IPO Update: Transformers & Rectifiers India Limited

Transforming the power equation

TRIL has entered the capital markets with a public issue of 29.95 Lac shares of Rs. 10 each at a price band of Rs. 425-465 per share through book building process. Investment Guru is of the view that Power transmission and distribution is an integral part of the power sector’s growth story and Transformers play a pivotal role in this process. TRIL is one of the major players in this segment.

However, in this case too the promoters have not left much on the table for the investors as similar companies are available at same valuations in the secondary markets. One can apply for the issue with a view of moderate listing gains on listing. However, from a medium term perspective investment in peers such as Indo-tech transformers is also advisable as the company is operating on better margins.

Let’s take a look at the company

• TRIL is one of the major players in the Indian markets manufacturing a wide range of transformers ranging from power generation, transmission and distribution transformers, industrial transformers and a wide range of speciality transformers.

• TRIL manufacture transformers upto 220 kV Class, having an installed capacity of 7,200 MVA transformers per annum.

• The company currently operate through two manufacturing units, located at Changodar, near Ahmedabad and Odhav, in Ahmedabad, both in Gujarat

• Key customers include utilities and power transmission companies. The company has also exported transformers to countries such as the England, Canada, United Arab Emirates, South Africa, Saudi Arabia and Indonesia.

• Company’s business strategy is to focus on manufacturing of high capacity transformers at the proposed manufacturing facility at Moraiya since high capacity transformers command better margins.

• The company intends to leverage its relationships with the power transmission companies to take up turnkey projects for setting up sub stations.

• TRIL has a healthy order book position of Rs.319 crore as on September 1, 2007 with most of the contracts having an embedded price variation clause, shielding the company from adverse movement in prices of key raw materials like copper and steel. TRIL has strong in- house design capabilities which is a key success factor for this industry as transformers are custom built as per the requirements of the customer.

• CARE has assigned a 'CARE IPO Grade 4' to the IPO which indicates above average fundamentals.

• Power transformers constituted 77% of total sales of the company in FY07 followed by furnace transformers (13%) and others (10%). Sales to State electricity utilities constituted 51% of total sales of TRIL for FY07 with the remaining to industrial and other sectors.

• During FY07, TRIL's total income grew by 69% over FY06 on account of increase in sales volume as well as per mva realisations. The company was able to sell higher mva (80 and above) transformers in FY07 as compared to FY06, where margins are better.

• TRIL's PAT margin also improved to 7.99% in FY07 as compared to 5.8% in FY06. ROCE and RONW were high at 62% and 54% in YQ7 as compared to 42% and 43% in FY06 respectively.

• EPS for the six months ended September,2007 (annualized) is Rs. 20.4 (post issue equity) which translates into a PE multiple of 23.

• Return on Net Worth is 41.36 % for FY07.

Issue Opens : December 7, 2007
Issue closes: December 12, 2007
Registrar: Intime Spectrum

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