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TD Power System

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Brief Introduction

TDPS, based in Bengaluru, commenced operations in 2001 and manufactures AC generators with capacities up to 200 MW. The company also executes turbine-generator islands for steam turbine power plants with capacities up to 52 MW.The TDPS group is among the leading AC generator manufacturers in the 1-50 megawatt (MW) segment in India. Over the years, the group has been able to partially offset the slowdown in domestic demand, by expanding into the overseas market and building relationships with key multinational original equipment manufacturers (OEMs). TDPS has five wholly owned subsidiaries – DF Power Systems Pvt Ltd in India, TD Power Systems (USA) Inc in USA, TD Power Systems Japan Ltd in Japan, TD Power Systems Europe GmbH in Germany and TD Power Systems Jenerator Sanayi Anonim Sirketi in Turkey.

Q3FY23 Updates

Financial results & highlights

Detailed Results:

  1. The company saw revenue increase by 14% while PAT grew by 3%.
  2. Manufacturing saw revenue growth of 7.4% while Projects biz grew by 97.4%.
  3. Consolidated EBITDA margins grew from 12.7% to 15.5% YoY while PAT margins reduced by 94 Bps to 9.9%.
  4. Total order inflow during the quarter grew by 37%.

Investor Conference Call Highlights 

  1. The Manufacturing order book, including Turkey operations, is INR 13.73 billion, which is INR 5.05 billion for the manufacturing business, INR 8.47 billion for the railways business, and INR 0.21 billion for the Turkey business.
  2. Order inflow from the domestic market is INR 2.66 billion compared to INR 1.7 billion, an increase of 56% and order inflow from export is INR 3.4 billion versus INR 2.42 billion, an increase of 40%. 
  3. The company is no longer in the project’s business. Hence, going forward, all orders booked by a branch office in Japan will be classified under the manufacturing segment, which comprises generator sales, spare parts, and other related jobs.
  4. The company expects EBITDA for the year-end to be at 16% & Foreign exchange gains have been included in this EBITDA calculation.
  5. The outlook for steam turbine & Hydro is very strong & the coming year is expected to be the strongest performance yet.
  6. The company expects e expect at least 100 megawatts of total orders in the gas turbine segment from the fracking industry for the next financial year. 
  7. The management is expecting the aftermarket business to be in the region of 7% to 8% of next year’s sales. 
  8. The management expects operating leverage to kick in post-1000 Crs of turnover.
  9. All the subsidiaries except TDPS Turkey were profitable, &  will suspend manufacturing operations in Turkey by 31st May 2023.
  10. The GPM increased owing to a number of service jobs and aftermarket jobs in Q3.
  11. Exports are 60% of the total order inflow.
  12. The strong capex cycle in India & increase in Renewables coupled with low penetration in Europe gives the company confidence about sufficient room to grow.
  13. The company expects strong orders to flow in FY25 if its customer wins the 12,000 horsepower railway contract.
  14. In the motors segment, the company will focus on Niche areas like Synchronous motors & these will be for very special applications in the nuclear power industry or in the thermal power industry for very large motor pumps Vs small mass market motor biz.
  15. The company will completely shut down the turkey biz in a year if the macroeconomic environment doesn’t improve.
  16. The company doesn’t expect to touch its FY12-13 peak margins through any measure other than operating leverage.
  17. The company currently has a manufacturing capacity of INR 1,400 crores to INR 1,500 crores from the existing plants without much capex.
  18. 95% of the sales internationally are primarily for renewables Vs 50% for India.
  19. The company’s standalone biz grew by 20% on a 9M basis while consolidated revenues grew by only 10% due to negligible Turkey biz.
  20.  In the traction motors biz with railways, the company is currently under the qualification stage & if its current motors pass the 6-month test period, then the company will eligible to participate in tenders.
  21. The railway’s biz will have better contribution margins vs existing margins provided the company becomes a Category 1 / 2 supplier.
  22. The company’s projection for the coming year doesn’t factor in potential railways biz.
  23. Several growth opportunities in the future include nuclear power, irrigation projects & specialized motors for compression in the LNG pipeline space.
  24. The management when asked about current industry dynamics said “all the companies in the power business are doing well. And everybody has the capacity. So we’re not seeing new players coming in. But it’s good that these industries have suffered for so long and are doing well, and I hope it continues for a longer time”.

Analyst’s View

TD power systems are seeing strong growth owing to favorable industry tailwinds in the form of capex cycle revival, shift towards renewable energy, higher contribution from high margin aftermarket biz & strong spending from Indian railways. The company saw a decent quarter with Revenue growth of 14%. It remains to be seen how the company will tackle this inflationary climate, the poor performance of its turkey subsidiary & high competition in the Railways segment coupled with the lack of any major capacity addition plans to service the potential demand in the future. Nonetheless, given its strong market positioning & promoter’s experience coupled with strong tailwinds, it remains an interesting company to keep track of.