Management Discussion and Analysis

Global economy

The pandemic-catalysed economic contraction in the global economy, which was at 3.4% in 2020, has led to a scale-down of the global growth projections. The Russia-Ukraine war has further impacted growth, with the International Monetary Fund (IMF) recently projecting global growth forecast for 2022 and 2023 at 3.6%. In fact, the war is seen as a major setback to global economic recovery while also exacerbating the inflationary pressures. Further, continued COVID-19 threat could prompt new lockdowns and production disruptions. Growth could also slow down further if sanctions are extended to Russian energy exports. Inflation is expected to remain elevated for much longer, prompting aggressive monetary policy tightening. Economic risks have risen sharply and policy trade-offs have become even more challenging. Risks of a sharp tightening of global financial conditions and capital outflows have risen.

It is estimated that the advanced economies would grow at a rate of 3.3% in 2022, with USA and Europe expected to grow at 3.7% and 2.8% respectively. Emerging and developing economies are estimated to grow at 3.8%, while the growth forecasts for China and India stand at 4.4% and 8.2% respectively.

Global power sector

The global power generation industry has been witnessing a major transformation in the last few years – a trend that is expected to continue in the coming years as well. The past few years have seen a change in the energy generation mix, mainly from conventional sources to renewable sources.

The industry has observed some key trends, like sustainable power development, focus towards various concerns related to climate change, as well as eco-friendly policies. It is largely expected that the industry may witness greater acceleration towards eco-friendly “Green Power” solutions going forward.

Trends in sustainable power generation

Globally, there is an increase in focus on replacement of existing coal-fired power plants with clean-fuel power plants with the aim of reducing the carbon footprint. This will further augment the demand for renewable power generation in the future. Overall, China is expected to remain the leader over the next five years, accounting for 43% of global renewable capacity growth, followed by Europe, the United States and India. These four markets alone account for 80% of renewable capacity expansion worldwide

Indian power sector

The past few years have seen India’s energy needs go up exponentially on account of rapid economic growth as well as overall industrialisation and urbanisation. As of March 2022, India has total installed power generation capacity of 395 GW – a growth of 4% over March 2021. Of this, 38% share, i.e. 152 GW, is renewable power generation capacity as of March 2022*.

*Source: Ministry of New & Renewable Energy (MNRE)

As per the Central Electricity Authority (CEA) strategy blueprint, the country is aiming for an even more ambitious target of 57% of the total power generation capacity from renewable sources by March 2027. According to the 2027 blueprint, India is striving for 275 - 350 GW of electricity from renewable energy by FY 27. This, in turn, will boost the demand for thermal renewable energy in the country, and concurrently trigger greater opportunity for installation of steam turbines in the future.

Increasing focus on the industrial sector, driven by the ‘Make in India’ initiative, rising input costs (energy) and electricity prices, coupled with stringent Government regulations, are expected to drive investment in the establishment of captive power plants for continued uninterrupted power supply, leading to sustainable industrial operations.

Captive power generation is emerging as a key requirement for many manufacturing industries in the country, where grid disturbances in power supply can affect the operations. Improvement in coal supply, growing awareness about renewable energy, and eco-friendly power generation policies will enhance the captive power additions in the country.

Captive power generation units can be fired using both fossil fuel and renewable fuel. The largest market for captive power generation in the country is the industrial sector, mainly on account for the increasing demand for electricity from energy-intensive industries such as Cement, Steel, Petroleum Refineries and Chemicals.

Indian manufacturing sector

The Indian manufacturing sector, fast emerging as one of the high growth sectors, is being driven by the Government’s ‘Make in India’ programme aimed at placing the country on the world manufacturing map. The sector comprises of Sugar, Distillery, Cement, Steel, Food Processing, Pulp & Paper, Petroleum Refineries, Chemicals, Petrochemicals and Fertilisers.

Opportunities for steam turbine generators

The residues from Sugar mills in the form of Biomass (Bagasse) are used as fuel to generate power that is sustainable. Aided by the National Policy on Biofuels and the incentives offered by the Government of India, India is witnessing huge investment by Sugar companies in both Greenfield and Brownfield expansions of sugarcane-based and grain-based distilleries. This is opening a large opportunity for steam turbines in the future.

The Pulp and Paper industry constantly focusses on improving energy efficiency, which is attained through increased use of non-Bagasse (e.g. wood waste) based fuel for power generation, and through appropriate usage of steam. With many paper companies in India looking at energy conservation through eco-friendly ways, this will lead to more opportunity for steam turbines.

Energy efficiency has become a top priority for the Cement industry but adoption of Waste Heat Recovery (WHR) systems in cement facilities still has a long way to go. Large cement companies are primarily considering WHR-based power plants for their Greenfield projects, which will create more opportunities for steam turbines. Triveni Turbines has developed efficient Injection condensing turbines that use medium pressure steam as turbine inlet and low pressure as injection steam.

The Steel industry is characterised by high load variations on account of many on and off conditions of furnace and kiln, causing load fluctuations, and thus affecting the stability of the grid and quality of power supply. Therefore, it is extremely critical to have a constant and reliable source of power. Power has been one of the major cost components of the steel industry. Hence, the availability of captive power becomes crucial for continuous operation of a steel plant. The opportunity for steam turbines from integrated steel plants in India for Direct-Reduced Iron (DRI) processes is quite significant. The waste heat recovered from the DRI plant will meet the captive power requirement of the steel plant.

The Oil & Gas Industry is facing multiple challenges due to the modern energy refining processes, causing customers to scout for ways to maximise energy efficiency and to also reduce the carbon footprint as well as the operating costs. The cost-competitiveness and constantly evolving nature of the end-users have prompted them to achieve plant efficiency enhancement through energy recovery technologies, thus reducing the wastage of energy. In this context, the opportunity for steam turbines can be realised by offering power generation turbine, to turbines driving almost all rotating equipment.

Government Initiatives for the Manufacturing Sector
On July 22, 2021, the Government announced a production linked incentive (PLI) scheme for manufacturing speciality steel that helps in production of capital goods like turbines and boilers. This financial support would strengthen the sector with increased availability of speciality steels - a crucial input for the production of turbines and boilers. It will also reduce the industry’s reliance on imports, and increase efficiency as well as productivity, thus helping them cater effectively to the growing domestic demand.

Product business review

Despite adverse impact of COVID-19 and the uncertainty in the global economy, the Company performed well in terms of overall order booking in FY 22.

The Combined Heat and Power (CHP) or cogeneration system constituted higher order booking share in FY 22. Finalisation of orders from segments such as Distillery, Cement, Pulp & Paper, Sugar Chemicals, Food Processing and Fertilisers led to the higher order booking growth YoY.

The overall product order booking for FY 22 went up by 113%, compared to the previous fiscal.
At ₹ 9.4 billion, this is the highest order booking ever in the history of the Company, with the previous high of ₹ 6.6 billion achieved in FY18.

In the domestic market, the Company registered product order booking growth of 86% compared to FY 21. Key segments of this order intake in FY 22 were Sugar, Distillery, Food Processing, Pulp & Paper, Chemicals and Waste Heat Recovery (comprising Steel and Cement).

In the international market, the Company was able to close some key milestone orders in 30.1-100 MW power range and Sub-30 MW power range from countries like South Korea, Turkey, France, Mexico, Colombia, Argentina, Hong Kong, to name a few. As a result, international product order booking grew 166% YoY.

Business outlook

Economic activity rebounded sharply in June 2021, pointing towards steady recovery till October 2021. November 2021 onwards, coal and semiconductor chip shortages; followed by the 3rd wave of pandemic in January 2022 led to some weakening in the momentum as the economic indicators took a downturn in January and February.

On the back of significant loss of lives and livelihood during past 2 years, came inflationary pressures across the globe and the Russia-Ukraine war in 2022. Fuel, food and raw material prices have increased rapidly that jeopardises not just post-pandemic recovery, but also threatens to put vulnerable population at risk. As per IMF World Economic Outlook update issued in April 2022, global growth is projected to slow from an estimated 6.1% in 2021 to 3.3% in 2022 and 2023. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than projected in January. Beyond 2023, global growth is forecast to decline to about 3.3% over the medium term. The advanced economies are looking at inflation projections of 5.7% during 2022 and emerging markets and developing economies face inflation projections as high as 8.7%. These projections are approximately 2-3 percentage points higher than January 2022 projections and are mainly attributed to the war in Europe.

The severity of inflation and economic pressures is expected to be felt more in the first half of the fiscal year 2022-23. Increasing inflation will complicate trade-offs that various central banks face between containing price pressures and maintaining growth. Interest rates are expected to rise as central banks tighten policy, putting pressure on emerging market and developing economies. Moreover, many countries have limited fiscal policy space to cushion the impact of the war on their economies. Recent lockdowns in key manufacturing and trade hubs in China is likely to compound supply disruptions elsewhere. As per the IMF World Economic Outlook update, employment and output will typically remain below pre-pandemic trends through 2026, with few exceptions. Although the drivers of inflation are beyond the control of central banks (the war, sanctions, the pandemic, supply chain disruptions), price pressures are increasingly broad-based. The appropriate monetary policy response will therefore differ across economies.

Real term economic growth in India was pegged at 9.2% for 2021-22, with GDP growth for 2022-23 projected at 8% to 8.5%. Sustained long-term expansion, the country’s economy is contingent upon various supply side reforms undertaken by the Government of India (GoI). Capital expenditure during April – November 2021 grew by 13.5% YoY, indicating impetus to recovery. These positive signs were also evident in recovery of employment indicators bouncing back to pre-pandemic levels during the last quarter. Index of Industrial Production (IIP) grew at 17.4% (YoY) during April-November 2021 as compared to -15.3% in same period last year. Aggressive spending by the GoI on railways and road construction is strengthening much-needed infrastructure for improving ease of conducting business with optimised logistics. Introduction of Production Linked Incentive (PLI) Scheme is providing major boost to infrastructure – both physical as well as digital, along with measures to reduce transaction costs and improve ease of doing business. PLI Scheme would also support the pace of recovery. However, key areas to watch would be CPI-Combined inflation and food inflation rates, which are pegged at 5.2% and 2.9% respectively for April – December 2021.

The Union Budget 2022-23 envisages accelerating the pace infrastructure development through PM GatiShakti driven by seven engines - Roads, Railways, Airports, Ports, Mass Transport, Waterways, and Logistics Infrastructure. With more than 50% of Indian workforce dependent on agriculture and related industries, resilient growth in agriculture and food processing is sought of by linking water supplies (e.g. Ken Betwa Link Project) and enabling technology-driven solutions (e.g. Kisan Drones). The Government is also encouraging and envisaging growth in digital learning platforms for schools, skill development and higher education. Another promising policy decision underlined in the Union Budget 2022-23 was mobilisation of resources for green infrastructure and sunrise sectors – energy storage, 5G, Bharat Net, coal gasification, battery swapping, data centres, etc. While large part of the allocation of PLI Scheme is towards electronics, IT hardware, telecom and networking products, ₹ 16.3 billion is allocated towards Pharmaceutical industry.

With strong carry-forward order book at the beginning of the fiscal year 2022-23, the Company is well positioned to achieve robust performance levels. Its entry into new segments, such as energy-efficient API turbines for Oil & Gas industry and turbines between 30.1-100 MW also provided opportunity to widen its net of addressable market. The Company will continue to focus on its efficient sourcing and manufacturing practices to counter higher input and logistics costs. Also, manufacturing, subcontracting and supply chain capacities are being scaled up to address increased number of turbines. However, fallout of recent global turmoil due to continuing restrictions in China, Russia-Ukraine war and rising inflation will be watched closely to anticipate impact on the Company’s business and respond with appropriate control measures to maintain its market leadership position and grow internationally.