Transformers and Rectifiers India faces execution delays despite record order book growth

Investment View and Valuation

ICICI Direct Research downgraded Transformers and Rectifiers India Limited (TARIL) to REDUCE from HOLD in its July 22, 2026 result update. The downgrade reflects constrained near-term execution despite strong long-term demand conditions and a record order book. The brokerage has set a target price of Rs 291, based on 21 times FY28E EPS, compared with the current market price of Rs 312.

Business Profile and End-Market Exposure

TARIL manufactures transformers up to the 1,200 kV class, including power and distribution transformers, furnace transformers, rectifier transformers and special transformers. Utilities, including state electricity boards, PGCIL and Railways, contribute 45 per cent of revenue. Industrial customers, renewables, exports and third-party exports account for the remaining 55 per cent.

Q1 FY27 Financial Performance

TARIL reported muted operating performance in Q1 FY27. Revenue increased 8.1 per cent year-on-year to Rs 572.3 crore from Rs 529.3 crore in Q1 FY26, affected by lower utilisation at the Changodar plant during expansion activity. EBITDA rose 5.8 per cent year-on-year to Rs 93.3 crore, while EBITDA margin declined to 16.3 per cent from 16.7 per cent. PAT fell 4.7 per cent year-on-year to Rs 64.3 crore, and PAT margin contracted to 11.2 per cent from 12.7 per cent.

ICICI Direct attributes the weaker revenue conversion to temporary execution disruption at Changodar rather than a shortage of demand.

Record Order Book and Revenue Visibility

Order inflows were a key positive. TARIL secured Rs 2,114 crore of orders in Q1 FY27, up 218 per cent year-on-year, taking its unexecuted order book to a record Rs 6,630 crore. The order book increased 26 per cent year-on-year and is equivalent to about 2.6 times FY26 revenue, providing revenue visibility for the next 18 to 24 months.

The company has Rs 23,000 crore of enquiries under negotiation and has historically achieved a 10 to 15 per cent bid win ratio. It targets an 80:20 domestic-export order mix, while its customer base remains balanced between government and private utilities and industrial customers.

Management Guidance and Capacity Expansion

Management has revised FY27 revenue growth guidance to about 25 per cent year-on-year from its earlier expectation of about 30 per cent growth, implying revenue of about Rs 3,250 crore. Execution is expected to improve after completion of the Changodar expansion in August 2026. EBITDA margin guidance is maintained at about 16 per cent, while FY27 PAT margin is expected at 9 to 10 per cent.

Management stated that existing and expanded facilities are sufficient to execute the current backlog. The expanded manufacturing capacity can support annual revenue of Rs 5,000 crore to Rs 6,000 crore without major capacity bottlenecks.

Backward Integration Programme

The Rs 900 crore to Rs 1,000 crore backward-integration programme, covering CTC, pressboard, bushings and fabrication, remains on track for phased commissioning through Q1 FY28. Management expects these facilities to meet 80 to 85 per cent of raw-material requirements internally, improve supply-chain reliability and enable a 200 to 300 basis point margin improvement from FY28.

After meeting captive requirements, 35 to 40 per cent of production could be sold externally, creating a medium-term annual third-party revenue opportunity of Rs 800 crore to Rs 1,000 crore. Inventory has been deliberately increased to secure raw materials through December 2026 amid geopolitical and supply-chain risks. Management expects working capital to improve gradually as backward integration ramps up.

ICICI Direct Financial Estimates

ICICI Direct forecasts revenue to increase from Rs 2,509 crore in FY26 to Rs 3,062 crore in FY27E and Rs 3,871 crore in FY28E, representing a FY26-FY28E CAGR of 24.2 per cent. The brokerage estimates EBITDA of Rs 482 crore in FY27E and Rs 622 crore in FY28E, with margins of 15.7 per cent and 16.1 per cent, respectively. PAT is forecast at Rs 309 crore and Rs 416 crore, implying a 23.6 per cent PAT CAGR.

Key Monitors and Risks

ICICI Direct considers timely order execution, improved capacity utilisation and commissioning of backward integration to be the key monitoring factors.

• Order inflows: Lower-than-expected order inflows could affect revenue visibility and growth.
• Production costs: Higher production costs could put pressure on margins.