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Transformers & Rectifiers India Ltd (TRIL) is into manufacturing of transformers
such as power, distribution, furnace and specialized transformers up to 765 KV. TRIL
has manufacturing facility at Odhav, Moraiya and Changodar in Ahmedabad with a
total capacity to produce up to 23,200 MVA of transformers.
Investment Rationale
Higher KV transformers are future of Power Transmission: TRIL
commissioned its new transformer plant for producing 220 KV & higher KV
transformers at Moraiya, Ahmedabad in May'09 which will take the total capacity of
TRIL to 23,200 MVA. Through new capacity addition TRIL is targeting higher KV
class of transformers as going ahead government capex is expected to be higher in
220+ KV segment compared to previous 5 year plans. We assume that TRIL will be
selling around 15,000 MVA of transformers in FY11 and around 18,500 MVA of
transformers in FY12, which will translate into a CAGR of 26.8% over a period of
FY10-12.
Power Grid Certification- A Game Changer: TRIL has signed a MOU with a leading
global manufacturer of 765 KV transformers for the purpose of manufacturing and
supplying transformers to Power Grid Corporation Ltd (PGCIL). This is a special
arrangement, wherein both the parties
will jointly bid for the 765 KV transformers from PGCIL and 30% of the orders would be
executed by TRIL. This is a very positive move by the company, as we expect the 765 KV
transformers demand to outpace the demand for other lower KV transformers in days to
come. PGCIL will be opening tenders for 765 KV transformers by end January 2011 and
the estimated orders to be disbursed by PGCIL from this tenders is Rs 1200 crores.
Huge Power Generation capacities coming up means more transformers
needed: In the current 11th five year plan period, the country targets a new power
generation capacity addition of 78,000 MW. The power generation capacity addition
as on 30th April 2010 for the 11th five year plan is just 21,441 MW. We are surely
going to miss the targeted capacity addition of 78,000 MW, however we estimate
that the total capacity addition for the 11th five year plan would be ~51,000 MW.
Thus 29,559 MW of capacity addition is to be made in the next 2 years. With such
huge power capacities coming up, the need for transmission will drive demand for
transformers. New capacities additions would create a demand for ~ 2,95,590 MVA
of transformers over next 2 years.
Huge capex in Steel to drive demand for Industrial Transformers: India’s
steel capacity is expected to rise to 100 MTPA by FY12 from the current capacity of
64 MTPA. Such huge capacity additions by steel companies will drive in demand for
industrial transformers. Industrial transformers are a high margin business for TRIL
when compared to the Power & Distribution transformers business.
Valuations & Views: TRIL is a leading player in the Indian transformers industry.
TRIL’s entry into higher KV transformers, wherein the demand growth is expected to
be significantly higher coupled with massive expansion by steel companies and
getting a pre-qualification certificate from PGCIL makes TRIL an attractive growth
story. At CMP of Rs 325 TRIL is trading at 7.55x and 5.7x its FY11E and FY12E EPS
of Rs 52 and Rs 69 respectively. We value TRIL on a P/E of 9x its FY12E EPS of Rs
69, with a target price of Rs 620, a potential upside of 90 %.
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