Winner of the best equipment supplier award from GETCO (Gujarat Energy Transmission Corporation Ltd) for the last 4 years, recipient of the most valuable customer award by Central Power Research Institute and the Forbes Asia`s 200 best under a billion award in 2010.

TRIL (Transformers and Rectifiers India Ltd) has installed over 7000 transformers (power, distribution, furnace and rectifier transformers) till date and has the capability to manufacture up to 1000 kVA transformers.

The company has 3 manufacturing facilities in Odhav, Changodar and Moraiya, all in Gujarat. The company came out with its IPO in the year 2008 to raise funds for its Moraiya facility. Moraiya is a state of the art facility with an annual capacity of 16,000 MVA and the capability to test and manufacture 765 kV class transformers.

An Elite Group

While the research available on the Indian transformer industry is nebulous, it is likely that TRIL is a part of an elite group of companies that have the capability to produce EHV (extra high voltage) transformers. The domestic players with this capability include Vijai Electricals, Crompton Greaves and BHEL while Alstom, Siemens and ABB are the international players with Indian manufacturing having the same capability.

http://www.business-standard.com/article/companies/transformers-and-rectifiers-sets-up-rs-100-cr-mfg-facility-109053000045_1.html

http://www.electricalmonitor.com/ArticleDetails.aspx?aid=1608&sid=7

Tie ups with ZTR and PGCIL

TRIL has tied up with a Ukrainian company, ZTR (Zaporozhtransformator), to manufacture EHV transformers and has a MOU with Power Grid Corporation of India (PGCIL) to develop 1200 MVA transformers.

http://ztr.com.ua/en/news?n_id=183

The tie up with ZTR does not seem to be an exclusive one since ZTR is simultaneously working with Crompton Greaves Ltd in the transformer segment.

http://www.ztr.com.ua/en/news?n_id=282

http://www.moneycontrol.com/news/announcements/tr-commissions-3-units-formingbank1500-mva-765-kv-transformers-at-nellore_1053364.html

3 of the 20 nos of 765 kV class transformers have been successfully tested and commissioned at Power Grid`s Nellore sub-station. This was a part of the Rs 204 Crs order that the company received from PGCIL to supply 10,000 MVA worth of 765 kV class transformers (20 nos of 500 MVA each).

India Transformer Manufacturing Capacity

http://www.electricalmonitor.com/ArticleDetails.aspx?aid=1608&sid=7

As per the above article

” Transformer manufacturing capacity in India stands at ~370 GVA with capacity utilization rates hovering around 60-70 per cent on an average over the last five years”

TRIL has an installed capacity of 23,200 MVA and for the year 2013-14, has been able to achieve its highest ever production of 20,650 MVA.

http://www.moneycontrol.com/stocks/stock_market/corp_notices.php?autono=785799

This would mean that TRIL has been able to achieve a 90% capacity utilization, far higher than the industry norm. While it is very much possible that the main reason for this achievement is the 10,000 MVA Power Grid, which was obtained at wafer thin margins, nonetheless, this is a significant achievement at a time when order growth in the power sector has been sluggish.

Promoter Profile and Shareholding

The Mamotra family, led by Mr Jitendra Mamotra, who has more than 40 years of experience in the transformer industry, has been running the company since 1981. Their current shareholding stands at 75%. For FY 2012-13, the Mamotra family took home a salary of Rs 1.2 Crs.

Mr Jitendra Mamotra is the company`s CMD and mascot. Some links with his interviews and views about the Indian transformer industry are below

http://articles.economictimes.indiatimes.com/2011-10-08/news/30258161_1_jitendra-mamtora-transformers-rectifiers-mva

http://www.electricalmonitor.com/6thanniversary/EM_January%202012%20(6th%20Anniversary)00032.html

Financials and Valuation Rationale

With total debt of just Rs 100 Crs, market cap of Rs 250 Crs, the company trades at a puny enterprise value of Rs 350 Crs. Moreover, the company is sitting on a working capital of Rs 270 Crs, making it a net-net (working capital>market cap). With accounts receivables at Rs 230 Crs, the only concern is that a high proportion (most likely greater than 60%) of these receivables will be from State Electricity Boards which are sitting on huge debts and have a poor record of paying vendors on-time.

For the sake of comparison, Voltamp Transformer, a profit making transformer manufacturer with revenues very similar to TRIL (both are at around Rs 550 Crs)  minus the extra high voltage capability of TRIL trades at Rs 740 Crs and a P/BV of 1.7x (TRIL trades at a P/BV of 0.7).

Vijai Electricals, a Hyderabad based company, with the capability to produce 1200 kV EHV transformers, has just been acquired by Toshiba for Rs 1300 Crs, in spite of the fact that the company is mired in Corporate Debt Restructuring (CDR) of Rs 1000 Crs and has a total debt exposure of Rs 2200 Crs.

http://www.vccircle.com/news/engineering/2013/09/10/3i-backed-vijai-electricals-sell-bulk-td-business-toshiba-200m

Click to access 032412_02.pdf

Since Vijai Electricals is not publicly listed, it is harder to obtain the required financial data. We can conservatively estimate the company`s revenues to be around Rs 1500-2000 Crs.

http://www.business-standard.com/article/companies/vijai-electricals-setting-up-plant-in-mexico-111071800009_1.html

When compared to its peers, TRIL`s market cap of Rs 250 Crs seems insignificant for a company that can produce 765 kV transformers.

The company came out with its IPO in 2008 at a price band of Rs 420-465. The current market price is Rs 188/share, a substantial discount from IPO levels.

Chinese Threat

The Chinese dragon poses the biggest threat to Indian transformer manufacturers.

http://www.business-standard.com/article/companies/indian-transformer-makers-may-face-chinese-competition-111072800017_1.html

As per the above article

“Chinese companies are posing a major threat for Indian companies. Chinese players have lower production cost. Also, the top three transformers makers in China hold a combined manufacturing capacity of about 350,000 MVA, more than the India’s total capacity”

http://www.thehindubusinessline.com/industry-and-economy/power-gear-orders-pick-up-but-competition-hits-players/article3439569.ece

“In the transformer space, it appeared that the Chinese were less aggressive for a good part of FY-12. But they more than made up for their absence in the last quarter, bagging close to 40 per cent of the transformer orders awarded by PGCIL. Interestingly, the Chinese went for the kill in the high-end (also higher-margin) 765-KV transformer space.”

BUY Recommendation

Inspite of the problems associated with Chinese competition and uncollected receivables from discoms, TRIL is a real multi-bagger. The company has reported revenues of Rs 515 Crs and a near loss bottomline, TRIL`s performance has virtually bottomed out. With the new government at the center expected to improve the prospects of the power sector and PGCIL expected to come out with large orders for EHV transformers, TRIL can easily reach 100% capacity utilization levels and double revenues in the next 2-3 years. Rs 1000 Crs of expected revenue and 10% expected PAT margins, the company can expect a P/E valuation of 15x, taking its market cap to Rs 1500 Crs, a 6 fold increase from current valuations.

Disclosure : I hold stake in TRIL bought at Rs 250/share (after bonus issue) and will be adding more at current levels