Detailed Rationale

Crisil Ratings has revised its outlook on the long-term bank facilities of TD Power Systems Ltd (TDPS; part of TDPS group) to ‘Positive’ from ‘Stable’ while reaffirming the rating at ‘Crisil A+’; the short-term rating has been reaffirmed at ‘Crisil A1’.

 

The outlook revision reflects the expectation of continued strengthening of the business risk profile of TDPS group over the medium term, supported by robust growth in core business of manufacturing alternating current (AC) generators along with healthy growth prospects in the end user industries including increasing demand for renewable energy and data centers (mainly in the export market) and stable demand in industrial applications (mainly in the domestic market). The growth in exports is expected to outpace the growth in domestic sales. The company is also expected to maintain healthy operating profitability. Sustenance of strong order inflows and increase in scale along with healthy operating efficiency will remain key rating monitorable.

 

In fiscal 2026, the revenue is expected to show healthy, high double-digit growth on account of healthy demand from end user industry, increasing presence in the export market and healthy order book position of Rs 1,309 crore as on December 31, 2024, including orders of Rs 334 crore in the railway segment that are to be executed over the next 3 years; the remaining orders are to be executed in 3-9 months. Operating profitability is expected to be maintained between 16-18% due to economies of scale, cost optimization measures and increasing focus on exports.

 

For the nine months ended December 31, 2024; revenues grew 26% on-year supported by strong growth in gas engine and turbines (export market) and stable demand across other segments (steam, hydro and diesel). Operating margin has improved steadily over the past few fiscals to 17.8% in the first nine months of fiscal 2025 compared to 17.5% in fiscal 2024 and 16.6% in fiscal 2023. Revenue is estimated at Rs 1200-1275 crore in fiscal 2025 with operating margin at 17-18%.

 

Financial risk profile is strong backed by healthy tangible net worth of Rs 772 crore and nil debt, as on September 30, 2024. Debt protection metrics remain comfortable, and liquidity remained robust, supported by cash and liquid investments of Rs 233 crore as on September 30, 2024. The available liquidity and annual cash accruals of over Rs 150 crore would be sufficient to fund its ongoing capital expenditure (capex) of Rs ~140 crore. The financial risk profile is expected to remain strong as the company has no plans of availing any significant debt.

 

The ratings continue to reflect strong market position of TDPS in the AC generator business backed by a healthy order book along with robust financial risk profile with negligible debt. These strengths are partially offset by susceptibility of operating performance to cyclical demand in end-user industries and customer concentration in revenue.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of TDPS and its subsidiaries, collectively referred to as the TDPS group.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Strong market position: The group is a leading manufacturer of AC generators in the 1–50-megawatt (MW) segment in India. Since its inception, it has supplied over 6,900 generators till December 31, 2024. The group has the capability to manufacture generators across steam, hydro, diesel and gas segments, and has a diverse end-user industry base that includes cement, sugar, data center, oil and gas, metals and mining, and power generation (both conventional and renewable). Over the years, the group has been able to partially offset the slowdown in domestic demand by expanding into the overseas market (which for the nine months ended December 31, 2024, accounted for ~65% of sales, compared with 40-50% around 4 years back) and building relationships with key multinational original equipment manufacturers (OEMs). Favorable industry scenario along with higher investments envisaged in end-user industries over the medium term should continue to support the business risk profile.

 

• Improving business risk profile: The TDPS group had a healthy order book of Rs 1,309 crore as on December 31, 2024, diversified across the domestic and overseas markets. Over the past decade, the group has gradually increased its presence in the export market and now supplies generators to 110 countries across the globe, with sizeable presence in Europe and North America through its own sales offices. To further diversify revenue streams, the group has also started manufacturing motors and is ramping up operations in this segment over the medium term. With the expected improvement in scale of operations through higher execution, the continued economies of scale benefit coupled with cost-optimization measures, should help sustain the operating margin at 16-18% over the medium term.

 

• Robust financial risk profile: The financial risk profile is supported by healthy tangible net worth of Rs 772 crore and nil debt as on December 31, 2024, resulting in strong capital structure and debt protection metrics. There has been small working capital utilization in the recent months; however, the debt metrics are expected to remain strong. The company is setting up a new facility for the manufacturing of generators, motors and their sub-assemblies and parts at a total project cost of ~Rs 140 crore. Around Rs 50-55 crore capex was incurred in fiscal 2025 and remaining will be incurred in fiscal 2026. The capex is being funded entirely through internal accruals. That said, the financial risk profile should remain healthy over the medium term in the absence of any large debt funded capex, given increasing cash accruals and adequate liquidity to meet incremental working capital requirement.

 

Weaknesses:

• Susceptibility of operating performance to cyclical demand in end-user industries: The demand for generators is mainly linked to the capex programs of end-user industries, thereby exposing the group to the investment plans of its customers, especially during an economic slowdown when many companies may defer capex. Profitability and return on capital employed had weakened significantly in the past (fiscals 2015-2018) on account of low-capacity utilisation following slowdown in end-user industries.

 

• Customer concentration in revenue: Revenue from generator manufacturing comes from sales to OEMs of turbines and engines, such as Siemens Ltd, Voith Hydro, Innio, Triveni Turbine Ltd etc. The top 10 clients account for ~70-75% of gross revenue in the manufacturing segment.

Liquidity: Strong

Cash and liquid surplus stood at Rs 233 crore as on September 30, 2024, a large portion of which remains unencumbered; moreover, the company has nil long-term debt obligation. Liquidity is also supported by unutilized bank limit of Rs 68 crore as of January 31, 2025 (total limit of Rs 75 crore). Average utilization for the 6 months ended January 31, 2025 was ~2%. In the absence of any debt obligations, the available liquidity and expected annual cash accruals of over Rs 150 crore will be more than sufficient to fund its ongoing capex and working capital requirements. 

Outlook: Positive

Crisil Ratings believes that over the medium term, the business risk profile of the TDPS group will continue to benefit from a healthy order book, improving scale and its sustained operating performance.

Rating sensitivity factors

Upward factors:

• Sustained growth in revenue of 18-20% along with healthy order inflow providing revenue visibility, better geographic and customer diversification.
• Sustenance of healthy operating efficiency with healthy operating margin and prudent working capital management.
• Sustenance of healthy capital structure and debt protection metrics

 

Downward factors:

• Weaker-than-expected performance with low revenue growth and operating margin below 12-13% on a sustained basis
• Large, debt-funded capex leading to deterioration in the leverage and coverage indicators
• Weakening liquidity profile

About the Company

Based in Bengaluru, TDPS commenced operations in 2001 and manufactures AC generators of up to 200 MW. It has three units, one of which is a dedicated large generator manufacturing plant. The company also has a facility in Turkey.

 

TDPS is listed on the Bombay Stock Exchange and the National Stock Exchange. As on December 31, 2024, the promoters held 34.27% stake, mutual funds held 25%, individuals held 17.71, foreign portfolio investors held 17.79%, and the balance was held by others.

Any other information: Not applicable