Diamond Is Forever - TRF

In a vacillating market, seeking out a viscid srcip that can withstand the passing rough and tumble and also offer good returns holds the key for equity investors. This can only happen if the company stands on the bedrock of strong fundamentals. TRF is a counter that satisfies this lookout criterion.

TRF designs, manufactures, supplies and installs bulk-handling equipment and systems. Established in 1962, Tata Robins Fraser renamed TRF in 1984 was a joint venture of Tata Steel, Robins Engineers and ACC. It was started with the objective of meeting the in-house bulk handling requirements of Tata Steel. But, over time TRF expanded its operations and executed contracts for other steel and power plants. It later expanded operations, which included port, yard equipment and EPC divisions. These have now been bifurcated into two divisions, namely, bulk material handling division or product division and project division or EPC division. The latter undertakes turnkey projects. Currently, TRF caters to sectors like steel, power, mining and port. Its product portfolio comprises a diverse range including mining vehicles, crushers, shuttle conveyors, conveyor components, shipyard cranes and vibro feeders. TRF specializes in the manufacture of customized products to meet customer's specific needs. As such, it is in a position to command higher margins.

What makes this counter further attractive is the management's long-term initiatives. It has laid down Vision 2013, which looks at five-fold growth in five years to become a Rs 2,500 crore company and a leader in material-handling equipment, processes and systems. TRF is also exploring overseas opportunities and is currently working on a turnkey project for Oman-based Saheed Iron and Steel. TRF is not averse to inorganic growth. It acquired 51 per cent stake for Rs 44.65 crore in the last fiscal, through its Singapore subsidiary, in York Transport Equipment (Asia), a company that manufactures trailers and trailer axles with bases in Singapore, China and Australia. Its products are sold in 27 countries, including India, under the brand names of Rednet and York. This acquisition has given to TRF the much-needed access to international market and also to newer products and technology. This would help it to push up its growth briskly.

TRF has also begun cost management and outcome of this is already visible in its operating margin, which has increased by 824 basis points in the last three years. Its net margins have also gone up by 954 basis points, helped also by declined interest cost in that period. TRF has pulled off this growth despite stiff competition. It has good orders in hand and as on March 31, 2008, its total order-book stood at Rs 881.31 crore, which is two times its FY08 sales. For investors, TRF has consistently offered good returns. It has paid dividend in the last 18 years. In FY08, it gave 100 per cent dividend. The only concern for this company is that its debtors in terms of per cent of total sales is quite high, at 60 per cent, and this has been more or less the trend in the last four years. But, TRF's annual report mentions these debtors as good. In FY08, TRF's topline grew marginally 4.50 per cent to Rs 362.85 crore (Rs 347.20 crore), while bottomline grew 109.07 per cent to Rs 42.17 crore from Rs 20.17 crore. Of these, the project segment contributed Rs 297.82 crore to the topline, while the balance, Rs 65.02 crore, came from its product segment. As far as profits are concerned, TRF's product business enjoys better margins than its project business. On the valuation front, at FY08 profits, TRF gives an EPS of Rs 76.67, thereby resulting into an attractive PE of 8.35x. Its market cap-to-sales ratio  shows it to be an undervalued counter at 0.78x its FY08 sales. So, considering the fact that the counter has already corrected 69.5 per cent from its January peak, there is limited down side for TRF. At the present valuation, the scrip is good for long-term grab. Looking at the present market conditions, we would suggest you to buy in small quantity.