, we are quite bullish on MSW, the way how the inquiry is picking up and there's a focus coming on MSW plans.
Next question is from the line of Amit Anwani from PL Capital.
Sir, congratulations for the great set of numbers. My first question is on U.S., and you have been talking about setting up workshops and investing in employees in U.S. I wanted to understand, was there any contribution and post the change in government in the U.S., are you seeing anything impacting our view with respect to expansion in U.S. for the after service business? And wanted to understand how much contribution from U.S. aftermarket business can come in the next couple of years, yes?
Okay. So as it currently stands, the business -- the plant is set up, there's somewhat small additional machinery to be -- that we need to get anyway, but majority of it has already been capitalized. But it is not contributing at all in terms of revenue. In fact, as we have said in the previous conference calls, we would anticipate a full year loss from that entity in excess of INR 25-odd crores. So -- but that has been factored into consideration and proportionate amount is included in our H1 results.
So the results that you see post the expenditure that we've had in the U.S. Of course, the investments that we're making in people and capital machinery in the U.S. is because we do see a very large market there. In fact, as I pointed out in our last conference call, the estimation that we have for the market has only improved and the visibility is only improved since we have established our presence.
And the presence and our efforts there to be on 2 fronts. Not only will it be to sell new products and to service our existing base in the region, but it will also be to capture the markets for refurbishment, which includes refurbishment opportunities for steam turbines as well as other rotating equipment. And we're very encouraged by this because, as you would imagine, the U.S. market presents the largest capital base any country in the world.
And so regardless of which government and administration is in, you have requirements that stem from very short-term returns. Triveni has always played in an unsubsidized market. So we -- subsidies only sweeten the value proposition for our customers. But ultimately, for us, we are agnostic to it. We think that this is very consistent with both global demand as well as trends. And what I mean by that is regardless of the way that you view the government -- the subsequent administration of the United States, the push for energy efficiency is going to be not only be mandated by global protocol, but it will be mandated by economics.
With energy inflation and the cost of energy the expenditure efficiency is really the need of the day, and it's something that we see everyone spending on. And so we see the U.S. market contributing in the subsequent years, as you rightly pointed out. As it currently stands, it is not contributing at all, and we do not expect it to contribute in this financial year, in any significant manner.
Yes. So my next question is on the strong growth, which we are witnessing in export. Just wanted to understand if you would like to highlight any key geographies or markets. where this growth is happening apart from U.S. and...
The growth is not in the U.S. It's in other markets. The market as we see it, the Middle East is a strong market for us for oil and gas-based applications. We see very good demand coming actually from parts of the other Americas as well as parts of Europe for both process for generation and mainly renewable-based applications.
So this changes quarter-to-quarter. A market segment that has sort of been underperforming in the last 2 quarters has been Southeast Asia for us, but we think that we need to push a little bit more. It is not as if the market doesn't exist. It's based on our marketing efforts, and I think we need to double down on and spend more time.
But we are -- as it currently stands, and I did point out in my opening remarks, we have approximately 60% of our closing order book, which is from the export market, and we are extremely bullish on taking this number up. We think the Indian market will continue to contribute, but it will provide a base for us to grow from.
And one more thing I wanted to ask on the -- you highlighted about the higher megawatt category and last quarter also we entered into 120 megawatts. Any new higher megawatt products on the verge? And will that expand our market and by how much they can expand the market just to get a sense on the higher megawatt category, yes?
The point is not to be able -- we have the technology to produce up to 120 megawatts. It's different if the customer places orders on us. Again, this is based on customer confidence in them having the conference to be able to place orders for different applications and for different use. In fact, in this current quarter, we have an order of a 95-megawatt turbine also in this space.
I wouldn't like to go into too much details on the applications and the geography. But suffice to say that this is a high-technology product with a variety of different extractions which are necessary. So it is for -- so we do have the ability and we are confident that we will get further higher megawatt orders as well, which will help aid our growth.
Because as you know, the market for higher megawatt turbines is something that Triveni Turbine has been pursuing independently only over the last couple of years, last 3 years, 4 years since our joint venture ended. And that is where our market share has been traditionally very low.
So to augment that now that we have the products and the push and the establishment of the confidence that we've given to customers, we will get more orders in this segment. This as well as the API segment will continue to provide good growth opportunities despite market cycles for our product business. The Aftermarket business will, of course, gain from being close to customers and the installed base as well as the refurbishment opportunities that come about.
Lastly, very quickly, so there was an announcement on CBG plant set up by Reliance. So just wanted to understand, is there any scope for you for gas to energy conversion with the turbines might be needed that is...
So typically, a gas-based power plant would either use a gas engine or a gas turbine. And the way that you should think about it is unless you hit a gas turbine requirement of somewhere in the regional 25 to 40 megawatts only then will you go for a combined cycles because we would take the waste heat that will come out of a gas turbine. .
And the ratio is approximately 3:1. So if the gas turbine is 3 megawatts, you'll have a 1-megawatt stream turbine. If it's for gas engines, it's 10 1. So 10 megawatts of gas turbine would equate to 1 megawatt a stream turbine. So there's economics in terms of what is viable to be set up. I think these small CBG plans don't have the economics to allow for a steam cycle to capture waste heat.
We have the next question from the line of Chirag Muchhala from Centrum Broking.
Congrats for the good set of numbers. Sir, first question is on the Aftermarket segment, where in the press release, you have mentioned that you're having some breakthrough orders in -- through some diverse customers. So is it possible to give some more details regarding the same?
The segment of refurbishment covers a vast -- a very varied set of customers in different applications. For us, when we enter into new segments, it is very meaningful because it allows us not only in certain geographies with certain types of customers which propel our value proposition forward. If we start going to what those newer segments are, it's never ending in terms of, because if you cover other -- either other rotating equipment, you can cover similar steam turbines and the applications, but it can also cover the different and larger actor companies.
In fact, we're making progress on all 3. So we have very reputed utility refurbishment opportunities that have come to us from marquee OEMs. We have great applications, which have also contributed as well as a very good customers.
So we're making some traction on this space. And we think that as we invest more in people and then being close to customers, we will have greater opportunities that will come to us because, ultimately, we have to be able to provide value to our customers. So sorry, I'm not able to provide much more clear -- specific clarity on these types of orders.
Yes. No issue, sir. And just one follow-up regarding the previous question on compressed biogas plant. So actually 2 avenues where, I mean, healthy investment is included in India is, it is compressed biogas, whereas you mentioned gas turbines are used and the pump storage where I believe hydro turbines would be used.
So in Aftermarket services domain, where we have actually enhanced our offerings to go beyond steel turbines and also service the type of turbines. So will Aftermarket segment play any role in these 2 areas, pump storage and CPG, where very huge investments are lined up in India?
Firstly, I think that the Aftermarket only comes into play once the installed base has been there for a little bit and in a period of time. So it's a little premature to start talking about that. Secondly, I would imagine that the local OEMs would have adequate capabilities to service them. The real value proposition for refurbishment only comes or third party is when the OEM is no longer present or no longer able to service that at an adequate price point.
But having said that, and you did bring up 2 applications on what I would say, battery storage side, it gives me an opportunity to talk about our development that we have in our carbon dioxide front, which is quite encouraging. We have already commercialized our carbon dioxide-based turbines and which is for a battery storage application, quite similar to pump storage, hydro storage. And this is for a 20-megawatt application in Italy. And we look forward to those results, which will come sometime in April, May next year.
So sir, how large is this CO2 turbine, market has already become globally or it is still in its very initial trial and error phase in terms of end-user application?
It's still an innovative product. It is still required -- but the fact is that these are -- the cycle is quite well known. And so we'll have to wait and see, but this provides a diversification for us in terms of our product offering. And so we're quite optimistic on this front. And it will aid in sustaining our growth.
Okay. So basically, I just wanted to know that are there already sufficient battery storage related CO2 turbines, orders in the market where I mean year after year, we can still have a, let's say, single-digit contribution in our total order inflow or this is still in the next 3, 4 years going to be more of a developmental phase type of thing?
No. This is no longer developmental. It's commercialized. We are 1 of 2 companies or 3 companies making this globally. So it's an innovative area, but the point is that it's very difficult for us to say how the market will develop and what -- how it will contribute. All I can say is that we are excited that this provides another route for us to diversify our revenue base.
And sir, lastly, on API turbines. So as you mentioned that H1 has seen good order inflows from Middle East. So how large would have API become now? I mean, would it be kind of a 1/4 of the total inflow would have come from this space?
No, no. It's less. But I think that it is a meaning contribution and we think that -- we shy away from giving exact breakups, but it is a meaningful contribution to our order book. But as you would imagine, these are customers who are extremely demanding on quality and certifications as well.
So while the megawatt may be lower because the certifications are higher, such as vibration, et cetera, the costs also are quite high. But the margins would be commensurate with our export margins.
We have the next question from the line of Yash from Stallion Asset.
The question was more to do with just slightly long-term basis. I think in your presentation, you have a chart where the global steam turbine market itself has degrown over the past 10 years. So I'm just trying to understand while obviously our growth has been way, way higher than what the industry has grown.
So what are the drivers of this growth? Are you gaining market share from your peers? Or is there some sort of a new trend within the steam turbine market? And do you think that this trend will persist that the market will keep on sort of decreasing in size and maybe we are just gaining market share?
So I think your readying of the chart is wrong. The overall market for steam turbine has reduced, which you are very right about. So that includes utility turbines. And what we try to distinguish is the requirement from an end-user perspective between utility requirements for turbines and industrial renewables-based requirements for turbines. And we typically just split that market as to below 100 megawatts and higher than 100 megawatts.
So if you look at the market as a whole, yes, you're very right, it has year after year continuously declined. But if you look at the market below 100 megawatts, in fact, going back the last 15 years, you've seen that market grow by anywhere between 1% to 3% CAGR.
You will have 1 or 2 years where it will go down a little bit. But on average, that is the trend. And the reason for that is that industrial heat and power is generated at site and at source. So you have both fixed capital formation that plays into this. But increasingly, you have a requirement that come in renewable-based applications, which are either direct renewable-based applications, such as municipal solid waste or biomass or geothermal or energy efficiency-based expenditures.
We see this latter continuing and picking up. At the same time, given the global shortage in terms of energy generation and the push towards energy transition and increased electrification of requirements stretching from anywhere from industry to data centers, et cetera, we see a robust requirement for electricity.
At the same time, the requirement for heat, which is required for industry also remains robust. So therefore, we see this growth of, whatever, 1%, 2%, 3%, 4% of the overall market continuing, in fact, it may pick up in case energy requirement goes up more.
But we see the requirement for energy in its entirety, which includes both heat and power to increase going forward. This is driven by not only increase for capital consumption and therefore, more requirement for developmental energy consumption, but also the transition itself, which because it will be decentralized in nature, will be -- therefore, you'll have more capacity -- excess capacity that to be set up over actual requirement.
And just last question. I don't know if you disclose this number or not, but what would be your EBITDA margins in Aftermarket and product?
No, sorry.
The next question is from the line of Ankit Soni from Sharekhan.
Sir, just wanted to understand, we have been on the domestic order book, we have been more of flattish or something. So any sort of guidance or view as to what would be the factors the domestic order book should be growing or the domestic order should be growing?
I think I tried to allude this a little bit earlier that Q4 FY '24 order booking was lower because, I think, due to uncertainty, that's of the elections. And Q1 of this financial year was also impacted because of election. So if you look at it on a year-on-year basis, you will find FY '24 as well as FY '25 has 1 quarter each of constraints.
So when you look at the H1 performance in terms of order booking for FY '25, and which is a resultant of the inquiry book as of Q3, Q4 of the previous financial year, we think that the subsequent quarters should provide more leeway in terms of growth in these markets. At the same time, as Prasad had pointed out earlier, we see a consistent requirement in terms of inquiries from all sectors.
And so I think that we would see growth in the overall market in this current financial year. It's not going to be very large, but there will definitely be growth and the growth in our belief is something that will be more sustainable for the next 1, 2, 3, 4 years.
Sir, on the second side -- second question, basically, our exports business and the Aftermarket segment is expected to be contributing significantly higher in the coming quarters and all. So do we have any sort of cushion for the margins to improve from here?
No. You see the margins are actually quite high already. Like I've said in previous calls, we aim to maintain at least a 20% margin level, and now we're ending up at margin level somewhere in the 25% plus level. So we've always said that margins are really not a problem for Triveni Turbine. What our greatest -- what our push is to increase our inquiry book, and therefore, our order booking and therefore, our revenue. And now the constitute of that order book is what is resulting in our margins.
The more export you have, the more margin, you'll have, the more aftermarket you have, the more margin you have it. So therefore, the conscious strategy is to expand sales in order booking as much as possible. And the resultant of that because it's diversified in energy to order and a customized product, it will defer quarter-to-quarter, product to product and order to order.
The next question comes from the line of Harsh Tewaney from Motilal Oswal.
So just 1 question on the gross margin front. If you see sequentially, there has been around 2 to 3 basis points contraction. So how do you read this contraction as by you?
So again, it's a question of the mix in terms of what has been executed. We had a certain large value service contract that was in our Aftermarket segment which has contributed significantly less in this current quarter. So even though the mix of Aftermarket in the previous half year to this half year has gone from -- we were at 33%, 34%.
The margins of Aftermarket are significantly higher also. Also at the same time, exports and our revenue is also higher. Having said that, the reason that a lot of this has happened is because we have more stability in our commodity pricing, when you look at a year-on-year basis, we have longer rate term contracts. We have more standardization of our engineering platforms. So we have more operational efficiency. We have certain operating leverage that has also come through.
You have a product mix that is benefiting us and genuinely higher-margin orders that have been executed. But I think 52% is full credit to the team in terms of being able to get the operating efficiencies out. And we aim to maintain it anywhere between this region of 52%, 53%, 54%.
And sir, what is the status of the SADC order that we had got, the second order that we had got?
No. So that's why I talked about it, they just contributed less in this current quarter. And so therefore, margins were a little bit higher. Our turnover would have been higher as well. But absolutely, if you look at it on an absolute basis, our absolute profitability is still quite strong. We have 90-plus crores PAT for the current quarter, and we aim for the coming quarters to be even record going forward.
[Operator Instructions]
We have the next question from the line of Mayank Chaturvedi from HSBC Mutual Fund.
So just on the other expenses piece of things, there's been a sharp fall quarter-on-quarter. So is there any one-off gains included there? You've already said that there's a large service value contract that you've executed. Besides that, anything else that you would like to highlight here?
In general, most of our expenses and other expenses are proportionate to our growth. So manufacturing expenses will increase with obviously some operating leverage to the growth in revenue. Our warranty and other expenses will also continue to rise at the same proportion of being prudent.
The real degrowth that happened there was because of the servicing contract, which we put as -- which we used to have a separate line item, but we no longer need to actually give that explanation. But you've already hit on the head. Having said that, all expenses are under control. It's not as if the expenses are out of control in any manner. We see a good degree of predictability in our supply chain costs. In fact, I have our COO on the call as well. Mr. Sachin Parab, let him give you an idea in terms of how costs are looking at both the supply chain and others as well.
So our efforts on the supply chain front in trying to improve our margins is continuously on. So we are looking at different opportunities to bring down our cost there are, as our Vice Chairman has mentioned, efforts on always to get into long-term rate contracts so that we can stabilize our costs and take care of unexpected fluctuations.
Also, we are looking at diversifying our vendor base. We are also looking at imports from low-cost origins, that pursuit is always on to identify sources where we can look at improving our margins. So strategic sourcing is a big initiative at our supply chain team, and we are always scanning the environment at -- looking at opportunities to improve our margins. So that is definitely a focus area for us. .
So would it be right to assume now that you have a healthy vendor base, I'm assuming it is in the SADC region that you're alluding to. So the subcontracting charges as a percentage of what you are executing in the SADC region is starting to come down now that you're increasing that execution...
Sorry to interrupt. My answer was more to do with our supply chain in terms of our cost structure and the future possibilities. As far as the SADC area is concerned, it is one strategic quarter that our Vice Chairman mentioned about. So the dip in that quarter is what has caused a reduction in the subcontract expenses and that's to do with a small period of time.
So we are always looking at improving our margins even in the SADC region and there is more amount of in-house work that we are trying to target so that we can optimize in terms of the expenses that we incur. But that is specific to only just one large strategic order.
All right. So why I'm harping on this piece is because we are seeing that in the short term, these margins will be sustainable. So I just wanted to get a sense of how the other expenses could pan out. But no worries.
Despite the fact in a subsequent quarters, we will see this business return. I think our margins are still quite robust and something quite resilient.
Just the other piece, Nikhil, you have been guiding in the past that the possible growth that you might see in probably in the midterm would be closer to what we saw in the previous 2 years, but now domestic order booking has slowed down and it is playing a spoil sports. So any revisions that you would like to make on that front, on that guidance?
No, no. Our order booking is very robust. Why would you say the order booking is slowed? In fact, our order book is grown.
On the domestic piece?
Oh, domestic. Well, as a company, overall, the fact is that we aim to diversify -- we aim to diversified. We -- as you know, we cannot instigate demand. We are reactionary towards it. Our reading of the inquiry book is that actually these are very serious people who want to take or place orders. It's a question of timing. That's something that we cannot force that on anyone. .
So we think that if the domestic market can grow at this 20-odd percent level every year. It's a sustainable type number for the next several years. And we see that as being a greater driver. So we are optimistic on Q3, Q4 coming through, given the fact that overall, the market between H1 of FY '25 and H1 FY '24 is pretty flat.
Because we know that Q4 of last year was low. So if you look at it on a year-on-year, full year to full year, we know that Q4 of this current year will be significantly better than Q4 of last year, even if we continue the same momentum.
The next question is from the line of Omkar Chitnis from Trade Brains.
My first question is, how much are we planning to spend R&D over the next 3 years? And can you give guidance for a top line for FY '25, sir?
So firstly, sorry, we don't provide guidance. But I think you can hear our previous conference calls and ultimately, our order booking translates into revenue. So you'd be able to get a fair idea as to how we execute in the coming quarters. As far as R&D goes, you're very right, we don't -- it is a key focus for the company both in terms of personnel and people who are required for the multiple disciplines that we require, for our steam turbine, but we also required for our product diversification.
So we have both in-house requirements, requirements at academic institutions, requirements with certain consultants who are aiding us in this endeavor. At the same time, we also have expenditure that will happen on infrastructure such as with our test beds and other infrastructure will cost us to set up and the sensors, et cetera, and the data mining and the data gathering endeavors costs that will -- so some of those will be onetime costs because we don't need to spend them continuously.
Some of the other variable costs will be spent year-on-year. We typically, as far as what is reported on our balance sheets, have spent anywhere between 1.2, 1.3 odd percent of turnover in R&D, but that really doesn't capture the full number because most of our R&D projects are end up getting sold. So when we end up selling these projects, we get recognized as revenue, it don't really form a part of what would be R&D.
So having said that, our R&D spend is quite high. We have a very large department and continuously developing new IP. So without giving you a specific number, we -- our expenditure is significantly higher than that 1.3%, which is reported on our balance sheet, annual report.
Sir, your global competitors have adopted USC technologies and modular and digital technologies in their turbines. Do you have any plans on that?
I couldn't understand that question. Can you speak a little slower, please?
Yes, sir. Even some of your competitors globally have adopted the ultra super critical technologies and modular and digital technologies for their turbines. Do you have any plans on that?
So ultra super critical turbines are pretty -- well, we have critical technology. The point is it's not economic to make it at a small size. So I don't know which competitor of ours is making in this industrial range. I don't think that's correct information. As far as digital and modular, all our products have digital and modular and have digital and modular offerings.
Sir, can you explain about the asset-light model you have mentioned in your strength in presentation. What do mean the asset-light model, sir?
You know your line is out here. Can you pick up the phone? .
In your presentation, you have mentioned your strength as an asset-light model. Can you provide some updates on that?
When you see the asset-light model, you see the -- you see our balance sheet, you see our assets employed and you see our returns. The numbers are quite apparent. In fact, actually, if you take cash off the book, you'll see in this current quarter on an annualized basis, our return on capital employed is in excess of 600%. So that -- so if that is not an asset-light model, I don't know what would be.
Okay. I thought about in hospitality business, there is a asset-light model, sir, in that way I thought it.
No. Asset is -- we look at it on a balance sheet basis, our metrics of performance and the way that we'd like to be evaluated by our investors is on return on capital, return on equity basis. We aim to be a free cash generative company. We aim to deploy those free cash in a way that is productive to the company and to the long-term growth of the company.
And my last question is, are you planning for any partnership with any PSU companies in India for the upcoming partnerships?
The company continues to evaluate a variety of different schemes. It has to ultimately form the basis within the strategy that I just said, we aim to be a technology-first customer-centric organization, which has to translate into higher return on capital, higher return on equity. The risk that the company takes are never apparent on commercial terms, et cetera. .
We reach out to a variety of different customers, to a variety of different applications. Some of those are PSUs, some of those are non-PSUs. Though I have to say that going forward, we will have a much greater diversification in product mix as well as geographic mix coming in. So I don't know what specifically you're talking about, but even then I wouldn't be able to talk specifically about an order.
The next question is from the line of [ Vimal Sampath ], an individual investor.
Two, 3 questions. One is now America, you are saying this year, we will be losing about INR 25 crores, correct?
Yes.
And next year onwards, will we start contributing? I mean we'll be able to break even next year or still 1 or 2 more years of drag?
No, no. We should see from next year, it would start contributing maybe not as meaningful a manner, but we have to wait and see. The fact is, the factory has just come out, people are ramping up. We're optimistic on the market. There's certain degree of transition happening over this quarter and beginning of next quarter. We'll have to see how that plays out into the confidence of customers there.
Yes. So -- but in 2 years, definitely, it will start contributing, correct? By '26?
Our attempt is to get it to contribute as quickly as possible. So the reality will be...
Yes, that I understand. I mean business is dynamic. We don't know what happened. But our estimate is that, by '26, it will start contributing to our bottom line?
Yes.
And second thing now.
In not as meaningful a way that general market does, but we think that it provides us a very good pace to then leverage on.
Yes. Now this U.S. base, will it help us to -- the South American market also, will we be able to service from there better? Canada...
I think you already know our strategy better than us.
No, sir. And lastly, now we are sitting on a lot of cash. So our buyback also was some time back. Now are we -- as you said, I know you have some products ready, which -- so are you planning to get into more products now? Or still there is more juice left in our API turbines and the current products?
There's much, much more juice left in our steam turbine business. That is the business. So before I say that -- that is our business, we will -- we have a very good runway for growth in our product line. We just want to create newer product lines so that we are able to sustain our growth. And we derisked from any market cycles that may come about. .
Right. So next 4, 5 years, we have a good runway for growth? That is what...
The thing is that we have to have the appropriate products. We have to have the capabilities in place to be able to cater to our customer requirements and make sure that they're satisfied.
Now the predictability that we had in terms of visibility for revenue is based on our inquiry book, which will translate into order book and then revenue. So as we expand our product offerings, our inquiry books will grow and give us more confidence. But as it currently stands, the relevance of our products and market segments which are where a lot of people are spending money seems to be quite appropriate. So we think that there is a certain degree of -- in terms of medium-term growth.
The next question is from the line of Kushant Arora from Baroda BNP Asset Management Limited.
Congratulations on a good set of numbers. Sir, my question is on the capacity front. What is the current capacity utilization? And what kind of number can we achieve with peak utilization levels?
I think you brought up a very good point. I didn't get the opportunity to address this a little bit earlier. We are asset-light business model, as you've already heard. But having said that, given the growth that we are seeing, which is even more than what we had expected when we had expanded our shop a couple of years ago, we would probably go to the Board for a CapEx approval to expand.
But this will be, again, as you know, how much we spent in our last CapEx growth. This will be something that will be spent over FY '26 and '27. So -- but it is something that will be well within the -- I would say, the resources of the company.
Any ballpark number on the CapEx front?
We'll come back, but it will be annualized. It would be somewhere in the region of about INR 70 crores, INR 80 crores, I would imagine.
And is the capacity being fungible for refurbishments or?
You see a majority of our capacity that comes up is in the nature of being able to assure quality to our customers. So a majority that comes up is an assembly testing, quality assurance. As far as manufacturing capacity goes directly that is fungible between both in-house and third-party that is refurbishment requirements. And those will be taken on the basis of being able to augment our vendor and subcontractor capabilities, so that we are -- so that we're not either dependent on 1 vendor excessively or that we are at risk at any given point in time in terms of breaking the machinery, et cetera.
So I think that we make sure that the machinery has multiple uses, the facility and factory has ample area and capability to be able to service. So we do cover both things that you talked about.
Ladies and gentlemen, we will now take the last question from the line of [ Sriram R ], an individual investor.
Sir, I mean you have just mentioned that the market for a sub-100 growing at 1% to 3%. But then we are actually growing much faster now. Whereas if you look at FY '13 to '20, our top line actually stagnated. So what has actually changed post COVID? I mean is it like other competitors are focusing on above 100 megawatts, and we have some kind of white space in the industry. Can you please elaborate on that.
That's my first question. Second is what is the mix between replacement to OEM demand for domestic as well as export market?
Okay. Unfortunately, the point is that there are many analysts on this call, the data that is available in terms of market size is a post fact data, which we've always said is something that is susceptible to the fact of data being reported. There are not many players in this market. And so if people don't report accurately, we have really no -- we can't really comment on that. But now on where is Triveni's performance been and you bring up the really the -- what is pertinent to us as a company. Until maybe 3, 4 years ago, we were not really participating in the above 30-megawatt category directly.
That was not contributing either to our top line and very indirectly only to our bottom line through our joint venture. At the same time, we did not have any participation in the API market space and our refurbishment as a sector was not meaningfully contributing to our turnover. So what has happened over the last 3 years is that all of these 3 segments have started meaningfully contributing to our order booking and they will continue -- they will now start contributing to our revenue going forward. Like, for example, the API orders that we got in the last quarter will be executed next year or the year after, and same with the large value megawatt orders.
So you see our market share in certain segments is growing from being largely negligent -- negligible to something more significant. And we believe that we can sustain this till we hit some level of appropriate market share.
And on the second part, I mean the mix between OEM and replacement for domestic and export?
Yes. So India doesn't have a large capital base as such. But if you see a majority of our industrial CapEx has happened over the last 20 years only. So there's not that much of a replacement CapEx that happens in the Indian market to such a large extent in terms of OEMs leaving the market. In India, most OEMs are still present as have been. I think the Russians who left the market have a replacement market, which is more on the utility side. But I think this is more of a value proportion internationally.
Again, the requirement stretches from sector to sector and product to product. But there's no generic answer to what you are saying. But the generic answer is that the larger the capital base that exists, which is mostly in developed countries such as the United States or Europe, the greater the refurbishment opportunities, I think that would be there.
What are the life of these products?
So we have turbines that have been operating for over 45 years. Now what has happened in the meantime is that technology has changed quite significantly. And so therefore, newer technologies can even validate the replacement of a turbine as young as 5 to 7 years old. So do you replace the entire footprint of the turbine or do you rate the rotor? These are different commercial proposition that we take to customers and we see how -- what works for them. But turbine itself is robust enough to be able to last for multiple decades.
I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you for joining our Q2 FY '25 -- H1 FY '25 earnings conference call, ladies and gentlemen. We hope to continue our performance in the coming quarters and coming years. And we look forward to -- and I look forward to speaking to you after our Q3 9-month results in the next year. Thank you.
Thank you. On behalf of Triveni Turbine Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.