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TD Power Systems Ltd

| Q2 and H1 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤31st Oct 25

Summary : TD Power Systems reported strong H1 FY26 results with significant revenue and PAT growth, driven by robust demand in gas turbine/engine segments and strategic capacity expansion, while managing working capital for growth.

Management Perspective positive : Management expressed confidence in strong demand, increased guidance, capacity expansion, and future growth opportunities across segments. Phrases like 'extremely strong, good order booking numbers,' 'increased our guidance,' 'excellent order inflow,' and 'we will never be in a situation that we will be short of capacity' indicate a positive outlook.

Concall Report Analysis & Insights

Business Overview

  1. H1 FY26 standalone total income increased 33% to INR 7.64 billion.
  2. H1 FY26 standalone EBITDA was 18.42%, with PAT increasing 37% to INR 989 million.
  3. Manufacturing order book stands at INR 15.87 billion, with H1 order inflow up 39% to INR 9.16 billion.
  4. Consolidated H1 income grew 42% to INR 8.33 billion, and PAT increased 45% to INR 1.108 billion.
  5. The company maintains a strong cash balance of INR 1.93 billion.

Future Growth Prospects

  1. Increased FY26 revenue guidance to INR 18 billion and FY27 to over INR 20 billion.
  2. Gas turbine and gas engine business demand has dramatically increased, especially from US and Europe.
  3. Third plant will be fully operational by mid-January, supporting production ramp-up beyond INR 2,400 crores.
  4. New large generator (50-150MW) development in UK offers multi-hundred crore opportunity by H2 FY27.
  5. Railway business trial units for US, Europe, and Russia are expected to lead to volume production in Q1 next year.

Management Insights

  1. H1 gross profit dip was due to product mix, with a return to normal GP expected in Q3 and Q4.
  2. Low cash conversion is a result of rapidly ramping up production and investing in inventory.
  3. The company is focused on execution and delivering to strong market demand, not being selective with orders.
  4. Management is confident in meeting capacity demands, with existing space for expansion without major new investments until FY28.
  5. The decision to build the third plant was crucial for gaining market share amidst competitors' capacity constraints.

Signs of Skepticism

  1. Management declined to provide market-wise or customer-wise order inflow breakup.
  2. Specific details on the operational logistics cost associated with shifting production to Turkey were not provided.
  3. Management did not provide a rough idea of the Total Addressable Market (TAM) size, directing analysts to investor relations.
  4. The exact timeline for the US trade deal materializing remains uncertain, impacting production plans.

Risk Factors

  1. Uncertainty regarding the India-US trade deal could shift production to Turkey, incurring minor costs.
  2. Increased competition if international players establish large manufacturing facilities in India.
  3. Low cash conversion due to high inventory build-up for rapid production ramp-up.
  4. Indian data center investments face uncertainty due to gas availability and reliable power concerns.

Good To Know

  1. Exports constituted 76% of H1 order inflow and 66% of H1 sales.
  2. The company is working with all major global gas engine and gas turbine OEMs except one.
  3. The Indian market for hydro business contributes less than 10% of total hydro turnover.
  4. Employee costs increased due to new facility commissioning and hiring at top management levels.
  5. The motor business has a separate team and production facility, targeting INR 500 crores in revenue.

Key Drivers

  1. Strong demand for gas turbines.
  2. Third plant capacity fully operational.
  3. New large generator qualification.
  4. US-India trade deal materialization.

Key Analyst Discussions

Competitive Environment

  1. The market for gas engines and turbines is highly concentrated, dominated by 4-5 major OEMs.
  2. TDPS aims to gain market share by offering high-quality products at competitive prices and having available capacity.
  3. Cost arbitrage benefits could diminish if international competitors establish large manufacturing facilities in India.
  4. The company is approved by ADNOC, with initial orders dispatched and more expected, building a strong reference.

Market Trends & Consumer Behavior

  1. Demand for gas turbines and gas engines is extremely high, particularly from the US and Europe, driven by data centers and AI investments.
  2. Indian data center investments face challenges regarding gas availability and reliable 24/7 power solutions.
  3. The Indian steam turbine market is growing steadily at 10-12% in captive power, biomass, and waste heat recovery.
  4. Hydro generator demand is strong, primarily from outside India (Nepal, Vietnam), with FY27 expected to be a record year.

Financial Highlights

  1. Management attributed the H1 gross profit margin dip to product mix, expecting a return to normal in Q3/Q4.
  2. Low cash conversion was explained by rapid production ramp-up and significant inventory build-up.
  3. The company's revenue guidance for FY26 (INR 18 billion) and FY27 (over INR 20 billion) is considered a minimum, with upside potential.
  4. EBITDA margin improvement to 20%+ is a management goal, expected with full capacity utilization of the third plant.

Product Composition

  1. The motor business is expected to remain around INR 150 crores, with the rest of the revenue from generators.
  2. The company is developing large generators (40-70MW) for gas turbines, targeting a multi-hundred crore opportunity.
  3. TDPS focuses on medium hydropower plants (up to 50 megawatts), not large-scale projects like those in the Brahmaputra Basin.
  4. The company supplies generators and motors for Energy Dome CO2 battery projects, but is not involved in deeper technology partnerships.

Strategic Considerations

  1. The third plant will be fully commissioned by end of December, increasing maximum potential capacity to INR 2,500-2,600 crores.
  2. The company has buffer space and land to double existing capacity if demand exceeds INR 3,000 crores, without major investments until FY28.
  3. A plan B is in place to use the Turkey facility for US-bound production if the India-US trade deal does not materialize.
  4. The railway business is in ramp-up phase, with trial units for US, Europe, and Russia expected to lead to volume production next year.
TD Power Systems Ltd (TDPOWERSYS) Concall Report Analysis & Insights | Dhanarthi