Buy Transformers and Rectifiers India: Sushil Finance

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Buy Transformers and Rectifiers India: Sushil Finance

Sushil Finance is bullish on Transformers and Rectifiers India and has recommended buy rating on the stock with a target of Rs 398 in its January 31, 2011 research report.

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Sushil Finance is bullish on Transformers and Rectifiers India and has recommended buy rating on the stock with a target of Rs 398 in its January 31, 2011 research report.

"Transformers & Rectifiers (India) Ltd. (TRIL) has registered a de-growth in top line as well as its bottom line for the period ended 31st December 2010."

"During Q3FY11, TRIL net sales de-grew by 5.2% YoY to Rs 1269.7 million; this was mainly due to 5% decrease in sales volumes which stood at 2711 MVA. Dispatches of 1300 MVA were not billed in Q3FY11 and would be billed in Q4FY11.The realization stood at Rs 0.43 million per MVA which was lower by 2% YoY. Its EBITDA decreased by 30.2% YoY to Rs.118.6 million and EBITDA margins decreased by 334 bps to 9.3% in Q3FY11, this was mainly due to increase in employee cost by way of a "one-off" expense relating to payment of arrears and incentives in Q3FY11. Also, an increase in the incidence of employee cost and other expense owing to developmental expenses relating to 1150 KVA transformer debited under the respective heads as revenue expenses. The total amount adds up to Rs 13 million. After adjusting for Rs 13 million the EBITDA stands at Rs 131.6 million and EBITDA margins stood at 10.3 %, registering a decrease by 232 bps."

"Its adjusted PBT decreased by 27.8% YoY to Rs 115 million. Its adjusted PAT stood at Rs 84.8 million, registering a de-growth of 24.1% YoY. Whereas, its RPAT stood at Rs 67.9 million, registering a de-growth of 39.2% YoY. TRIL's order book increased by 16% YoY to Rs 4330.3 million (10,732 MVA v/s 9,095 MVA) mainly due to increase in order inflows (approximately Rs.1660 million against Rs 580.5 million). Currently, company has submitted bids for tenders worth Rs 4000 million. The company has entered into joint business participation and signed an MOU with a Ukrainian company in order to bid for 765 KV class transformers. Together they participated in 4 tenders of which they are L-1 in 1 tender for 7 transformers. The power & distribution segment contributed to 86% of sales and industrial segment contributed 14% of sales. The utilities contributed to 47% of the sales whereas 53% is contributed by the industrial segment."

"Although TRIL's top-line and bottom line remained muted during Q3FY11, its order inflows have improved during the quarter. Inspite of the margin pressure seen during the Q3FY11 the company has maintained its guidance of 13.5%-14% EBITDA margins for FY11 and delivery of about 14,000 MVA of transformers during FY11. Given that the company has witnessed increasing competition from new entrants which, coupled with its entry into higher class of transformers and higher input prices, we expect the margins to remain low for the full year of FY11 and FY12. As a result, we have lowered our APAT estimates for FY11 and FY12 and now estimate its FY11 and FY12 EPS to be Rs 36 and Rs 39.8 respectively. However with the steep fall in the stock price, we change our rating on the stock from HOLD to BUY with a revised target of Rs 398 (10x earnings estimate of Rs 39.8 per share)," says Sushil Finance research report.

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