Transformers and Rectifiers India is firing on all cylinders. Buy for Target Price of Rs 86 (35% upside): ICICI Direct

Transformers and Rectifiers India Firing on all cylinders…

About the stock: Transformer and Rectifier India (TRIL) is a leading manufacturer of transformers up to 1200 kV class. TRIL has a wide range of transformers, like power & distribution transformers, furnace transformers, rectifier transformers & special transformers. It has strong in-house design & technical expertise; combined with technical collaboration/JV relationship for 765 kV transformers & reactors.

► A diversified customer base in India, coupled with an international presence in over 20 countries

► Total 50% revenue comes from utilities (like state electricity boards, PGCIL, Railways), 44% comes from industrials that includes renewables and 6% exports including third party exports – utilities & power

Q2FY23 Performance: For Q2FY23, TRIL posted strong results.

► Consolidated revenue grew 15.1% YoY to Rs 307.5 crore

► EBITDA grew strongly by 60.6% YoY to Rs 34.2 crore with margins of 11.1% vs. 8% in Q2FY22

► Consequently, PAT came in at Rs 12.2 crore, up 122.2% YoY

What should investors do? After many years of stagnant performance, growth prospects are looking bright across all parameters. Revenue CAGR of 20% in FY22- 24E coupled with margins hitting 10.8% in FY24E will enable TRIL to post its best ever profitability performance.

► We initiate coverage under I-Direct Nano format with a BUY rating

Target Price and Valuation: We value TRIL at Rs 86 i.e. 15x on FY24E EPS.

Key triggers for future price performance:

► Robust outlook coupled with an all-time high order backlog will allow TRIL to post a robust performance, going ahead

► TRIL is likely to expand its capacity in FY24E for hydrogen powered transformers in its existing manufacturing unit and will tap players that have mega plans in setting up facilities for producing green hydrogen

► It is aggressively targeting export markets like Middle East, Russia, Africa and the US for enhancing export segment revenues. Export orders generally have the best gross margin profile vis-à-vis domestic orders

► We build in revenue, EBITDA CAGR of 19.5%, 59%, respectively, in FY22-24E