Even after the multifold returns, brokerage house Antique Broking has initiated coverage on the stock with a target price of ₹847, implying another 32 percent upside.
“Transformer and Rectifiers Industries (TRIL), India’s leading transformer manufacturer with the widest product range, has charted an accelerated growth plan for itself over the next 3-5 years. TRIL is undertaking an ambitious capacity expansion program, which will not only make the company India’s largest transformer manufacturer, but also one among very few that has control of key inputs through backward integration. Given the unprecedented demand tailwinds, we see TRIL’s revenue and earnings grow 3.5x and 10x by FY27E,” said the brokerage.
Stock Price Trend
The stock is up a little over 2 percent in May so far, extending gains for the third straight month. It rallied 58.5 percent in April and 14.3 percent in March. However, the stock was down half a percent in February but jumped over 50 percent in January this year.
Currently trading at ₹640, the stock is 16.5 percent away from its record high of ₹766.2, hit on April 24, 2024, but has soared 739 percent from its 52-week low of ₹76.24, hit on July 21, 2023.
In the long term as well, the stock has given astounding returns, rallying 2338 percent in 3 years from ₹26.25 in May 2021 and 4767 percent in 5 years from ₹13.15 in May 2019.
Investment Rationale
Leading transformer player with a wide range of products: TRIL, a leading transformer player, boasts a vast array of products and holds a manufacturing capacity of 37,200 MVA, second only to BHEL. It pioneers the industry with its leading position in high-voltage power transformers (PT, 765 kV, 500 MVA), Inverter Duty Transformers (IDT), and distribution transformers (DT). TRIL also stands out as India’s sole manufacturer of specialty transformers such as Electric Arc Furnace (EAF) and Green Hydrogen Energy Application Transformers. With a market share of 22-25 percent, TRIL has developed these products leveraging its in-house design and engineering capabilities, noted Antique.
Capacity expansion — the beginning of a high-growth phase: Antique further stated that the firm’s capacity expansion is underway at the Changodar plant, adding 12,000 MVA primarily for manufacturing IDTs, expected to be completed by 4QFY25. The company is actively exploring acquiring idle transformer manufacturing capacities, poised to become India’s largest transformer manufacturer with the broadest product range.
Backward integration — a margin driver and a business opportunity: As per the brokerage, the firm’s backward integration into key inputs like tanks, radiators, CRGO, and bushings is a strategic move, addressing the emerging shortage and driving margins. TRIL’s focus on products like transformer tanks, radiators, bushings, and insulation is set to ramp up substantially by FY26.
Transmission capex on a strong rebound: Antique also pointed out that India’s transmission capex pegged at ₹4.8 lakh crore over FY23-27, promises significant demand for T&D equipment. With plans to add 1,23,577 ckm of transmission lines and 7,22,940 MVA of transformation capacity, TRIL is positioned to benefit from this surge in demand.
Several new avenues of growth emerging: It further highlighted that emerging growth avenues across various sectors, including railways, data centers, manufacturing, and exports, present additional opportunities for TRIL. With railways and data center capex gaining momentum and the global demand for renewable energy rising, TRIL stands to capitalize on these lucrative prospects.
Outlook
Antique expects TRIL to report exponential growth over the next three years, with revenue and PAT rising by 3.6x and 10x in FY27 from the base of FY24. The company has an investment plan of ₹500 crore and has announced raising ₹500 crore in capital.
The brokerage estimates TRIL to register an EBIDTA of 78 percent CAGR over FY24-27E supported by strong revenue CAGR of 53 percent over the same period leading to operating leverage playing out. This coupled with a better revenue mix in favor of exports and services business should help TRIL improve its EBITDA margin from the current 10 percent level to 16 percent by FY27, it forecasted. Moreover, it sees TRIL delivering a PAT of 115 percent CAGR over FY24-27E supported by strong revenue growth, improved margin profile, and also on account of expectation of improved working capital cycle leading to moderation in finance charges.
“TRIL’s historical return ratio has been at an average of around 5 percent (RoE) given the weak operating business environment that prevailed between FY12-22. However, as business activities have started to pick up all over again, we have seen TRIL’s RoE in FY24 improve to 10 percent and we expect it to further improve to 29 percent in FY27,” it further said.
Despite a meaningful re-rating in 2024, it trades at a discount to its peers. The brokerage believes that the valuation gap should narrow over the coming years, given the company’s growth objectives and accelerated earnings delivery. The company’s balance sheet has meaningfully improved and return ratios are indicative of superior execution, it added.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 29 May 2024, 01:31 PM IST
