Management Discussion and Analysis Gears Business Group

Gears Business Group

A powerful drive of the Company's growth strategy, the Gears Business Group (GBG) of Triveni has three distinct segments viz., Gears segment, Defence segment and Built to Print segment.

Gears Business

The Industrial Gears industry

The Gears Industry in India is broadly categorised into Industrial Gears and Automotive Gears. The Industrial Gears segment manufactures Gears, Gearboxes, Gear Motors and Gear Assemblies. Industrial gearboxes are a common type of power transmission devices, used as a component in various types of machineries and heavy electrical equipment. The majority of the gears manufacturers in the domestic market manufacture standard products i.e. standardised catalogue type, as it requires less customisation and engineering. The limited presence of companies in customised gears manufacturing, which requires advanced technology and stringent adherence to international standards, with requisite infrastructure and highly skilled manpower, gives Triveni a differentiated edge.

Demand Drivers

The major demand driver for Industrial Gears is industrial capital expenditure, mainly in sectors like Power, Steel, Refineries, Fertilisers, Cement, Textiles, Sugar, Mining, Power, etc. The infrastructure-related investment in the country stimulates the growth of heavy industries, which in turn fuels growth of the industrial gearboxes market.

Triveni's core product - High-Speed Gears - are used for all turbo applications like gas turbines, steam turbines, water turbines, compressors, pumps, blowers and test rigs meeting AGMA and API design standards. Demand for these products is linked to industrial growth and the Capital Goods sector. However, part of the demand is generated from the exports undertaken by domestic OEM customers, which is linked to global demand for products related to the Capital Goods segment. Aftermarket opportunity demand is linked to plant utilisation levels, cost pressures on maintenance budgets, policy of keeping insurance spares, emergency breakdowns and alternate sourcing vis-a-vis global OEMs to bring down product lifecycle costs etc.

Business Opportunities

In FY 20, as a result of the distinctly positive policies being pursued by the Government, business sentiment and capacity utilisation improved perceptibly, and there have been indications of fresh capital investment in industrial segments like Steel, Cement, Sugar and Oil & Gas. Increased acceptance of engineered capital goods from India in global markets has further boosted sourcing from quality-conscious credible Indian manufacturers.

The Government has recently announced the Aatma Nirbhar Bharat Abhiyan scheme, which is an economic package of ₹ 20 lakh crore and will cater to the sustenance of labourers, middle class, cottage industry, Medium and Small Enterprises (MSMEs) and other industries. Under the Scheme, apart from other financial support offered to MSMEs, a major step has been taken to restrict Government procurement tenders up to ₹200 crore to Indian MSME companies. This will be a step towards Self-Reliant India and will support the 'Make in India' programme while helping MSMEs to boost their business. Gears business can significantly contribute to indigenisation of gearboxes to further align with the Aatma Nirbhar programme announced by Government of India.

Apart from the above, there are many Government policies which may benefit the Gears business in the short and long term:

BS-6 policy has given way to Refinery expansions, both brownfield and greenfield, having good potential for high speed gearboxes for all applications
Pollution control equipment has been made mandatory for Thermal projects. The new standards are estimated to cut PM emissions from new thermal plants (after 2017) by 25%, sulphur dioxide emissions by 90%, nitrogen oxides by 70% and mercury by 75%

Segments

The Gears business can be segmented into three broad divisions - Original Equipment Manufacturers (OEM) (Domestic); OEM (International); and Refurbishment segment including loose gear manufacturing.

OEM Domestic

Gears business caters to the high-speed gears used as speed enhancers and speed reducers. Triveni has leadership position in the high-speed gears segment in India, and enjoys a market share of more than 80% across all major OEMs supplying Steam Turbines, Pumps and Compressors, Forced Draft (FD) and Induced Draft (ID) Fans.

Major customers for high speed gears segment include Indian OEMs of Steam Turbines, Gas Turbines, Centrifugal Pumps and Compressors, FD and ID Fans catering to API and Non API segments. In the low-speed segment, the Company caters to gearboxes used in reciprocating compressors, pumps mainly used in Oil & Gas and Fertiliser plants. The Company also caters to the low head hydropower units which require gearboxes for power generation.

During FY 20, orders from domestic OEMs have remained nearly same as previous year. However, it was, to some extent, compensated by increased booking in the Steam Turbo Generator (STG) segment and Built to Print segment.

OEM International

At present, Gears business is supporting international OEMs in select geographies and has been successful in closing several orders. It has also started marketing in international markets with new OEMs and new countries for both high-speed and low-speed gears.

Currently, the Gears Business is supplying gearboxes to various OEMs in Japan, Korea, China, Malaysia, and Indonesia and in Europe (Italy, France, Germany, and Spain), US and Latin America. During the year, the business entered new regions of France and Korea.

Global energy demand is on the rise and needs higher investments in power generation facilities. Globally, the power generation market is substituting fossil fuel with renewables focussed on the distributed and decentralised power generating facilities. These facilities are smaller in size and uses locally available biomass, municipal and industrial waste based waste heat recovery plants and waste to energy plants etc.

With the slowdown in the global economy due to the impact of the pandemic, major investments may get delayed and there is a possibility of reduced demand for new equipment till normalcy is restored. However, in segments such as Petrochemicals, Pipeline projects etc., the Company expects there could be demand for pumps and compressors.

During FY 20, OEM exports order booking has been slightly lower due to some of the major orders being shifted from Q4 FY 20 to FY 21 owing to the pandemic situation.

OEM Highlights:

STG segment recorded the highest share of order booking from Sugar, Cement and Paper end-users
Gears business bagged multiple gearboxes orders for Indian Fertiliser expansion requirement through various OEMs for all high-speed applications
First qualification orders received from a new segment of Built to Print from a major global OEM. These are high potential orders and are expected to ramp up for higher share in coming years
8 New OEMs were added to the customer portfolio in FY 20

Refurbishment

Another major segment of the Gears business is Refurbishment, which continues to push the Company's leadership position in the global market. The Company undertakes refurbishment of own makes and other makes of gearboxes. This segment contributes 40% of the turnover and caters to all end-users across industries.

Being one of the leading global players in industrial gearboxes, with a fleet of over 8,500 Triveni Gears and 900 replacements of more than 80 global brands, Triveni finds increasing acceptance by multinational OEMs and industries for its products for their global projects - both in terms of new products as well as for providing refurbishment / replacement solutions.

In FY 20, the Refurbishment segment registered a growth of 5% in order booking, while in turnover it showed an increase of 25%. The export turnover of Refurbishment segment showed significant growth while the domestic turnover increased by 16%.

The Gears business achieved a gross revenue of ₹154.2 crore - growth of 16% over the previous year, with 27% higher profitability.

In the Loose Gears manufacturing, the Gears business undertakes limited exposure and the market dynamics of this segment is similar to the OEM segment. While there has been an increase of 42% in booking in FY 20, the turnover showed a decline of 42%, largely on account of unprecedented delays in certain deliveries by the OEMs.

DEFENCE BUSINESS

The Triveni Defence business is a strategic foray guided by the Company's ability to identify and harness emerging opportunities. The segment is poised to cater to engineered equipment requirements for Defence under the 'Make in India' initiative. With extensive experience in critical rotary machinery technology, and in supplying and meeting requirements of Defence and Defence support organisations in the past, as well as Triveni Group's expertise in turbo machinery, the Defence business has successfully procured approvals for both new projects and for refurbishing requirements in Naval Defence space.

To promote indigenous design and development of defence equipment, most of the new enquiries in Indian Navy have been issued to bolster Indian industry in major mission critical equipment and services. Triveni is actively engaged with the naval headquarters, shipyards and other naval establishments for participating in major upcoming projects with indigenous designs or with Transfer of Technology (ToT) collaborations for varying products.

The Government of India's 'Make in India' initiative has unleashed new opportunities for diverse engineered products, and Triveni's Mysuru facility is actively participating in many of these indigenous development projects. The Defence Procurement Policy 2016 focusses on self-reliance for various equipment in Design, Development and Manufacture by Indian Industry. Most of the new projects envisaged by the Defence sector are customised requirements for critical equipment, offering substantial value to the existing portfolio of Triveni Gear's rotating machinery. Triveni Gears is initially focussing on Naval Defence markets, where it has gained some foothold in the critical turbo pumps space. The Defence business is also currently working on several projects under Make-in-India programme, related to engineered products as well as gearboxes for Indian Navy and Indian Coast Guard.

Some of the other opportunities being explored are propulsion gearboxes across platforms for Indian Navy and Indian Coast Guard, propulsion shafting for special projects, Gas Turbine Generators for auxiliary power, Propulsion System Integration.

The Defence business can significantly contribute to indigenisation of gearboxes in line with the Aatma Nirbhar programme announced by the Government of India.

BUILT TO PRINT

Gears business has partnered with global OEMs for precision manufacturing of components for wind gearboxes as well as industrial high-speed gears, facilitating productivity growth and enhancement of capacity utilisation. This segment offers high potential for growth for exports in the medium to long term.