HDFC Securities Institutional Research report records a dismal quarter for Triveni Turbines; yet still on track
Triveni Turbine Ltd. is a leading industrial steam turbine manufacturer, with a dominant market share of over 60 per cent in India. Triveni Turbines is one of the largest manufacturers of industrial steam turbine globally. It manufactures steam turbines at its world-class manufacturing facilities in Bengaluru, India and assists its customers with their aftermarket requirement through its four global servicing offices.
The company provides renewable power solutions specifically for biomass, independent power producers, sugar and process co-generation, waste-to-energy and district heating. Its steam turbines are used in diverse industries, ranging from sugar, steel, textiles, chemical, pulp and paper, petrochemicals, fertilisers, solvent extraction, metals, palm oil to food processing and more. It also offers steam turbine solutions for industrial captive and renewable power.
With installations of over 3000 steam turbines across 18 industries, the company is present in over 70 countries around the world including Europe, Africa, Central and Latin America, South East Asian and SAARC countries. It was demerged from its parent Company, Triveni Engineering and Industries Limited (TTL), which holds 21.82 per cent equity capital of TTL, in 2010 to emerge as a pure play turbine manufacturer. The company designs and manufactures steam turbines up to 100 MW, and delivers robust, reliable and efficient end-to-end solutions.
GE Triveni Limited (GETL) is a subsidiary of Triveni Turbine Limited (TTL) and a joint venture with General Electric. GETL is engaged in design, supply and service of advanced technology steam turbines with generating capacity of above 30 to 100 MW. Headquartered in Bengaluru, GETL turbines are manufactured at state of the art plants of Triveni Turbine Ltd. The products are marketed under GE Triveni brand globally.
Plummeting revenues and margins
Triveni Turbines witnessed revenue de-growth of 23 per cent year on year for the first quarter of 2018, driven by the malware attack resulting in lower exports and GST-led deferrals in the domestic market. The malware attack in the global shipping line at port led to lower exports, declined by 47 per cent YoY.
The domestic market contribution to revenue has increased to 58 per cent as against 41 per cent in the corresponding quarter last year. Domestic revenue increased by 7 per cent YoY, which could have been higher had it not been for deferrals in the domestic market on account of the GST transition.
As per the management, confluence of growth in domestic revenues and decline in export revenues combined resulted in Rs 40 crores brunt on the revenue.
Operating costs increased by 4.7 per cent for setting up service centres which led to decline in EBITDA margin by 470 basis points (bps) at 15.8 per cent and after tax profit margin (APAT) declined 56.1 per cent YoY to Rs 9.6 crore. In the international market, setting up of cost centres and higher travel costs resulted in EBITDA margins declining 473bps YoY to 15.8 per cent.
Order book enhancement
The order inflows improved 41 per cent YoY to Rs 220 crore, resulting in robust and healthy closing order book of Rs 730 crore growing 10.5 per cent YoY.
The orders from demand of sugar and process co-gen continue to remain healthy; the company has also received breakthrough orders in the Waste-to-Energy (WTE) segment in the domestic market. Despite the orders in this segment being lumpy as with other segments, ordering is expected to improve. In the export market, while the finalisation of orders is being delayed, enquiries have been consistent.
In the international market, improved order inflows were witnessed from Europe and South East Asia. Moreover, higher order inflows are expected from the international market on the back of GETL’s increasing credentials – one project is operational and four are under commissioning.
After-market Revenue
The after-market revenue declined 30 per cent YoY, however, it is expected to improve with an increasing installed base and local service centres being set up in the international market. In addition, increasing the installed base will result in higher revenue contribution from the after-market segment, thereby improving margins.
Near-term outlook
The short-term outlook for Triveni is capped, given the weak first quarter of 2018. The revenue estimates are lowered by 4.1 and 5.7 per cent for fiscal 2018 and 2019, on back of slower than expected order finalisations. Nonetheless, the company has healthy returns, GE technology and brand, and the recent price correction in its bag of positives.