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Long-term growth prospects are factored into Triveni Turbines now. Hence, fresh exposure is not called for
The industrial sector’s increasing demand for power spells greater opportunity for players in the steam turbines and related services space. Triveni Turbines, involved in engineering steam turbine solutions, stands to be a beneficiary here.
Triveni Turbines has managed to sustain higher export order inflows in the API segment, with average export sales of 42 per cent during FY19-FY23. Further, the aftermarket segment contribution to the total sales increased from 25 per cent in FY19 to 33 per cent in 9MFY24. In FY19-FY24E (including consensus estimate for Q4FY24), the revenue and PAT CAGR are around 15.3 and 22.3 per cent.
The stock price has given 5x returns in the last five years and is also up by 28 per cent year-todate trading at 48 times compared to 31 times in last five years.
While premium is warranted, given the better underlying structural trend now, at current levels it also appears that longterm growth prospects are factored in. Further, as per the management guidance, with the company aiming to grow manpower by 20 per cent in FY25, the EBITDA margin may remain range-bound at 19-20 per cent for the near term. Hence, given the balanced risk-reward, while existing investors can continue to hold the stock, fresh positions need not be considered at this juncture.
BUSINESS
Since its de-merger from Triveni Engineering and Industries in 2011, Triveni Turbines has established itself as a prominent player in the industrial steam turbine sector, with a domestic market share of 50-60 per cent in the sub-30MW segment and ranking second largest globally, with a share of around 20 per cent in the sub-100MW category. The company operates primarily in two segments: sales of turbines (67 per cent of revenue in 9MFY24), and aftermarket services (33 per cent). In 9MFY24 domestic sales to exports stood at 54:46 per cent.
Triveni Turbines oers customised steam turbines catering to industries such as sugar, distilleries, steel, cement, pulp & paper, and more. It primarily operates its manufacturing facilities at two plants in Bengaluru, at Peenya and Sompura.
While the company initially ventured into a JV agreement with General Electric (established in FY11), it dissolved the JV in September 2021, citing underperformance. Now Triveni Turbines serves end-user industries requiring captive power plants and waste heat recovery systems for electricity generation from steam.
However, the company has diversified into manufacturing American Petroleum Institute (API)-compliant drive turbines targeting industries such as oil & gas, petrochemical, refinery, and fertiliser sectors, which
HOLD present new revenue streams. It has been recognised as an approved vendor by several OEMs. Currently, it represents a modest single-digit portion of the company’s total order book. Through its aftermarket services, it provides spare parts for both its turbines and those of competitors.
PERFORMANCE
During 9MFY24, it experienced a surge in order inflows, rising by 27 per cent y-o-y to ₹1,443.2 crore, primarily driven by a 60 per cent y-o-y increase in export bookings, while domestic order inflow growth remained relatively flat at 3 per cent y-o-y. This can be attributed to subdued order bookings from major capexdriven industries in Q1, and delayed order finalisations from certain customers in Q3.
Order inflows in the aftermarket segment witnessed good traction, growing by 49 per cent y-o-y. Triveni Turbinesacquired a South African firm (TSE Engineering) in March 2022 and the establishment of a whollyowned subsidiary (Triveni Turbine Americas Inc) in the US in February 2024.
The company reported a y-o-y operating revenue increase of around 36.5 per cent to ₹1,195.9 crore in 9MFY24, driven by a higher share of exports (up 50 per cent y-o-y) and robust growth in the aftermarket segment (up 49 per cent y-o-y). Further, the EBITDA increased by 36.8 per cent to ₹229 crore while the margins remained flat at 19.1 per cent. The lack of operating leverage can be attributed to ongoing workforce expansion eorts and subcontracting charges in South African. The company has a debt-free status, low (to negative) working capital, supported by advances from customers, and healthy cash reserves.
OUTLOOK
With the recent capacity expansion Triveni Turbines has significantly enhanced its capacity to 250-300 machines, up from the previous range of 150-180 machines, eliminating the need for further capital expenditure in the near term.
Despite recent softness in the domestic sector, with a dominant position in sub-30MW turbines, the company is poised to benefit from an anticipated upswing in large-scale private capex initiatives. Post-election improvements are expected to drive order inflows from large industrial segments, potentially translating to higher domestic order inflows.
With a robust order backlog, an increasing share of exports, and a growing aftermarket segment, the revenue can grow more than 25 per cent CAGR during FY23-26E as per Bloomberg consensus estimates, while PAT can grow by around 36 per cent CAGR during the period driven by operating leverage, and strong topline growth.
However, the stock price has experienced a sharp run-up in valuation following its December quarter earnings announcement. Hence, risk-reward appears balanced for now.