Buy Transformers; target of Rs 270: SKP Securities

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Buy Transformers; target of Rs 270: SKP Securities

SKP Securities is bullish on Transformers and Rectifiers India and has recommended buy rating on the stock with a target of Rs 270 in its September 30, 2011 research report.

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SKP Securities is bullish on Transformers and Rectifiers India and has recommended buy rating on the stock with a target of Rs 270 in its September 30, 2011 research report.

Transformers & Rectifiers (India) Ltd (TRIL) is one of the leading manufacturers of power transformers with the market share of around 8%. It also manufactures industrial transformers such as furnace transformers and rectifier transformers. Majority of its revenues come from dominant power sector transformers. TRIL has recently commissioned its Moraiya facility (Gujarat), which enables it to manufacture transformers up to 1,200 kv class."

"GOI have plans to increase its power generation capacity by 100GW during 12th Five year Plan. This will generate demand of 84,000 MVA of new transformers every year during the 12th five-year plan, assuming 60% target achievement during the period. Industry is facing over-capacity situation presently due to diversion of capacities built for export, by the large manufacturers, to domestic market. Thus, realizations are decreasing quarter on quarter. Thus, we feel that the company having additional capacities will see growth (volume wise) in the near future. Recently, TRIL has increased its capacity from 7,200 MVA to 23,200 MVA keeping in view the above scenario. We believe that TRIL is well placed with the additional capacities in hand and ready to cater additional demand from the industry."

"At the current market price of Rs 217, the stock is trading at a P/E of 8.1x and 6.1x of FY12E and FY13E earnings of Rs  27.3 and Rs  36 respectively. We recommend BUY rating on the stock with a target price of Rs  270/- (24% upside) in 15 months, at the P/E of 7.5x on FY13 earnings of Rs  36," says SKP Securities research report.

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