Recommendation from a Electric Equipment

This section gives a recommendation of a stock having a stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.[EasyDNNnews:PaidContentStart]

TRANSFORMERS AND RECTIFIERS (INDIA): POWERED TO PERFORM

HERE IS WHY

✓Leading transformer manufacturer
✓Ambitious expansion plans
✓Favourable growth prospects

I ndia’s capital goods’ manufacturing industry plays a crucial role in various sectors, including engineering, construction, infrastructure and consumer products. The engineering sector, which is the largest industrial sector in India, accounts for 27 per cent of factories and 63 per cent of foreign collaborations. In the Union Budget 2023-24, the government committed ₹10 lakh crore (USD 120 billion) towards infrastructure capital expenditure compared to ₹7.5 lakh crore (USD 90 billion) during 2022-23.

The Indian electrical equipment industry comprises two segments: generation equipment (boilers, turbines, generators) and transmission and distribution and allied equipment. The generator sets market is expected to grow at a CAGR of over 5 per cent from 2020-2025 while the power transformer market is expected to rise at a CAGR of over 3 per cent from 2020-25. 

Taking all this into account, our low price scrip for this issue is Transformers and Rectifiers (India) Ltd. TRIL, a leading domestic transformer manufacturer in India, has an installed capacity of 33,200 MVA across three units in Odhav, Changodar and Moraiya, Gujarat. The company offers a wide range of transformers, including power, distribution, furnace, rectifier transformers and shunt reactors, suitable for various sectors. TRIL has partnerships with Zaporozhtransformator (ZTR) in Ukraine, Fuji Electrical Company Limited in Japan and Jiangsu Jingke Smart Electric Company Limited in China for switchgear and switch panel supply. 

In Q4FY23, TRIL’s consolidated revenue rose by 27.34 per cent YoY to ₹433.75 crore compared to ₹340.62 crore and sequentially increased by 32.12 per cent. PBIDT, excluding other income, increased by 104.01 per cent to ₹33.05 crore as compared to ₹16.20 crore from the same quarter previous year and sequentially increased by 5.12 per cent. The increase in PBIDT excluding other income was driven by higher sales and improved operating margins. Its net profit stood at ₹9.60 crore compared to ₹37 lakhs, an increase of 2,494.59 per cent and sequentially decreased by 32 per cent. 

The PBIDT excluding other income margins increased by 286 bps YoY and decreased by 196 bps QoQ and stood at 7.62 per cent. The net profit margin grew by 210 bps YoY and decreased by 209 bps, standing at 2.21 per cent. At TTM, Transformers and Rectifiers (India) is trading at a PE of 30.2 times, which is slightly higher than its three-year median PE. The company has maintained a three-year ROE and ROCE of 5.81 per cent and 10.4 per cent, respectively. It has a three-year compounded sales and profit growth of 367 per cent and 25 per cent, respectively. The company’s debt-toequity is 0.84 times with an interest coverage ratio of 2.19 times. 

In our opinion, TRIL’s growth prospects are favourable. In Q1FY24, the business received further orders, bringing the order book to ₹1,980 crore. These orders are typically carried out over a three to 15-month period. The firm is wellpositioned to gain from India’s rapidly expanding economy and rising electricity demand. TRIL’s products will benefit from the government’s investments in renewable energy projects and energyefficient transformers. The company’s ambitions to expand its export markets and create new products to fulfil customer requirements will help to maintain its competitive advantage and increase its market share. Considering all these factors, we recommend BUY.

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