Reduce TRIL; target of Rs 124: KRChoksey

KRChoksey is bearish on Transformers and Rectifiers India (TRIL) and has recommended reduce rating on the stock with a target of Rs 124 in its November 16, 2012 research report.

“Transformers & Rectifiers India Ltd (TRIL) net sales declined by 51% to Rs. 68.5 cr. Lower volumes coupled with competitively priced orders resulted in negative EBIDTA margins. The company registered a loss at EBIDTA levels of Rs 1 cr. Interest cost and depreciation further eroded PAT as company registered a net loss of Rs.3.5 cr. Current order backlog stands at Rs 645 cr ( 21,884 MVA).”

“The company sales declined by 51.1% to Rs 68.5 cr as it sold 1,563 MVA of transformers vs 3,001 MVA in Q2FY12. As of Q2FY13 company has 1,000 MVA of finished goods as part of inventory. Adverse macro environment coupled with delay in dispatches on account of testing related approvals resulted in muted sales. TRIL reported loss at EBIDTA levels of Rs. 1 cr as fixed overheads as a percentage of sales increased sharply on account of muted sales coupled with higher raw material cost. Interest and depreciation further eroded earnings as TRIL registered net loss of Rs. 3.5 cr. Order book for TRIL stood at Rs 645 crore and 21,884 in terms of MVA. Power transformers form the chunk of the order with 86% of the order book. The order book includes an order worth Rs 204 crore (10,000 MVA) from Power Grid Corporation of India (PGCIL) for the 765 KV class of transformers. PGCIL orders are at wafer thin margins as TRIL has aggressively bid for these orders as part of its entry strategy in the higher KV class transformers.”

“Pricing pressure in the industry continues to remain a concern and has not shown any sign of easing. Current order backlog includes PGCIL 765 KV transformers order worth, which is expected to earn very low margins along with other thin margin orders. Considering the same, we recommend REDUCE on TRIL with a price target of Rs 124,” says KRChoksey research report.   

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