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Triveni Turbine (TRIV) in its annual report emphasized its strategy to expand its footprint in key international geographies, widen its product offerings, scale up its aftermarket business and continue its focus on innovation. Despite weakness in domestic markets, TRIV posted healthy growth in revenue, profitability and order inflows in FY24. We expect TRIV to continue to benefit from international order inflows, particularly from the ongoing global shift toward renewables, while domestic inflows will ramp up in the next few quarters from key end-user industries such as steel, cement, chemicals, sugar, distilleries, paper and pulp. We slightly raise our margin estimates and roll forward our target price. We maintain BUY with a revised TP of INR830, based on 48x Sep’26E EPS

Global scenario – share of renewables on the rise

The global steam turbine market has been in a downtrend (120GW in 2013 to 81GW in 2023), largely led by the decreasing share of coal-based power generation, in which utility turbines find application (~90% of total market). However, the shift away from fossil fuels is playing out gradually, with its share in the global steam turbine market falling to 67% in 2023 from 75% in 2013, which augurs well for TRIV. Notably, the shift is more pronounced in the below100MW range, with the share of thermal renewables (biomass, waste to energy, waste heat recovery) rising to 67% in 2023 from 42% in 2013. During CY2023, the below-100MW steam turbine market (TRIV’s addressable market) has grown by 3% YoY, excluding China and Japan, driven by growth in decentralized steam-based renewable turbines.

Analysis of inflows of global players – Baker Hughes and Siemens Energy AG

TRIV competes with players like Siemens AG and Baker Hughes in international markets. We compare the relevant segments of Baker Hughes and Siemens Energy with those of TRIV. Baker Hughes reports its product and aftermarket division under the gas technology equipment and gas technology services. Siemens Energy reports its turbine business under the category of industrial steam turbines. Our analysis of inflows and revenues of the turbine segment for these companies reinforces the fact that revenues from the international market are continuously growing and this is also reflected in improved profitability of these companies. For Baker Hughes, order inflows for product and aftermarket declined YoY, but the strong order book resulted in a healthy revenue trajectory, with revenues up 37% YoY for 2QCY24 (Exhibits 3 and 4). Siemens Energy’s order inflows also declined YoY, but revenues were up 16% YoY in the last quarter (Exhibit 5). TRIV is trying to gain market share from unorganized players in global markets.

Share of exports and aftermarket remains high

For TRIV, the share of exports has gone up to 46% in FY24 from 35% in FY16. This share is poised to increase further with the company’s foray into the US market, where it is increasing employee headcount and setting up offices. TRIV maintained its share in aftermarket YoY at 33% of sales in FY24, aided by more order inflows and its ability to refurbish higher-range utility turbines, which helps the company to gain access to a wider TAM.

Domestic order inflow weak in FY24; pickup expected in few quarters

In FY24, domestic order inflows declined by 8% due to delays in finalization from key end-user industries, along with elections and a high base of FY23. The company believes this is a transient situation as the structural demand drivers from sugar, distillery, steel, cement, pulp and paper, food processing and chemicals are intact. The management is sanguine about the domestic outlook, led by improved bank and corporate balance sheets, which is expected to support capacity expansion in the manufacturing sector. Notably, domestic enquiries saw healthy growth, largely from sugar and distilleries,followed by process industries, which should translate into orders going ahead. 

Focus on innovation continues; R&D spending at all-time high

As a percentage of sales, TRIV has maintained its R&D spending in ~1% in the past few years as it focuses on making technological innovations and keeping up with global competition. Accordingly, its R&D spending has grown at a 22% CAGR over FY20-24, resulting in the filing of 374 IPRs to date. It has already begun work on nascent technologies such as sCO2 (supercritical carbon dioxide), which are highly energy efficient and use CO2 as a feedstock instead of steam. The company is on the verge of the commercialization of this technology, which currently finds applications in niche segments. In FY24, TRIV’s R&D focus areas were a) developing high-speed products in the lower MW range with improved efficiency, b) customizing products for niche markets, c) offering enhanced aero-solutions to the industrial turbine market, and d) advancing sustainable technology programs toward commercialization.

Key order wins

The company’s international foray in the SADC region was further bolstered in FY24 by the renewal of a contract as a new multi-year rate contract from the strategic services contract for utility turbines. Similarly, it won orders for API drive and power turbines in Asia and East Europe.

Financial outlook

We expect TRIV’s to clock a CAGR of 29%/32%/32% in revenue/EBITDA/PAT over FY24-27E. Backed by a comfortable negative working capital cycle, strong margins and low capex requirements, we expect a CAGR of 39%/42% in OCF/FCF over FY24- 27E

Valuation and view

The stock is currently trading at 52x/38x FY26E/27E P/E. We maintain our BUY rating on TRIV with a revised TP of INR830. We slightly tweak our estimates to factor in higher margins.

Key risks and concerns

Slowdown in capex initiatives, intensified competition, technology disruption, inability to innovate and launch new products, and geopolitical headwinds resulting in a sharp slowdown in exports and aftermarket segments.

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