Reduce Transformers; target of Rs 117: KRChoksey

KRChoksey is bearish on Transformers and Rectifiers India and has recommended reduce rating on the stock with a target of Rs 117 in its January 29, 2013 research report.
 
“Transformers & Rectifiers India Ltd (TRIL) net sales increased by 17% to Rs. 112.1 cr on account of improvement in volumes and realizations. The company registered EBIDTA margins of 6% as pricing pressure continued in the industry. Interest cost and depreciation were in line with the expectation consequently company registered a NPM% of 2.8%. Current order backlog stands at Rs 600 cr ( 21,135 MVA).”
 
“The company revised downwards its sales volume guidance to 12,000 MVA. In 9MFY13 the company has sold 5,479 MVA of transformers. As of Q3 FY13, approx 2,000 MVA of transformers lying as finished goods inventory. PGCIL orders constitute ~1,000 MVA of the finished goods inventory, while approx 300 to 400 MVA are slow moving orders, where customers are deferring deliveries. In Q4Fy13 TRIL expects ~6,000 MVA of transformers sales of which~2,000 to 3,000 MVA would be 765 Kv transformers. For FY14, it has guided volumes of 20,000 MVA with average realization of Rs 3,00,000 per MVA considering mix of higher KV transformer orders in the backlog.”
 
“TRIL reported subdued EBIDTA margins of 6%. Intense pricing pressure continues in the industry. Considering low margins PGCIL 765Kv transformers order in the order book mix. TRIL has guided a 6% EBIDTA margins going ahead. It expects margin pressure to continue till H1FY14. Order book for TRIL stood at Rs 600 crore and 21,135 in terms of MVA. Power transformers form the chunk of the order with 84% of the order book. The order book includes an order worth Rs 200 crore (10,000 MVA) from Power Grid Corporation of India (PGCIL) for the 765 KV class of transformers. PGCIL order’s are at wafer thin margins as TRIL had aggressively bid for this order as part of its entry strategy in the higher KV class transformers.”
 
“Pricing pressure in the industry continues to remain a concern. 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 117,” says KRChoksey research report.

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