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TD Power Systems Ltd

| Q3 FY26 Earnings Conference Call

BULLISH SENTIMENT

Report Source

⬤4th Feb 26

Summary : TD Power Systems reported strong Q3 FY26 results with record order inflows and robust growth across segments, driven by new capacity and high demand from data centers, leading to an upwardly revised FY27 guidance.

Management Perspective positive : Management consistently highlighted record order inflows, strong market conditions, upward guidance, and confidence in managing costs and capacity. Phrases like 'all-time record,' 'very strong,' 'highest growth potential,' 'conservative guidance,' and 'extremely high probability to increase our guidance further' indicate a positive outlook.

Concall Report Analysis & Insights

Business Overview

  1. Total income for nine months FY26 increased 32% to INR 11.94 billion (standalone) and 36% to INR 12.8 billion (consolidated).
  2. Profit after tax for nine months FY26 increased 41% to INR 1.54 billion (standalone) and 37% to INR 1.66 billion (consolidated).
  3. Order inflow for Q3 FY26 was a record INR 6.56 billion, up 61% year-on-year.
  4. Nine-month order inflow from direct and deemed exports grew 62% to INR 12.05 billion, with exports comprising 79%.
  5. Pending order for Generators and Motors (excluding railways) more than doubled in 24 months.

Future Growth Prospects

  1. Market conditions are very strong across all segments, especially gas turbine and gas engine businesses.
  2. Third plant is operational, with production ramping up to INR 550-575 crores in Q4 and INR 600 crores in Q1 onwards.
  3. Expect 10-12% growth in the steam turbine market, driven by captive power and waste heat recovery.
  4. High demand for gas engine/turbine generators in Europe and U.S., fueled by data centers seeking captive power.
  5. Hydro segment is opening up in India, with good order input and refurbishment opportunities for 2-3 years visibility.

Management Insights

  1. Achieved sales of INR 450 crores per quarter, pushing capacity utilization beyond expectations.
  2. Upward guidance for FY27 revenue is INR 2,200-plus crores, considered conservative with high probability for further increase.
  3. Investing in automation and lean manufacturing, with future investments for 2-pole generators and motors post-FY28.
  4. Confident in passing on commodity price increases to customers and benefiting from rupee depreciation against foreign currencies.
  5. No slowdown observed in AI investments or related power sector demand, with clear visibility up to 2030.

Signs of Skepticism

  1. Management did not disclose the name of the new U.S. gas turbine customer.
  2. Specific details on the magnitude of price increases built into FY27 guidance were not shared.
  3. The exact impact of commodity price renegotiations on near-term margins was not fully elaborated.
  4. The discussion around Chinese competition and government policy was somewhat unclear from the analyst's side.

Risk Factors

  1. Commodity price increases, particularly copper, require continuous renegotiation with customers.
  2. Uncertainty regarding the India-U.S. trade deal persists, though currently not impacting production location decisions.
  3. Potential for increased factory expenses due to manpower additions and one-off shifting charges in Q3.
  4. Limited bulk capacity additions planned until FY28, potentially capping growth beyond current projections.

Good To Know

  1. Company maintains a strong cash position of INR 1.93 billion.
  2. The railway business is transitioning from Indian to export orders, expecting a steady state for a few years.
  3. Refurbishment business is growing and is agnostic to the original equipment supplier.
  4. The company stopped hedging about six months ago due to rapid rupee depreciation, expecting benefits from this decision.
  5. Gross margins are expected to sustain around 35%.

Key Drivers

  1. Record order inflow drives future revenue.
  2. New plant capacity boosts production.
  3. Strong demand from data centers.
  4. Hydro segment showing renewed growth.

Key Analyst Discussions

Competitive Environment

  1. Questions were asked about the impact of potential relaxations on Chinese equipment imports to India.
  2. Analysts asked about the company's strategy regarding competition in the railway motor business.

Market Trends & Consumer Behavior

  1. Analysts questioned the perceived slowdown in AI investments and its impact on power sector demand.
  2. Inquiries were made about the drivers of demand in the domestic hydro segment.
  3. Questions were raised about the proportion of order inflow driven by data centers.

Financial Highlights

  1. Analysts inquired about incremental overheads from the new facility and commodity price management.
  2. Questions were raised regarding the impact of foreign exchange movements on margins.
  3. Analysts asked if FY27 guidance includes both volume and pricing growth.
  4. Inquiries were made about the sustainability of gross margins at 35%.

Product Composition

  1. Analysts asked for updates on the traction and growth of the motors business.
  2. Questions were raised about the new 'railway business' split in the presentation.
  3. Inquiries were made about the margin profile differences between hydro and data center demand.

Strategic Considerations

  1. Analysts asked about plans for further capacity expansion beyond FY28 and FY30.
  2. Questions were raised about new customer additions, particularly marquee breakthrough orders.
  3. Inquiries were made about the progress of larger generator business (20-100 MW) and its ramp-up schedule.