Sell TRF; target of Rs 350: PINC Research

“TRF Q1FY12 results were below our expectations. Net sales on a consolidated basis increased by 14% to Rs 2.7bn (PINCe Rs 3bn). Margins at operating level were flat at 5.2%. Higher interest and depreciation cost impacted bottom line adversely which declined by 44% to Rs 36mn. The company, in this quarter too, failed to bag any order which further reduces FY13 revenue visibility. The product division and subsidiaries continue to perform well.”

“TRF’s Q1FY12 consolidated revenue increased by 14% on a consolidated basis to Rs 2.7bn mainly on account of high growth witnessed in product division. Operating margins were flat at 5.2%. Project division witnessed a decline of 6.6% in revenues and incurred a loss of Rs 60mn at PBIT level. However, on SA basis product division witnessed a growth of 18% in revenues to Rs 674mn and 36% in profits at PBIT level to Rs 157mn. The subsidiaries witnessed a cumulative revenue growth of 29% in Q1FY12 to Rs 1.2bn. PBIT margins improved by 140bps to 3.2% for the quarter. With expected improvement in margins and healthy revenue growth, we believe the automotive segment would be the key growth driver for the company going forward. In Q1FY12, no orders were bagged by TRF in the project division. This is the fourth consecutive quarter where TRF has not bagged any major order in the project division. The current consolidated order book of the company at Rs 13bn is down by 28% on a YoY basis and 15% on QoQ basis. Management is expecting some good orders from Kalinganagar project of Tata Steel in the near future. Margins are expected to remain under pressure going forward.”

“We expect TRF to witness sales CAGR of 17% (FY11-13E). Order inflows from the Kalinganagar project of Tata Steel could provide some respite. The key triggers remain acceleration in order inflows and margin improvement in automotive business. We roll forward our target valuation to FY13. We downgrade our target multiple to 8x (earlier 10x FY12E) on account of reduced visibility and maintain our ‘SELL’ recommendation with a reduced target price of Rs 350 (8xFY13E),” says PINC Research report.

Non-Institutions holding more than 90% in Indian cos

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