Sell Transformers; target of Rs 159: KRChoksey

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Sell Transformers; target of Rs 159: KRChoksey

KRChoksey is bearish on Transformers and Rectifiers India and has recommended sell rating on the stock with a target of Rs 159 in its February 7, 2012 research report.

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KRChoksey is bearish on Transformers and Rectifiers India and has recommended sell rating on the stock with a target of Rs 159 in its February 7, 2012 research report.

"Transformers & Rectifiers India Ltd (TRIL) reported first ever quarterly loss since listing at Rs 2.4 crore v/s a profit of Rs 6.8 crore. TRIL sales for Q3FY12 stood at Rs 96.6 crores v/s Rs 127 crores in Q3FY11, a drop of 24% y-o-y on back of lower sales and production. The raw material cost as a percentage of sales increased by 1173 bps on a y-o-y basis, dragging the operating profit margins to negative 0.6% v/s 9.3% in Q3FY11."

"TRIL reported negative Operating profit margin of 0.6% in Q3FY12, a drop of 997 bps on a y-o-y basis, this was because of execution of higher KV class transformers. The raw material cost as a percentage of sales for TRIL increased to 87% in Q3FY12 v/s 75.3% in Q3FY11. TRIL has aggressively increased its order book over the last 6 months sacrificing on margins, at a time when the industry itself has been going through a tough time. Lower margins orders are still part of the order book and its impact will get reflected in coming quarter and FY13. Order book for TRIL stood at Rs 558.27 crore and 21,362 in terms of MVA. Power transformers form the chunk of the order with 79% of the order book. The order book includes an order worth Rs 204 crore from Power Grid Corporation of India (PGCIL) for the 765 KV class of transformers. PGCIL order's are at wafer thin margins as TRIL has aggressively bided for this orders as part of its entry strategy in the higher KV class transformers."

"TRIL reporting negative EBIDTA margins in the Q3FY12 result has came as a big surprise for us and we are downgrading the stock and would wait for few more quarters until the situation improves. With intense competition in the industry and over capacity in the industry, we have lowered our operating margins estimates. At CMP of Rs 170, TRIL is trading at 7.5x its FY13E EPS of Rs 22.7. We value the company at 7x its FY13E with a target price of Rs 159," says KRChoksey research report.  

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