Transformers & Rectifiers Low margins orders impact performance : ::Emkay

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Transformers & Rectifiers

Low margins orders impact performance

BUY

CMP: Rs217                                        Target Price: Rs293

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n     TRIL’s Q2 performance (rev - Rs1.4bn, up 23% yoy, PAT - Rs21mn, down 79% yoy) is lower than est due to low margin orders (2Q EBITDA margins at 3.9% vs 15.1% yoy) execution.  

n     Has received Rs2.2bn, 765kv order (20 transformers) from PGCIL (will help in scaling up the range). Few orders including 765kv orders are low margin orders- to impact numbers in mid-term - cut FY12/13E EPS by 37% and 32%.

n     But we maintain that TRIL is quickly entering into big league of transformer mfrs (CG, ABB, Areva and Siemens) with a capacity to deliver across ranges - should lead to re-rating.

n     Some pain left on lower entry prices and ambiguity on sector fundamentals but TRIL better placed with exports and special transformers/rectifiers. Expect gradual re-rating; Retain Buy 

Transformers & Rectifiers- Good show despite pressures in transformer sector:Emkay

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Transformers & Rectifiers

Good show despite pressures in transformer sector

BUY

CMP: Rs253                                        Target Price: Rs352

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n     TRIL’s Q1 performance (rev - Rs1.4bn, PAT - Rs77mn) is better than est due to (1) significantly higher volumes (98% gr.) and (2) high margin export revenues of Rs322mn vs Rs27mn yoy

n     Positives not yet factored (1) JV with ZTG & L1 in eight 765kv transformers (Rs1.2bn), (2) almost on schedule delivery of 1200kv in Q211E & (3) successful deliveries & performance of 400kv and exp. qualification in PGCIL/NTPC orders

n     We reiterate that TRIL is quickly entering into big league of transformer mfrs (CG, ABB, Areva and Siemens) with a capacity to deliver across ranges though only transformers

n     Some pain left on lower entry prices and ambiguity on sector fundamentals but TRIL better placed with exports and specialized transformers. Expect gradual re-rating; Buy 

Transformers and Rectifiers:: Scaling higher ranges --Emkay

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From TRIL, Mr. Satyen Mamtora, Joint MD and Mr. Sanjay Mazmudar, shared
their outlook on the company
Venturing into higher KV range - TRIL's management reaiffirmed its aggressive focus to
enter into higher KV class (400KV and above). Recent developments in this regard - (1) JV
with ZTR, Ukraine, (2) L1 bidder for supplying eight 765kv transformers to PGCIL (order
size:Rs1.2bn) along with ZTR, (3) on track to deliver 1,200kv soon and (4) delivery of 400kv
transformer to SEB - an important pre-qualification for PGCIL orders.
Management believes that TRIL's focus on (1) higher range of transformers (400kv, 765kv
& 1200kv) and (2) achieving prequalification for supply of higher range of transformers to
PGCIL/NTPC/SEBs will propel future growth. In these segments, it competes with Crompton
Greaves, ABB, Areva and Siemens
Margins might remain under pressure - Management indicated that margins pressure
will continue for a few more quarters (1) due to its low entry level bids in 400kv/765kv
transformers to gain foothold in the market and (2) competition. However, management is
confident of maintaining 11% margins in FY12E.
Volumes - Management guiding for a volume growth of about 30-40% in FY12E and
expects to reach 20,000MVA by FY13E.
Expects recovery in ordering from H2FY12 onwards
Our view - to benefit from likely strong demand growth ahead
Transformer sector has been hit by both supply side pricing pressures (increased
capacities) and demand growth moderation. We believe with 1) huge generation capacity
slated for commissioning in FY12-14E, 2) transmission and distribution still lagging behind
and 3) industrial capex picking up - demand growth is likely to pick up significantly starting
H2FY12. Consequently, we also believe that pricing downside from here is limited- signs
already visible with margins more or less stable since past 2-3 quarters. Given TRIL's 1)
capacity utilization at 62% and 2) capacity to deliver across ranges - company is best
placed to take advantage of likely strong demand growth ahead, especially in higher
ranges. We expect earnings CAGR of 22% in FY11-FY13E with earnings of Rs37.4 and Rs
46.1 for FY12E and FY13E respectively. At CMP of Rs218, TRIL is trading at 6.8x/5.5x FY12/
13E earnings, 0.9x/0.8x FY12/13E book value and 3.4x/2.9x FY12/13E EBITDA. Though, we
expect a slow recovery in terms of realizations (due to the still present overcapacity) we like
TRIL due to (1) its entry into big league and (2) valuation discount to peers.

GE, Crompton Greaves may be eyeing TRIL stake :: Angel Broking

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GE, Crompton Greaves may be eyeing TRIL stake
The promoters of Transformers & Rectifiers India (TRIL) are believed to be talking to
prospective buyers to sell a part or majority of their stake in the company. The promoters,
the Mamtora family, own about 77% stake in the company, which manufactures a wide
range of transformers. GE and Crompton Greaves are tipped to be potential buyers
interested in buying a stake in TRIL. The company had reported net profit of `40cr on
revenue of `541cr for the year ended March 2011. GE has already acquired a majority
stake in Chennai-based InfoTech Transformers (ITT) through GE Prolec. According to news
reports, GE may consider selling its stake in ITT and buy TRIL’s stake. GE Prolec plans to
make India a supply base for Middle East, Africa and the rest of Asian markets. We believe
this likely consolidation would be beneficial for the Indian transformers industry due to the
present overcapacity scenario. We maintain Buy on Crompton Greaves with a target price
of `300.

Transformers & Rectifiers Entering into big league; stay invested :: Emkay

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Transformers & Rectifiers

Entering into big league; stay invested

BUY

CMP: Rs 282                                       Target Price: Rs 352

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n     TRIL’s Q4 performance was impacted by (1) lower overall dispatches due to delivery slippages from customer’s side and (2) relatively higher dispatches of low margin 400kv

n     Positives not yet factored (1) JV with ZTG & L1 in eight 765kv transformers (Rs1.2bn), (2) on schedule delivery of 1200kv in May 2011E & (3) successful deliveries & performance of 400kv and exp. qualification in PGCIL/NTPC orders

n     TRIL is quickly entering into big league of transformer mfrs (Crompton greaves, ABB, Areva and Siemens) with a capacity to deliver across ranges though only transformers

n     Some pain left due to lower entry prices, but due for re-rating in valuations - trading at 3.2xFY13E EV/EBITDA vs bigger cos which trade at 9-21x 1-yr fwd EV/EBITDA. Upgrade to ‘Buy’

Transformers & Rectifiers – Q4FY11; Results below estimates; realizations under pressure : Emkay

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Transformers & Rectifiers – Q4FY11 first cut

Results below estimates; realizations under pressure

TRIL’s Q4FY11 revenues grew by 4.6% yoy to Rs2.2bn (Our estimate – Rs2.4bn). Lower realizations led to EBTIDA margin decline by 500bps to 9.7% (our est of 11.9%) as compared to 14.7% in Q4FY10. PAT stood at Rs146mn (down 27% yoy) lower than our estimate of Rs168mn, led by low revenue growth and decline in EBITDA margins. The company’s Q4FY11 EPS stood at Rs11.3/share.

For FY11, the company reported revenues of Rs5.5bn (our est of Rs5.6bn) up 6.7%. EBITDA margins for FY11 stood at 12.3% (our est – 12.1%) down 188bps, Absolute EBITDA stood at Rs674mn down 7.5% yoy. Reported PAT for the full year was Rs412mn (our est - Rs446mn) down 21% yoy. TRIL reported full year EPS of Rs32/share (our est – Rs34.5/share).

At CMP of Rs269, TRIL is trading at 6.7xFY12E earnings and 0.9FY12E Book Value (ROE of 15%). We shall be reviewing our FY12E-13E numbers post concall (scheduled on 25th April). Currently we have ACCUMULATE rating on the stock with PT of Rs315/share.

TRANSFORMER AND RECTIFIERS:: Kotak Sec: global investor conference 2011

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TRANSFORMER AND RECTIFIERS: Key takeaways
􀁠 Fall in realization: The company believes the fall in realization was led by (1) addition of
higher kVA rating transformers and (2) increase in its volumes. It believes that such fall in
realization is a market trend with capacities in excess of demand.
􀁠 Low cost of capacity expansion: The company highlighted that its total investment in
its new Moraiya plant of 16,000 MVA was about Rs7 bn. The management believes that
with the realization dropping to current levels, it will not make sense for foreign players
to set up domestic capacities.
􀁠 Other key takeaways: (1) They are into specialty transformers and thus face lesser
competition, (2) have expansion plans in South America and Africa, (3) believe that
pricing is the only criteria in its products (post qualification).

Transformers & Rectifiers- Impacted by one offs, dispatch slippage : Emkay

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Transformers & Rectifiers

Impacted by one offs, dispatch slippage & competition

ACCUMULATE

CMP: Rs 280                                       Target Price: Rs 315

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n     TRIL rep. PAT of Rs68mn vs est. of Rs146mn due to (1) one time incentives (~Rs10mn), (2) dev. exp. of 1150kv transfrmr (~Rs15mn), (3) dispatch slippages & (4) competition

n     Around 1,300MVA of dispatches slipped to Q4 resulting in volume (2,711MVA) decline of 5% yoy; this led to revenue declining by 1% yoy to Rs1.3bn (realizations were up 4% yoy)

n     Due to same reasons, EBITDA margins declined by -205bps yoy; No signals of competition pressures easing except for fact that order inflows have been strong for third qtr in a row

n     Cut FY11E/12E earnings by 30%/32%; Order inflows, realizations and 765kv manufacturing key variables to track;  maintain accumulate on 20% valuations discount to peers 

Buy Transformers & Rectifiers India: KR Choksey

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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.

Emkay: Transformers & Rectifiers Order Inflows – a positive -ACCUMULATE

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Transformers & Rectifiers

Order Inflows – a positive

ACCUMULATE

CMP: Rs380                                        Target Price: Rs448

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n     Q2FY11 with (1) 29% growth in revenues yoy & (2) 185% yoy growth (on low base) in order inflows continuing momentum from Q1FY11 signaling a gradual turn

n     EBITDA margins (-300bps yoy) little subdued but partly due to employee expenses led by new plant in full swing, expect gradual improvement going forward on increasing volumes

n     H1FY11 EPS of Rs14.4/Share; implied H2FY11E EPS of Rs30.4/Share (growth of 22% yoy); Expect Q3FY11E to be better on low base; MOU with MNC for 765kv – positive

n     Maintain Earnings; Valuations at 7.1xFY12E EPS - 15% discount to peers; Maintain Accumulate