Reduce TRF; target Rs 372: PINC Research

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Reduce TRF; target Rs 372: PINC Research

PINC Research has recommended reduce rating on TRF with a target price of Rs 372 in its February 2, 2012 research report.

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PINC Research has recommended reduce rating on TRF  with a target price of Rs 372 in its February 2, 2012 research report.

"TRF reported consolidated sales growth of 48% to Rs4.3bn (PINCe Rs3.4bn) led by better execution in project division (sales up by 132%). Margins at operating level were at 4.4% (after adjusting forex loss). Cost overrun in certain projects, higher material cost, unrealised foreign exchange loss and high tax rate impacted bottom line adversely. TRF reported loss of Rs8.5mn. Adjusted PAT was Rs27mn (PINCe Rs112mn). The company, in this quarter managed to bag orders worth Rs2bn. It expects orders worth Rs6.5bn in Q4FY12 in projects and product division. The automotive subsidiaries reported subdued growth of 4% on account of slowdown in the overseas market."

"Project division revenue increased by 132% to Rs2.5bn in Q3FY12 on account of better execution. However, cost overrun in certain projects impacted the segmental margins which declined sharply by 790bps to 1.7%. Order inflow in Q3FY12 was Rs1.9bn. TRF expects orders worth Rs5.7bn mainly from NTPC and Tata Steel in Q4FY12. We believe this is extremely positive for TRF as lack of orders in last five consecutive quarters, reduced revenue visibility. The product division report de-growth of 5% in sales to Rs694mn on account of slowdown in demand. Change in product mix and high material cost impacted the margins which declined sharply by 390bps to 12.2%. We believe margins to remain under pressure in the near term. Automotive subsidiaries witnessed an impressive sales growth of 46%. Slowdown in demand of trailers in Middle East and Europe impacted the sales of DLT. In 9MFY12, automotive subsidiaries witnessed a revenue growth of 47% to Rs4.1bn. Adjusting to forex loss, segmental margins improved by 70bps in Q3FY12 and 40bps in 9MFY12. With expected improvement in margins and healthy revenue growth driven by expanded capacities coming on stream, we believe the automotive segment would be the key growth driver for the company going forward."

"The current order book of the company stands at Rs12.2bn. We have increased our sales estimates for FY12 by 8.4% and 9.2% in FY13 to factor in expected order inflows in Q4FY12 and performance of project division in the current quarter. We reduced our profit estimates by 35% for FY12 to factor in lower margins and increased it by 7.8% for FY13E. We expect TRF to witness sales CAGR of 27% (FY11-14E). The key triggers remain acceleration in order inflows and margin improvement in automotive business. Considering the steep rise witnessed in the stock price in last one month we believe there is limited upside. We maintain our target multiple at 8x and downgrade the stock to 'REDUCE' from 'BUY' and revise our target price to Rs 372 (earlier Rs 350)," says PINC Research report.

Institutional holding more than 40% in Indian cos

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