US data centres drive export boom at TD Power Systems

What the company does

TD Power Systems makes electrical generators and motors. A generator is the part of a power plant that turns the spin of a turbine or engine into electricity, and TD Power builds them for the companies that make those turbines and engines. It started in Bengaluru in 1999 with technology from Japan's Toyo Denki, and has since shipped more than 8,300 generators to 113 countries.

Its customers are original equipment makers: the global makers of steam turbines, gas turbines, gas engines and hydro turbines. TD Power designs and builds the generator, the turbine maker pairs it with its own machine, and the finished set goes to a power plant, a factory or a data centre. Its range covers steam and gas turbine generators up to 250 MVA, gas engine generators up to 25 MVA, hydro generators, and industrial and traction motors.

From steady to surging

For most of its history this was a steady, mid-sized engineering business. In FY21 it earned about ₹595 crore of revenue and ₹45 crore of profit, with an operating margin of 11%.

Since then it has changed gear. FY26 revenue reached about ₹1,870 crore and profit about ₹239 crore, with the operating margin up to 18%. Revenue has compounded at roughly 26% a year over five years, and operating profit at roughly 39%. The first quarter of FY27 accelerated again: revenue rose 71% to ₹640 crore and profit 72% to ₹86 crore.

The driver is demand from abroad. In the first quarter, 93% of new orders came from exports. Management lists four forces behind that demand: data centres, grid stabilisation, the general push for more power generation, and renewables such as hydro and geothermal. The data-centre link is direct. Last quarter, global engine makers placed large repeat orders with TD Power for US data centres, and a major US gas-turbine maker placed significant volume orders, with demand supported by data-centre expansion. Data centres in America need more electricity than the grid can supply quickly, so many are building their own generation on site, and every turbine and engine they buy needs a generator.

Management does not disclose how much of the order book is linked to data centres, and it describes demand in India as steady rather than explosive, growing about 10% to 12% a year.

What management is building

New orders now arrive at more than ₹700 crore a quarter, and management expects over ₹2,800 crore for the full year. The order book stood at ₹2,207 crore at the end of June, up from ₹1,368 crore at the start of FY26, and exports make up about 70% of it. Management raised its FY27 revenue guidance to ₹2,600 crore, about 40% above FY26.

To keep up, the company is spending about ₹50 crore on debottlenecking to reach a capacity of roughly ₹3,200 crore of annual revenue in FY28, and is planning a larger expansion towards ₹4,000 crore or more for FY29 and FY30. Its workforce is growing from about 1,750 to 2,600.

Two recent developments extend this. In August, TD Power signed a 10-year framework agreement with Siemens Energy to manufacture two-pole generators to Siemens Energy's designs. No value was attached; business will come through individual purchase orders over the term. In October, its US subsidiary won an order worth about ₹192 crore for two-pole generators of TD Power's own design, for gas-turbine applications in the United States, to be delivered between August 2027 and January 2028. Management called it the company's entry into the global two-pole generator market with its own design.

Asked whether this demand can last, the managing director pointed to the company's customers: the turbine and engine makers have taken significant non-refundable advances from their own buyers, which gives them, and TD Power, confidence in the years ahead.

Balance sheet and funding

The balance sheet is conservative. At the end of June, equity was about ₹1,158 crore, borrowings only about ₹24 crore, and cash and bank balances about ₹240 crore. Return on equity was about 21% last year, and CRISIL upgraded the company's credit rating to AA-/Stable in June.

Growth is absorbing cash. In FY26 the company earned about ₹236 crore of profit but generated only about ₹129 crore of cash from operations, because receivables rose by about ₹288 crore and inventory by about ₹126 crore. After about ₹104 crore of capital spending, little free cash was left. By June, receivables were about ₹785 crore and inventory about ₹569 crore, together more than two quarters of revenue. Management has said it cannot change payment terms much without risking business.

To fund the expansion, the company is raising up to ₹675 crore: ₹75 crore from two promoter-directors, who were allotted 12.5 lakh new shares at ₹600 each in September, and up to ₹600 crore through a qualified institutional placement that had not been completed at the time of writing. The placement will dilute existing shareholders by roughly 2% to 3% at current prices.

The ₹75 crore came after a year of promoter selling. During FY26 the promoters sold a substantial part of their holdings: the managing director's stake fell from 11.2% to 8.3%, Saphire Finman's from 15.3% to 13.2% and Hitoshi Matsuo's from 6.4% to 5.1%, taking the promoter group from about 33% to about 27%. The September allotment lifted it only slightly, to about 27%, which is low for an Indian mid-cap.

The risks

Valuation is the first. At about ₹816 a share, TD Power is valued at roughly ₹25,500 crore, around 90 times its last twelve months' profit and about 14 times last year's revenue. Even if FY27 profit reaches around ₹350 crore on the guided revenue, the stock trades above 70 times that. A price like this assumes the growth continues for years.

Concentration is the second. The top ten customers provided 84% of revenue last year, and a meaningful but undisclosed share of demand depends on US data-centre spending. Analysts on the August call questioned whether data-centre investments will earn their return and how firm the turbine makers' long backlogs really are. If that spending slows, TD Power would feel it through its customers.

Execution is the third. Revenue is set to rise about 40% this year with a larger workforce, new products and a new class of larger generators. The company has had one-off margin hits before, including penalty charges after a shipment on a Turkey contract was delayed, and the auditor of its small Turkish subsidiary has flagged doubt about that unit's ability to continue as a going concern, though it is not material to the group. A large share of its exports goes to the US, so tariff changes are a further risk, though management said its customers had not raised the issue.

What to watch

1. 1
   Order inflow

   Management expects it to stay above ₹700 crore a quarter

2. 2
   Siemens Energy

   The first purchase orders under the 10-year agreement

3. 3
   Gross margin

   About 35% last quarter, which management aims to hold steady

4. 4
   Working capital

   Receivables, inventory and cash from operations as revenue grows

5. 5
   Share placement

   The size and pricing of the planned raise

6. 6
   Capacity

   Progress towards ₹3,200 crore of revenue capacity for FY28