With its engineering capabilities, Transformers & Rectifiers Limited (TRIL) has established its position in Indian transformer industry, thus enhancing infrastructure development in the country.

Key Investment Rationale:

Increased Focus of GOI On Power Sector- A Big Boost:
With Government of India’s increased focus on providing “Power for All” by 2010, the installed power generation capacity of the country is expected to reach 200,000MW by 2012. This will boost the demand for Transmission & Distribution equipments.

Higher Value Chain:
The company has increased its engineering capabilities up to 400KV. This will be further raised to 765KV. High voltage transformer will boost the top line of the company.

Robust Order Book
TRIL has a robust order book position of over 372.55cr. The order book of the company is well diversified and provides good earning visibility for next 2-3 quarters.

Future Valuation:
At the current price of 408, the stock is trading at just 8.62 times of our estimated FY11 earnings. We thus recommend a ‘BUY’ with a Price target of 519.

Transformers & Rectifiers India Ltd (TRIL) business comprises manufacturing and selling of various kinds of transformers such as power, distribution, furnace and rectifier and specialized transformers. They design and manufacture distribution transformers, power transformers up to 765 kV. TRIL has manufacturing facilities at Moraiya, Changodar and Odhav in Ahmedabad with a total capacity to produce upto 23200 MVA.

Clientele:

TRIL’s profound knowledge of products, technologies, implementation skills coupled with understanding of market, will help it to reap its benefits from the industry’s growth. The company c
users in various fields such as Petrochemicals, Steel, Oil & Gas, Power, Mining etc. 90% of business of the company is driven from Power Utilities & Transmission companies.

Transmission Corporation of Andhra Pradesh, Maharashtra St Electricity Transimission Company Ltd, Gujarat Energy Transmission Corporation Ltd, Rohit Ferro Tech Ltd, Monnet Ispat Ltd, NTPC, Power Grid etc. are the big names they serve.

As the Indian economy continues to surge ahead, its power sector has been expanding concurrently in order to support the growth rate. The demand for power is growing exponentially and the scope for growth in this sector is monumental. India's total installed capacity of electricity generation has expanded from 1,05,04-5.96 MW at the end of 2001 1,59648.46 MW currently. In fact, India ranks sixth globally in terms of total  electricity generation. This capacity is likely to grow to more than 3,00,000 MW by the end of 12th five year plan ending 2017.6000 Production & Testing up to 765KV Changodar 7000 Production & Testing unit

Source-wise, thermal power plants account for an overwhelming 64 per cent of the total installed capacity, producing 102703.95. Hydel power plants come next with an installed capacity of 36863.4MW, accounting for 23 cent of the total installed electricity generation capacity. Besides these, renewable energy sources contribute 9.7 per cent to the total power generation in the country producing 15521.11MW. Nuclear energy makes up the balance 3 per cent contributing 4560MW. Emerging trend is one of larger share of renewable power in the total installed capacity mix.

During the quarter ended 30th June, 2010, the total revenue of the company remains flat at Rs 216.72cr as against Rs 134.19cr during the corresponding quarter last year, primarily due to flat sales volume which stood at 1591MVA.The realization stood at Rs 0.052cr per MVA on back of higher industrial order.

The operating profit margin of company during the quarter improved at 17.22% as against 16.91% during the corresponding quarter last year, mainly due to lower other expenses and staff cost . The realization remains flat to Rs 5.20 lakhs/MVA from 5.18lakhs/MVA last year. However, on sequential basis the OPM has improved by 142bps.

For the quarter ended 30th June 2010, TRIL has reported a net profit of Rs 8.5cr as against 8.83cr during the corresponding quarter last year, registering a de-growth of 3.8%, on stable interest and Depreciation cost.

During FY10 TRIL reported revenues of Rs.522.65cr (up 21% YoY), operating margin of 15.8% (down 55 bps) and PAT of Rs.49.51cr (up 12.2% YoY) thereby translating into FY10 EPS of Rs.38.31 and CEPS of Rs.41.73.

During FY10 the operating profit grew marginally by 11.5% to Rs 83.73cr as against Rs 75.09cr during last year, largely on account of higher top-line reported by it. OPM contracted by 55bps at 15.8% due to cost control measures applied by the management particularly on site expenses. Site operating expenses as a percentage of revenues have reduced from 38.2% in FY09 to 34.1% in FY10 on account of work completion on few sites. However both raw material and staff costs have gone up by 44% and 26.7% respectively. The business mix of the company include 30% of order with materials while rest 70% order are without materials which is a high margin business for the company.

For the FY10 the net profit the company has doubled during the year to Rs 23.46cr as against 10.3cr reported during FY09, the increment in net profit can be attributed to higher Top-Line number and improved operating performance of the company.

Key Concerns:

Slowdown in Power Generation:
The growth of transformer industry is highly correlated to growth of power generation capacity and expansion of transmission line. Any slowdown in sector could dent the profitability of the company.