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SECTOR REPORT

Transformer Industry 03 Feb, 2010 TRIL CMP

415

Target Price

468

VTL CMP Target Price

905 1051

We believe investments in T&D infrastructure will drive growth for Transformer industry. We initiate coverage on Transformers & Rectifiers India Ltd (TRIL), and Voltamp Transformers Ltd (VTL). We recommend a Buy at Decline on TRIL with a price target of INR468 and BUY for VTL with a price target of INR1051.

Investment Thesis India has set for itself ambitious targets of investments in the power sector, in view of the significant power deficit and sustaining the economic growth momentum. The momentum of capacity addition is expected to improve in the later half of the Eleventh Plan and continue at a higher rate during the Twelfth Plan, with large capacity additions lined up by the private sector. Investments of INR3.5 trillion and INR4.7 trillion are expected in the power sector during the eleventh and twelfth five-year plan periods, respectively. Capacity addition of 54,000MW is expected during the eleventh plan and ~1,00,000MW is planned for the twelfth plan periods. With huge power plants coming up, the need for transmission will drive demand for transformers. Significant opportunities are present in 400 Kv, 220 Kv and 132 Kv classes; ~33,878 ckm of 400KV, 26,510 ckm of 220 Kv, 19,708 ckm of 132 Kv and 8,671 ckm of 66 Kv transmission lines are expected to be added by the end of the eleventh plan period, which would need step-up/down transformers. Power Grid Corporation of India (PGCIL) plans to increase interregional transmission capacity (national grid) from 16,450 MW in 2007 to 37,150 MW by 2012, a CAGR of 18% over 2007-12. Moreover, power sector reforms such as APDRP and RGGVY have thrown up opportunities for the industry and TRIL. Approximately 97,456 MVA of transformer capacity was added during 1983-87 and 238,150 MVA during 1987-91. As average life of a transformer is 25 years they are expected to be replaced during the eleventh and twelfth plan periods. Thus, significant capacity addition during the eleventh and twelfth plan periods, focus on transmission and distribution along with replacement demand will present significant opportunities for Transformer manufacturers. We initiate coverage on Transformers & Rectifiers India Ltd (TRIL), and Voltamp Transformers Ltd (VTL). TRIL: At CMP of INR415, TRIL is trading at a P/E of 10x its FY11E and 8.9x its FY12E earnings. Looking at opportunities that lie in the power sector, TRIL’s capabilities in 400Kv class category, its annual capacity of 23,200 MVA and strong order book we assign a P/E multiple of 10x to its FY12E earnings and recommend a “Buy at Decline” on the stock with a price target of INR 468. VTL: As significant portion of balance sheet constitutes of investments, we have valued core (transformer) business separately and then added investments per share. We have assigned a P/E of 10x to Voltamp’s core (transformers) business earnings of INR 70 (FY12E) to arrive at value per share of INR 700. Considering investments per share of INR351 (FY12E) and core business value of INR700/share, we initiate coverage on Voltamp Transformer Limited with a “BUY” recommendation and a price target of INR1051.

Analyst Chinmay Gandre research@acm.co.in Tel: (022) 2858 3407 Transformer Industry

ACMIIL




SECTOR REPORT Power industry â—? Demand/supply scenario Power demand increased at a 5% CAGR to 700 billion Kwh in 2007-08 from 410 billion Kwh in 1996-97. However, supply remains a concern. Supply rose to 650 billion Kwh in 2007-08, from 360 billion Kwh in 1996-97.

Supply

2007-08

2006-07

2005-06

2004-05

2003-04

2002-03

2001-02

2000-01

1999-00

1998-99

1997-98

1996-97

1995-96

1994-95

1993-94

1992-93

(billion Kwh)

1991-92

700 650 600 550 500 450 400 350 300 250 200

Demand

Source: CRISIL

Expected capacity addition of ~54,000 MW in the eleventh plan and Target capacity addition of 1,00,000 MW for the twelfth plan

Demand is estimated to grow at 7% and 8% CAGR in the eleventh and twelfth five-year plan periods, respectively, which would be catered to by new capacity additions. In line with the power requirements of the country, GoI is targeting capacity additions of 70,000MW and 100,000MW in the eleventh and twelfth five-year plan periods, respectively. However, looking at the trend of actual capacity additions, ~54,000MW is expected to be added during the eleventh five-year plan period. Planned Vs Actual Capacity Addition

MW

100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0

1980-85

1985-90

1992-97 1997-02 2002-07 Target Actual

2007-12E

2012-2017E

Source: CRISIL, ACMIIL Research

â—? Deficit is expected to continue

Power deficit expected to continue in eleventh plan

Power deficit was ~10% in 2007-08. Despite the estimated addition of ~54,000MW in the eleventh five-year plan period, the deficit would continue. However, a balanced scenario is expected by the end of twelfth five-year plan period.

Transformer Industry

ACMIIL




SECTOR REPORT Per cent

Bn Kwh 1600

2%

1400

0

1200

-2%

1000

-4%

800

-6%

600 400

-8%

200

-10%

0.0

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Requirement

Availability

-12%

Surplus (deficit) percent

Source: CRISIL Research

â—? Investments in the power sector Investments in the power sector are expected to grow at a 7% CAGR to INR3.5 trillion in the eleventh five-year plan period, a huge rise from the last few five year plans. A large share of investment, ~INR2.2 trillion, could be in generation, followed by INR0.9 trillion and INR0.4 trillion in distribution and transmission, respectively. â—? Investment in transmission Transmission is split into transmission lines and substation, with each accounting for 50% of the cost. Transformers form a major component of substation and account for around 30% of the cost, while switchgears account for nearly 40%. Transmission

Transformers accounts for ~30% of the substation component cost

Transmission Line (50%) Transmission Line Towers (TLT) (35%)

Substation component (50%) Conducters (45%)

Others (20%)

Transformers (30%)

Switchgears, circuit breakers, SCADA, etc (40%)

Others (30%)

Source: CRISIL

Transformer Industry

ACMIIL




SECTOR REPORT Transformer Industry Overview The power sector value chain comprises generation, transmission and distribution (T&D). Electricity generated at a power plant is transmitted to the nearest grid via step-up transformers and then to the state grid (via step-up or step-down transformers). Then it is transmitted to a power substation via step-down transformers. Finally, distribution transformers are used to transmit power from the sub-transmission point to end consumers. Transmission line towers (TLT)

Power generating station [1.1 kv-33 kv]

Transmission line towers (TLT)

Distribution Transformer [33kv-220kv]

Step up transformer [220kv-765kv]

Receiving substation [220kv-765kv]

Step down power Transformer [33kv-220kv]

Step down power Transformer [330kv-220kv]

End Users [Residential/ commercial users] Source: CRISIL

Power transformers account for 70-75% of the total installed capacity while distribution transformer accounts for the remaining 20-25%. In the power transformer segment, step-down transformers account for 75-80% of the total installed capacity while step-up transformers account for the rest.

Demand – Supply ● Demand Installed transformer capacity on the grid has increased at a 6% CAGR to 1,019,283 MVA in 2007 from 467,517 MVA in 1994. Power generation capacity grew to 132,329 MW in 2007, from 76,754 MW in 1994. Thus, for addition of each MW in generation, ~7 MVA of transformer capacity was added on the grid. MVA per MW increased from 6 MVA per MW in 1994 to 7.7 MVA per MW in 2007 and is expected to increase further given the Government of India’s (GoI) increased focus on transmission and distribution to reduce transmission losses. Year

Transformer Capacity

Total Power capacity (MW)

MVA per MW

installed on the Grid (MVA) 1994

467,517

76,754

6.09

1995

493,793

81,172

6.08

1996

511,432

83,295

6.14

1997

497,412

85,796

5.80

1998

580,319

89,103

6.51

1999

584,095

93,416

6.25

2000

655,962

97,948

6.70

2001

649,455

101,997

6.37

2002

687,646

105,112

6.54

2003

725,837

108,085

6.72

2004

759,240

112,171

6.77

2005

906,107

114,164

7.94

2006

965,198

124,287

7.77

2007

1,019,283

132,329

7.70

Source: ACMIIL Research, CRISIL

Transformer Industry

ACMIIL




SECTOR REPORT Demand for transformers includes fresh demand (i.e. ~7MVA per MW) and replacement demand, as average life of a transformer is 25 years.

Demand for Transformers

Capacity Addition

Replacement Demand

Fresh Demand

Development of new Industrial areas -Sez's -Industrial Belt, etc

Policies Development of National Grid RGGVY APDRP

Export Demand

Source: ACMIIIL Research Note: RGGVY: Rajiv Gandhi Grameen Vidyutikaran Yojana, APDRP: Accelerated Power Development & Reforms Programme

Eleventh five-year plan Capacity of ~54,000MW is expected to be added in the eleventh five-year plan period. This translates into incremental demand of ~415,353 MVA for transformers. The average life of a transformer is 25 years, which means that transformers installed during 1982-83 to 1986-87 would be due for replacement in the eleventh five-year plan period. Around 97,456 MVA of transformer capacity was added during 1982-83 to 1986-87. Thus, demand of ~ 512,809 MVA of transformer capacity is expected during the eleventh five-year plan period. In addition, ~12,000 to 15,000 MVA of transformers are exported every year. Demand for transformers - 11th five year plan Year

Total Generation Capacity (MW)

Generation addition (MW)

2008

143,061

2009 2010E

Transformer Capacity required (MVA)

Fresh demand for Transformer (MVA)

Replacement demand (MVA)

Transformer Demand (MVA)

10,732

1,101,570

82,287

19,491

101,778

147,965

4,904

1,139,334

37,764

19,491

57,255

158,030

10,065

1,216,834

77,501

19,491

96,992

2011E

171,933

13,903

1,323,887

107,053

19,491

126,544

2012E

186,316

14,383

1,434,636

110,749

19,491

130,240

415,353

97,456

512,809

Total Source: CRISIL, ACMIIL Research

Twelfth five-year plan Assuming that ~65,000 MW of capacity would be added during the twelfth fiveyear plan period, incremental demand of 500,500 MVA and replacement demand of 238,150 MVA is expected. Particulars

12th plan

Capacity Addition (MW) Expected Demand of Transformers - MVA

65,000 MW New

Replacement

Total

Power Transformer

370,371

209,359

579,730

Distribution Transformer

130,129

28,791

158,920

500,500

238,150

738,650

Total Demand Source: ACMIIL Research, CRISIL

â—? Supply Over the past four years, organized players have accounted for 80-85% of production of transformers in India. These players increased their capacity from 97,787 MVA in FY06 to 152,065 MVA in FY09 to tap demand and grab the opportunity arising from the demand-supply mismatch. Installed capacity of these players currently stands at 172,065 MVA.

Transformer Industry

ACMIIL




SECTOR REPORT Top 10 players (Organized sector) Particulars (MVA)

FY06

FY07

FY08

FY09

Current capacity

Capacity

97,787

113,360

144,190

152,065

172,065

Production

68,008

90,810

107,723

122,487

NA

69.5

80.1

74.7

80.5

NA

Utilization level Source: ACMIIL Research

Considering the expansion projects under implementation, an additional capacity of ~40,000 MVA is expected by the end of the eleventh plan period, which would take the total capacity to ~2,10,000 MVA p.a. Thus installed capacity should be sufficient to cater to the demand for transformers.

Peer group profile ● Fragmented industry with ~10 to 12 organized players The Indian transformer industry (including un organized players) was estimated to be around INR80 billion as of FY08. The industry is fragmented with only a few organized players such as BHEL, ABB, Crompton Greaves, Areva T&D, EMCO, Bharat Bijlee, Indo Tech Transformers Ltd, Voltamp, Vijai Electricals, TRIL, and IMP Powers. Market share of organised players is to be approximately 80-85% per cent. ● Product Profile – Primary presence in up to 220 Kv class In the power transformer category, companies in the high-end segment (400 KV and above) mainly include international players such as ABB, Areva T&D India, and Siemens and Indian manufacturers such as BHEL, Crompton Greaves, TRIL and Vijai Electricals. Most other players are present in up to 220 Kv and in distribution transformers. Particulars

Power Transformers Up to 220 Kv

Emco Ltd Bharat Bijlee Ltd Indo Tech Transformers Ltd Voltamp Transformers Ltd Vijai Electricals TRIL

ü ü ü ü ü ü

220 Kv to 400 Kv

Distribution Transformers

400 Kv & above -

-

-

ü

-

-

-

ü ü

ü ü

ü ü ü ü ü ü

Source: CRISIL

● Significant capacity expansion Large players such as BHEL, ABB, Areva T&D, Crompton Greaves, and Siemens have capacity of more than 15,000 MVA p.a. However, they are diversified power equipment players and the transformer segment is not a major revenue contributor. Among players who primarily manufacture transformers, TRIL is the largest by capacity followed by EMCO, Vijai Electrics, Voltamp, and Bharat Bijlee. Most players have significantly expanded capacity to tap demand. Over the past four years, capacity utilization has improved to 80%, on the back of strong demand and as expansion projects were under construction for majority of the companies.

Transformer Industry

ACMIIL




SECTOR REPORT Particulars – MVA

Voltamp

TRIL

Bharat Bijlee

EMCO

Indo tech

ABB

Crompton Greaves

BHEL

Areva T&D

Vijai Electrics

Top 10 players

FY06

FY07

FY08

FY09

Capacity

5,400

7,200

9,000

Production

4,503

6,188

7,898

9,000 (13,000-Current Capacity) 9,541

Utilization

83.4

85.9

87.8

106.0 7,200 (23,200 –Current capacity)

Capacity

5,400

7,200

7,200

Production

3,780

5,040

5,763

7,248

Utilization

70.0

70.0

80.0

100.7

Capacity

8,000

8,000

8,000

11,000

Production

4,019

6,359

8,111

7,589

Utilization

50.2

79.5

101.4

69.0

Capacity

10,000

10,000

20,000

20,000

Production

7,443

8,406

10,743

10,946

Utilization

74.4

84.1

53.7

54.7

Capacity

2,450

3,350

7,450

7,450

Production

1,843

2,298

2,783

3,101

Utilization

75.2

68.6

37.4

41.6

Capacity

10,000

12,000

12,000

16,875

Production

5,555

8,127

8,944

15,151

Utilization

55.6

67.7

74.5

89.8

Capacity

23,404

25,970

24,670

24,670

Production

14,381

18,895

22,765

23,405

Utilization

61.4

72.8

92.3

94.9

Capacity

16,000

17,500

20,500

20,500

Production

14,847

18,783

17,960

21,704

Utilization

92.8

107.3

87.6

105.9

Capacity

8,500

9,000

15,000

15,000

Production

5,588

8,450

12,075

14,635

Utilization

65.7

93.9

80.5

97.6

Capacity

8,633

13,140

20,370

20,370

Production

6,049

8,264

10,681

9,167

Utilization

70.1

62.9

52.4

45.0

Capacity

97,787

113,360

144,190

152,065

Production

68,008

90,810

107,723

122,487

Utilization

69.5

80.1

74.7

80.5

Source: ACMIIL Research

Currently, BHEL and Areva T&D are undertaking capacity expansion of 25,000 MVA and 15,000 MVA, respectively, which would be commissioned by the end of the eleventh five year plan. Going forward, it appears unlikely that companies would undertake new projects given that significant capacity has built up in the industry. ● Order Book – Revenue visibility of 6 to 9 months Most transformer manufacturers have a strong order book, with revenue visibility of 6 to 9 months. Companies such as TRIL and EMCO, which have doubled capacity to 20,000 MVA and above, have been successful attracting in incremental orders. Particulars

Voltamp

TRIL

Order book Q2 FY10 (INR Mn)

4,510

4,491

Order book Q2 FY10 (MVA)

8,110 0.87

Order book to TTM Sales

Bharat Bijlee

EMCO

Indo tech

3,919

5,440

700

10,200

NA

11,700

NA

1.10

0.72

0.56

0.56

Source: ACMIIL Research

Transformer Industry

ACMIIL




SECTOR REPORT The industry is typically characterized by high revenue growth, healthy return ratios, and negligible debt Particulars Net Sales

Voltamp

TRIL

Bharat Bijlee

EMCO

Indo tech

6,430.6

4,305.0

5,447.0

9,962.6

2,067.4

Sales CAGR FY06-09

37.2

48.7

21.9

35.0

30.7

OPM

23.3

15.7

15.1

13.9

29.2

NPM

17.9

10.5

8.8

5.3

18.8

EPS CAGR FY06-09

70.8

46.1

12.4

21.8

49.4

D/E

0.0

0.2

0.1

0.8

0.1

RONW

43.4

18.2

24.0

12.1

26.6

ROCE

64.0

24.2

36.2

17.4

40.0

Source: ACMIIL Research

● Over the past three years, the industry has recorded strong sales growth CAGR of more than 30% back by demand and rise in commodity prices. ● Over the years operating margins have also improved owing to strong demand and limited supply (as capacity expansion plans were under construction during the period). ● The industry is characterized by healthy return ratios. Players such as Voltamp have outperformed the industry with ROCE and RONW in excess of 40% owing to focus on the industrial segment. Voltamp sold customized products to industrial clients, which fetched better margins. It also enjoyed lower working capital requirement on account of faster recovery of dues from industrial clients. ●

Most players have negligible debt as well as investments in liquid funds.

Transformer Industry

ACMIIL




SECTOR REPORT BUYatDecl i n e Key Data

(INR)

CMP

415

Target Price

468

Key Data Bloomberg Code Reuters Code

TRIL IN TRNF.BO

BSE Code

532928

NSE Code

TRIL

Face Value (INR) Market Cap. (INR Mn.)

10 5221

52 Week High (INR)

459

52 Week Low (INR)

102.6

Avg. Daily Volume (6m)

23267

Shareholding Promoters

Transformers & Rectifiers India Ltd Transformers & Rectifiers India Ltd (TRIL), incorporated in 1994, manufactures power, distribution, furnace and specialty transformers. The company has three manufacturing facilities in Changodhar, Odhav and Moraiya. Currently, it has the second-largest installed capacity (23,200 MVA) in India. SEBs and utility companies comprise ~70% of its clients. TRIL’s current order book (Q3FY10) stands at INR3,732 million, ~0.85x TTM sales. Product Range TRIL primarily manufactures power transformers. In this segment company has capability to manufacture 220 kv as well as 400 Kv class transformers. Recently, it successfully executed an order for supply of 400 Kv transformers to LANCO. The company also produces distribution and industrial transformers.

Types of Transformers

% 76.8

FII

2.0

DII

4.6

Others

16.7

Total

100

Power Transformers

Distribution Transformers

Furnace Transformers

Rectifier Transformers

5 MVA to 160 MVA/400KV

160 KVA & above, upto 33KV class

105 KA

Upto 160KA DC

Source: Company, CRISIL

Facilities TRIL has three manufacturing units in Moraiya, Odhav and Changodar near Ahmedabad, Gujarat. It started a new facility with an annual capacity of 16000 MV p.a. in Moraiya in May 2009. As a result, the total annual capacity has increased to 23,200 MVA from 7,200 MVA in FY09. For FY10, TRIL expects production of 3,000-4,000 MVA from this plant. The plants in Moraiya and Changodar primarily manufacture power transformers, while Odhav produces distribution transformers. Particulars

Annual Capacity

Built-up area

Moraiya

16,000 MVA

14,000 Sq. M

Changodar

6,000 MVA

7,200 Sq. M

Odhav

1,200 MVA

600 Sq. M

Capability Production and testing of 765 kV Transformers Production and testing of 245 kV Transformers, up to 160 MVA. Production and testing of transformers up to 66 kV, up to 15 MVA

Source: Company

Order book â—? Order book growth The order book grew from INR3,398 million in FY08 to INR3,732 million in 3Q FY10. The MVA order book increased from 6350 MVA in FY08 to 9095 MVA in 3Q FY10. Order intake increased sharply during 1Q FY10 as the same period also saw Moraiya facility coming on stream. The current order book of INR3732 million is ~0.85x TTM sales and provides revenue visibility for six to nine months. Transformer Industry

ACMIIL




SECTOR REPORT Order book

12,000

10,728

10,000

Current order book of INR3732 million is ~0.85x TTM sales and provides revenue visibility for six to nine months

8,000 6,000

10,200

9,229 7,240

6,350

7,093

3,837

3,830

Q1 FY09

Q2 FY09

4,000 3,398

9,095

7,134

3,888

4,574

4,892

4,491

Q1 FY10

Q2 FY10

3,732

2,000 0

FY08

Q3FY09 INR Mn

Q4 FY09

Q3 FY10

MVA

Source: Company

Majority of orders are of 120 Kv and 220 Kv

â—? Order book break up Over the past three quarters, power transformer orders have been in excess of 70% of the total order book. By transformer class, majority of orders are for 120 Kv and 220 Kv.

Order Book Break up (Q3 FY 10)

Order Book-Transformer Class >36 KV & <72.5 KV 2%

Export 4% Furnace & Rectifier 6%

Power 85%

Distribution 5%

>72.5 KV & <145 KV 32%

<36 KV 15%

>245 KV 1%

>145 KV & <245 KV 50%

Source: Company

Capex TRIL undertook capex of INR700 million for the 16,000 MVA green field facility in Moraiya. The project was primarily funded through proceeds from an IPO during FY08. TRIL started the facility in May 2009; with this, the company has more than tripled its production capacity to 23,200 MVA p.a. TRIL has no further capex plans in the near term.

Transformer Industry

ACMIIL

10


SECTOR REPORT SWOT Analysis Strengths ● Capability to manufacture 400 & above Kv class transformers: TRIL is one of the few players that can manufacture transformers of 400 Kv & above. The Moraiya facility is well equipped and has a capacity to produce and test up to765 Kv transformers. So far, in 400KV, the company has supplied two transformers to LANCO. Particulars Emco Ltd Bharat Bijlee Ltd Indo Tech Transformers Ltd Voltamp Transformers Ltd Vijai Electricals TRIL

Power Transformers Up to 220 Kv

220 Kv to 400 Kv

400 Kv & above

ü ü ü ü ü ü

-

-

-

-

ü

-

-

-

ü ü

ü ü

Source: Crisil Research

The company has also developed in-house design and engineering capabilities. It has approval from utilities for manufacturing power transformers of up to 400 kv without any external technological support. Recently, it implemented a LANCO order with in-house technology. ● SEBs account for 70% of revenue TRIL primarily supplies transformers to SEBs which contribute to ~70% of its total revenue; industrial users account for the rest (Annexure III- TRIL Client List). With SEBs as its customers, TRIL is insulated from fluctuation in raw material prices to an extent, as owing to the built-in price variation clause (Annexure IV – Price Variation Formulae), it is passed on to the SEBs. Moreover, the company is also protected from any slowdown in investments in the private sector. ● Negligible debt and investments in liquid funds The gestation period to manufacture a transformer is 3 to 6 months; this, coupled with debtor days of more than 120 (as majority clients are SEBs) result in a higher working capital requirement. In a working capital-intensive business, funding and working capital management are important success factors. TRIL has INR761.7 (FY09) million in current investments and a low D/E ratio of 0.2, which enable the company to fund its working capital requirements. ● Second-largest facility: TRIL has a production capacity of 23,200 MVA, secondlargest after Crompton Greaves. Thus, the company should be able to explore significant growth opportunities. ● Strong order book: TRIL has a strong orderbook of INR3,732million (~0.85x TTM sales), which provides revenue visibility for six to nine months.

Weaknesses ● Significant capacity build-up to impact realization: Over the past five years, owing to the demand-supply mismatch, transformer manufacturers have recorded higher realization and profitability. However, significant capacity has been built up in the industry. Transformer capacity has increased to ~2,00,000 MVA from ~1,25,000 MVA in FY06. In addition, ~40,000 MVA is expected to be operational by the end of the eleventh plan period. Thus, considering this and the competition, realizations are expected to drop and in turn impact the growth of the company.

Transformer Industry

ACMIIL

11


SECTOR REPORT ● Dependence on imports for CRGO (Cold Rolled Grain Oriented Steel): CRGO constitutes ~35% of the raw material cost. The component is not manufactured in India due to high manufacturing cost. Indian manufacturers including TRIL are thus exposed to possible constraints on timely availability of CRGO.

Opportunities ● Significant capacity addition during the eleventh and twelfth plan periods: Capacity addition of 54,000MW is expected during the eleventh plan and ~1,00,000MW is planned for the twelfth plan periods. With huge power plants coming up, the need for bulk transmission will drive demand for higher class transformers. ● Focus on transmission and distribution: Power Grid Corporation of India (PGCIL) plans to increase interregional transmission capacity (national grid) from 16,450 MW in 2007 to 37,150 MW by 2012, a CAGR of 18% over 2007-12. Moreover, power sector reforms such as APDRP and RGGVY have thrown up opportunities for the industry and TRIL. ● Replacement demand: Approximately 97,456 MVA of transformer capacity was added during 1983-87 and 238,150 MVA during 1987-91. As average life of a transformer is 25 years, transformers are expected to be replaced during the eleventh and twelfth plan periods.

Threats ● Severe competition: MNCs such as ABB and Areva T&D have strong presence in the Indian market. In addition, ten to twelve domestic manufacturers as well as un-organized players are competing for orders from SEBs, utilities and industrial clients. This makes the market very competitive, especially since the orders normally are awarded to bidders with a high technical score and the lowest bid.

Financials Net sales TRIL’s net sales grew at a 49% CAGR to INR4,305 million in FY09, from INR1,308.3 million in FY06, driven by capacity addition and healthy realization on the back of rise in commodity prices. Capacity and Production Details

6000

5,662 4,305

4000

1000 0

4,686

1,308

5,000

FY07

FY08

FY09

FY10E

FY11E

23,200

23,200

23,200

FY12E

0

80

60

12,000

49

5,400 2,630 FY06

7,200 4,328 FY07

7,200 7,526 7,200 43 5,543 10,000

FY08

Production

120 100

77

15,000 10,000

2,212

FY06

105 20,000

3,057

3000 2000

6,2579

MVA

Rs. mn

5000

25,000

FY09

Capacity

FY10E

52

13,000 56

60

%

Net Sales

7000

40 20

FY11E

Utilization Level

FY12E

0

Source: ACMIIL Research, Company

We expect TRIL’s realization to decrease (FY09-12) due to significant capacity build-up in the industry. However, we expect net sales to grow at a CAGR of 12% to INR6,257 million in FY12, from INR4,305 million in FY09, primarily driven by volume growth. Transformer Industry

ACMIIL

12


SECTOR REPORT Margins We expect operating profit margin to decrease in FY11E and FY12E to 15% and 14.5%, respectively, due to capacity build-up in the industry. Margins 20

Percentage

18 16 14 12 10 8 6 4 2 0

19.0 15.6

15.8 11.3

10.5

FY08

FY09

15.5

15.0

14.5

9.4

9.5

9.7

FY11E

FY12E

8.0

FY07

OPM

FY10E NPM

Source: ACMIIL Research, Company

We estimate PAT margin to fall to 9.5% and 9.7% in FY11E and FY12E from 10.5% in FY09 owing to fall in operating margins.

Valuation and Recommendation At CMP of INR415, TRIL is trading at a P/E of 10x its FY11E and 8.9x its FY12E earnings. Looking at opportunities that lie in the power sector, TRIL’s capabilities in 400Kv class category, its annual capacity of 23,200 MVA and strong order book we assign a P/E multiple of 10x to its FY12E earnings and recommend a “Buy at Decline” on the stock with a price target of INR 468. 700

One year forward P/E Chart

600 500 400 300 200 100

28-Dec-07 28-Jan-08 28-Feb-08 28-Mar-08 28-Apr-08 28-May-08 28-Jun-08 28-Jul-08 28-Aug-08 28-Sep-08 28-Oct-08 28-Nov-08 28-Dec-08 28-Jan-09 28-Feb-09 28-Mar-09 28-Apr-09 28-May-09 28-Jun-09 28-Jul-09 28-Aug-09 28-Sep-09 28-Oct-09 28-Nov-09 28-Dec-09 28-Jan-10

0

Close Price

11 PE

12 PE

10 PE

8 PE

Source: ACMIIL Research

Transformer Industry

ACMIIL

13


SECTOR REPORT Profit & Loss Account Particulars

INR Mn FY06

FY07

FY08

FY09

FY10E

FY11E

FY12E

Net Sales

1,308.3

2,212.0

3,057.1

4,305.0

4,686.4

5,662.5

6,257.0

Total Expenditure

1,165.7

1,867.2

2,474.8

3,627.0

3,960.0

4,813.1

5,349.8

Operating Profit

142.6

344.8

582.2

678.0

726.4

849.4

907.3

6.7

7.6

59.1

108.1

50.0

75.0

100.0

149.3

352.4

641.3

786.1

776.4

924.4

1,007.3

8.4

16.8

21.5

28.0

53.7

61.8

64.6

140.9

335.5

619.7

758.1

722.7

862.6

942.7

21.2

55.0

81.1

74.8

48.0

42.0

20.0

PBT

119.7

280.6

538.7

683.3

674.7

820.6

922.7

Taxes

43.2

100.1

186.5

225.3

236.1

283.1

318.3

PAT

76.5

176.3

346.0

452.4

438.6

537.5

604.4

69.1

38.2

40.8

8.9

20.8

10.5

Growth in Operating profits (%)

141.8

68.9

16.5

7.1

16.9

6.8

Growth in PAT (%)

130.3

96.3

30.7

-3.1

22.6

12.4

10.9

15.6

19.0

15.7

15.5

15.0

14.5

5.9

8.0

11.3

10.5

9.4

9.5

9.7

Other Income EBIDTA Depreciation EBIT Interest

Growth in sales (%)

OPM (%) Net Profit Margin (%) Source: Company, ACMIIL Research

Balance Sheet Particulars

INR Mn FY06

FY07

FY08

FY09

FY10E

FY11E

FY12E

Sources of Funds Share Capital

68.2

70.9

129.2

129.2

129.2

129.2

129.2

Reserves and Surplus

147.4

345.2

1,963.3

2,354.9

2,733.5

3,211.0

3,755.4

Total Shareholders Funds

215.5

416.2

2,092.5

2,484.2

2,862.7

3,340.2

3,884.6

Total Loan Funds

174.1

317.3

384.2

608.9

400.0

350.0

100.0

14.8

15.3

2.1

9.6

9.6

9.6

9.6

Net Deferred Tax Liability Minority interest Total Capital Employed

0.0

18.5

24.6

28.1

28.1

28.1

28.1

404.4

767.3

2,503.5

3,130.7

3,300.4

3,727.9

4,022.3

152.5

251.6

321.5

560.5

1,074.0

1,124.0

1,174.0

Application of Funds Gross Block Less: Accumulated Depreciation

41.4

61.4

82.6

109.8

163.5

225.3

289.9

111.1

190.2

238.9

450.7

910.5

898.7

884.1

Capital Work in Progress

9.8

51.3

191.7

413.5

20.0

20.0

20.0

Investments

0.0

2.1

760.9

766.5

766.5

766.5

1,216.5

Net Block

Net Current Assets

282.9

523.4

1,311.4

1,499.9

1,603.3

2,042.6

1,901.6

Total Assets

404.4

767.3

2,503.5

3,130.7

3,300.4

3,727.9

4,022.3

Source: Company, ACMIIL Research

Transformer Industry

ACMIIL

14


SECTOR REPORT Cashflow Statement Particulars Pre tax profit

INR Mn FY06

FY07

FY08

FY09

FY10E

FY11E

FY12E

119.7

280.6

538.7

683.3

674.7

820.6

922.7

Depreciation

8.4

16.8

21.5

28.0

53.7

61.8

64.6

Interest Exp

21.2

55.0

81.1

74.9

48.0

42.0

20.0

Add

Profit before working capital changes

147.1

353.6

613.0

719.8

776.4

924.4

1,007.3

-113.4

-249.0

-814.2

-236.0

-100.3

-407.0

106.8

Less Taxes

-45.2

-49.6

-206.7

-208.3

-236.1

-283.1

-318.3

Net Cash flow from operating activities

-11.5

55.1

-407.9

275.5

440.0

234.2

795.7

Net Cash flow in investment activities

-41.6

-85.2

-936.6

-404.9

-120.0

-50.0

-500.0

Net Cash flow from financing activities

52.9

36.7

1,361.7

105.8

-316.8

-152.0

-330.0

Net increase /(decrease) in cash

Working capital changes

-0.2

6.7

17.2

-23.7

3.2

32.3

-34.2

Op. balance of cash and cash equivalents

0.4

1.4

8.0

25.2

1.5

4.7

37.0

Cl. balance of cash and cash equivalents

0.2

8.0

25.2

1.5

4.7

37.0

2.7

Source: Company, ACMIIL Research

Ratios Particulars

FY06

FY07

FY08

FY09

FY10E

FY11E

FY12E

Profitability Ratios OPM (%) PAT Margin (%)

10.9

15.6

19.0

15.7

15.5

15.0

14.5

5.9

8.0

11.3

10.5

9.4

9.5

9.7

RONW (%)

35.5

42.4

16.5

18.2

15.3

16.1

15.6

ROCE (%)

34.8

43.7

24.8

24.2

21.9

23.1

23.4

EPS (Rs.)

11.2

24.9

26.8

35.0

33.9

41.6

46.8

CEPS (Rs.)

12.5

27.8

28.9

37.6

38.1

46.4

51.8

BV Per Share (Rs.)

31.6

58.7

161.9

192.2

221.5

258.5

300.6

P/E (x)

-

-

-

-

12.2

10.0

8.9

P/CEPS (x)

-

-

-

-

10.9

8.9

8.0

P/BV (x)

-

-

-

-

1.9

1.6

1.4

Debt/Equity

0.8

0.8

0.2

0.2

0.1

0.1

0.0

Current Ratio

1.4

1.6

2.5

2.6

2.5

2.6

2.4

Debtors turnover ratio

2.5

3.6

3.1

3.0

2.9

3.0

3.0

Inventory turnover ratio

4.2

6.1

5.8

7.0

7.0

7.0

7.1

11.8

11.6

12.8

9.6

5.1

6.3

7.1

Per Share Ratios

Valuation Ratios

Capital Structure Ratios

Turnover Ratios

Fixed Asset Turnover Source: ACMIIL Research

Transformer Industry

ACMIIL

15


SECTOR REPORT

B U Y Voltamp Transformers Ltd CMP Target Price

(INR) 905 1051

Key Data Bloomberg Code

VAMP IN

Reuters Code

VOTL.BO

BSE Code

532757

NSE Code

VOLTAMP

Face Value (INR) Market Cap. (INR Mn.) 52 Week High (INR) 52 Week Low (INR) Avg. Daily Volume (6m) Shareholding

10 9318.5 1050 265 85663 %

Promoters

46.1

FII

23.8

DII

10.0

Others

20.1

Total

100

Voltamp Transformers Ltd (VTL), established in 1963, manufactures power, distribution transformers and dry-type transformers. The company has manufacturing facilities in Vadodara and Vadadla with installed capacity of 9,000MVA and 4,000MVA respectively. The industrial segment accounts for ~80-90% of VTL’s client base. The company’s current order book stands at INR4,176.3 million, 0.8x TTM sales.

Product Range The company manufactures power, distribution and dry type transformers. In the power transformer segment, VTL manufactures up to 100 MVA and 220 Kv class transformers. In dry type transformers, the company is a leader with a market share of 40%. It manufactures two types of dry transformers, vacuum resin impregnated up to 5 MVA, 11Kv and Cast resin up to 7.5MVA, 33 Kv, in technical collaboration with MORA (Germany) and HTT (Germany) respectively. Power transformers (49%) contribute to the majority of VTL’s revenue followed by distribution and dry-type transformers. Revenue Break Up FY09 Product Portfolio Power transformer

5MVA, 33KV to 100MVA, 220KV

Distribution

315KVA, 11KV to 5MVA, 33KV

Dry

63KVA, 11KV to 7.500 MVA, 33KV

Power Transformer 49%

Distribution Transformer 32% Dry Transformer 19%

Source: Company Facilities Particulars

Annual Capacity (MVA)

Capability

9,000

Produce and test up to 220 Kv and 100 MVA – primarily power

Vadodara

transformers Vadadla

4,000

Manufacture Distribution and dry type transformers

Source: Company

Voltamp has two manufacturing units in Vadodara and Vadadla, Gujarat. Its Greenfield unit in Vadadla has an installed capacity of 4,000MVA and commenced operations in November 2009. As a result, its total annual capacity has increased to 13,000MVA, comprising 6,000MVA, 5,000MVA, and 2,000MVA of power, distribution and dry type transformer capacities respectively. The plant in Vadodara primarily manufactures power and distribution transformers, while the new facility at Vadadla will manufacture dry and distribution transformers. Capacity Break Up 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

2300

2700

3500

4800

4800

6000

1700

2000

2700

3200

3200

5000

MVA

Key Data

500

700

1000

1000

1000

2000

FY05

FY06

FY07

FY08

FY09

FY10

Dry Transformer

Distribution Transformer

Power Transformer

Source: Company

Transformer Industry

ACMIIL

16


SECTOR REPORT Order Book VTL’s order book grew from INR1,489 million in FY06 to INR4,176.3 million in January 2010. Current order book is ~0.8x TTM sales, providing revenue visibility for 6-9 months. Majority of the order backlog comprises power transformers (~51%) followed by distribution (26%) and dry transformers (23%).

Order Book 5000

4750

4500

4072

4000

4176.3

3505

3500

INR MN

Majority of orders comprises of orders from industrial users

4510

2926

3000 2500 2000 1500

1489

1000 500 0

FY06

FY07

FY08

FY09

Jun 09

Oct 09

Jan 10

Source: Company

Nature of contracts VTL primarily supplies to industrial clients, which contribute to ~80 to 90% of its total revenue. Industrial orders are at fixed prices and thus expose the company to movement in raw material prices. However, to protect itself from fluctuating raw material prices, VTL hedges with the help of forward contracts.

Capex The company undertook capex of INR261.7 million for the 4,000MVA Greenfield facility in Vadadla. The project was primarily funded through internal accruals. It incurred expenditure of INR143.8 million in FY09 and the rest has been spent in FY10. The facility started operations in November 2009; with this, the company has a production capacity of 13,000MVA p.a. VTL has no further capex plans in the near term.

SWOT Analysis Strength ● Efficient working capital management and funding: Funding and working capital management are important factors for a transformer company. VTL primarily supplies to industrial clients, and as a result, working capital being blocked in the form of debtors is considerably low compared with peers. Debtor days for VTL are ~53 versus 75-120 days for peers. FY09 Debtor days

Voltamp

TRIL

Bharat Bijlee

EMCO

Indo tech

52.4

119.8

108.7

162.6

76.6

Source: ACMIIL Research

The company also has INR1,352 million (FY09) as current investments and zero debt, which helps fund working capital requirement. ● Diverse client base VTL has a diverse industrial client base and it is not dependent on any particular industry. It supplies to various industries such as petrochemicals, metals, cement, real estate and others. No sector contributes more than 15% to its revenue. In FY09, its top 10 clients accounted for 39% of its revenue.

Transformer Industry

ACMIIL

17


SECTOR REPORT Industry Wise Revenue Break Up Sugar 2%

Chemicals 2%

Others 11%

Petro chemicals 15%

Textile 2% Auto & auto ancl 4%

Metals 11%

Engg& Electricals 5% Private utilities 5%

Power Projects 10%

Infra project 7% SEBS 8%

Real estate 9%

Cement 9%

Source: Company

● Presence in dry type transformers: VTL is a leading manufacturer of dry transformers with a market share of ~40%. It manufactures vacuum resin impregnated dry and cast resin transformers. The segment contributes ~ 20% to revenue and grew at a CAGR of 29% (FY06-09). Dry transformers find application in high-rise buildings, hotels, stadiums, airports, and ports as they are non-inflammable, environment-friendly and maintenance-free. ● Strong order book: VTL has an order book of INR4,510 million (~0.9x TTM sales), which provides revenue visibility for 6-9 months.

Weaknesses ● Significant capacity build-up to impact realization: Over the past five years, owing to the demand-supply mismatch, transformer manufacturers have recorded higher realization and profitability. However, significant capacity has been built up in the industry. Transformer capacity has increased to ~2,00,000MVA from ~1,25,000MVA in FY06. In addition, ~40,000MVA is expected to be operational by the end of the eleventh plan period. Thus, given this and the competition, realizations are expected to drop and in turn impact the growth of the company. ● Dependence on industrial clients: As VTL primarily supplies to industrial clients such as Reliance industries, Jindal steel, Infosys, Siemens, ABB, L&T, and Reliance Energy, it is exposed to the slowdown in investments in the private sector. ● Dependence on imports for CRGO (Cold Rolled Grain Oriented Steel): CRGO constitutes ~35% of the raw material cost. The component is not manufactured in India due to high manufacturing cost. Indian manufacturers including VTL are thus exposed to possible constraints on timely availability of CRGO.

Opportunities ● Thrust of GOI on the power sector Capacity addition of 54,000MW is expected during the eleventh plan and ~1,00,000MW is planned for the twelfth plan periods. Moreover, initiatives such as development of a national grid along with power sector reforms such as APDRP and RGGVY have brought about significant opportunities for the industry and VTL. ● Private sector investments: Investments in the private sector have recorded strong growth from 2006 onward. Projects under implementation have grown from INR4.1 trillion in Q2FY06 to 19.8 trillion in Q2 FY10. New project announcements have also registered healthy growth of 44% during the same period. Although the global financial crisis has slowed down project announcements, current announcements of INR17.2 trillion are significantly higher compared with the average of INR2.0 trillion during 2002-05. Transformer Industry

ACMIIL

18


SECTOR REPORT Private Sector-Investments 25

INR trillion

20 15 10 5

De cAu 1999 g2 De 000 c-2 Au 000 g2 De 001 c-2 Au 001 g2 De 002 c-2 Au 002 g2 De 003 c-2 Au 003 g2 De 004 c-2 Au 004 g2 De 005 c-2 Au 005 g2 De 006 c-2 Au 006 g2 De 007 c-2 Au 007 g2 De 008 c-2 Au 008 g20 09

0

Under Implementation

Announcement Source: CMIE

Threats â&#x2014;? Severe competition: MNCs such as ABB and Areva T&D have strong presence in the Indian market. In addition, 10-12 domestic manufacturers as well as unorganized players compete for orders from SEBs, utilities and industrial clients. This makes the market very competitive.

Financials Net Sales Net Sales

8000 7000 6000

5,553

Rs. mn

5000

5,250

4,058

4000 3000

7,091

6,536

6,431

2,488

2000 1000 0

FY06

FY07

FY08

FY09

FY10E

FY11E

FY12E

Source: Company, ACMIIL Research

VTLâ&#x20AC;&#x2122;s net sales grew at a 46% CAGR to INR6,430.6 million in FY09, from INR2,487.9 million in FY06, driven by capacity addition and healthy realization on the back of rise in commodity prices. Capacity & Production Details

88 74

2,000 0

FY07 FY08 FY09 Capacity Production

Source: Company, ACMIIL Research

9624

9,000 9541

13,000 FY06

9,000 7898

4,000

7,200 6188

6,000

100

88

82

80

13,000 11500

86

8,000

5,400 4503

MVA

83

13,000 10600

12,000 10,000

120

106

60

%

14,000

40 20

FY10E FY11E Utilization level

FY12E

Transformer Industry

0

ACMIIL

19


SECTOR REPORT In FY10E, we expect VTL’s net sales to dip INR5,250 million owing to fall in realizations. For FY11E and FY12E, we expect sales to increase to 6,536.3 million and INR 7,091.3 million respectively, backed by volume growth.

Margins In FY08 and FY09, VTL recorded exceptional margins in excess of 20% as the period was characterized by strong demand due to huge investments and liquidity in the economy. However, operating margins have dropped to the 19% in 9M FY10, as investments have slowed down. For FY11E and FY12E, we expect operating profit margins to remain low at 16.3% and 16% respectively. Margins 25 21.2

Percentage

20 15 10

13.6

15.1

23.3 19.1 17.9

14.4

15.6

18.0

16.5

14.5

16.0

13.0

12.8

9.7

9.3

5 0

FY06

FY07

FY08

FY09 OPM

9M FY10

FY10E

FY11E

FY12E

NPM

Source: Company, ACMIIL Research

We estimate PAT margin to fall to 13% and 12.8% in FY11E and FY12E respectively, owing to fall in operating margins and increase in depreciation cost.

Valuation and Recommendation As significant portion of balance sheet constitutes of investments, we have used valued core (transformer) business separately and then added investments per share. Looking at opportunities that lie in the power sector, investment announcements in private sectors, and a strong order book, we assign a P/E of 10x to Voltamp’s core (transformers) business earnings of INR 70 (FY12E) to arrive at value per share of INR 700. Considering investments per share of INR351 (FY12E) and core business value of INR700/share, we initiate coverage on Voltamp Transformer Limited with a “BUY” recommendation and a price target of INR1051. Particulars Core business

Adjusted PAT (FY12E)

Adjusted EPS (FY12E)

P/E multiple

Segment value per share (INR)

707.9

70.0

10

700

Investments per share

351

Target Price

1051

Source: ACMIIL Research

Transformer Industry

ACMIIL

20


SECTOR REPORT Financials Profit & Loss Account Particulars

INR Mn FY06

FY07

FY08

FY09

FY10E

FY11E

FY12E

Net Sales

2,487.9

4,058.0

5,553.5

6,430.6

5,249.6

6,536.3

7,091.3

Total Expenditure

2,148.6

3,444.5

4,374.9

4,932.1

4,304.7

5,457.8

5,956.7

Operating Profit

339.4

613.5

1,178.6

1,498.6

944.9

1,078.5

1,134.6

42.8

48.7

107.6

239.7

240.0

265.0

300.0

382.2

662.2

1,286.2

1,738.3

1,184.9

1,343.5

1,434.6

19.2

21.7

31.3

44.7

62.0

70.7

71.8

363.0

640.5

1,254.8

1,693.6

1,123.0

1,272.8

1,362.8

10.1

12.6

5.0

4.7

6.2

6.2

6.2

PBT

352.9

627.9

1,249.8

1,689.0

1,116.8

1,266.6

1,356.6

Taxes

122.7

232.3

450.8

540.9

357.4

418.0

447.7

PAT

230.2

395.6

799.0

1,148.0

759.4

848.6

908.9

Adj PAT (Core Business)

202.3

364.9

730.3

985.1

596.2

671.1

707.9

Growth in Sales (%)

63.1

36.9

15.8

-18.4

24.5

8.5

Growth in Operating Profits (%)

80.8

92.1

27.1

-36.9

14.1

5.2

Growth in PAT (%)

71.8

102.0

43.7

-33.9

11.8

7.1

Growth in Adj PAT

80.4

100.1

34.9

-39.5

12.6

5.5

Other Income EBIDTA Depreciation EBIT Interest

OPM (%)

13.6

15.1

21.2

23.3

18.0

16.5

16.0

PAT (%)

9.3

9.7

14.4

17.9

14.5

13.0

12.8

Source: Company, ACMIIL Research Balance Sheet Particulars

INR Mn FY06

FY07

FY08

FY09

FY10E

FY11E

FY12E

Sources of Funds Share Capital

101.2

101.2

101.2

101.2

101.2

101.2

101.2

Reserves and Surplus

593.5

894.4

1,545.5

2,545.6

3,187.6

3,918.9

4,710.5

Total Shareholders Funds

694.7

995.6

1,646.7

2,646.7

3,288.8

4,020.1

4,811.6

Total Loan Funds

189.5

9.0

10.4

0.0

10.0

10.0

10.0

Total Capital Employed

884.2

1,004.5

1,657.1

2,646.7

3,298.8

4,030.1

4,821.6

177.4

215.3

324.5

370.7

632.4

642.4

652.4

Less: Accumulated Depreciation

96.6

116.4

147.0

190.3

252.3

322.9

394.7

Net Block

80.9

98.9

177.6

180.4

380.2

319.5

257.7

Application of Funds Gross Block

Capital Work in Progress

3.5

27.2

16.9

143.8

10.0

10.0

10.0

Investments

0.5

232.3

581.1

1,352.5

2,200.0

2,650.0

3,550.0

Net Current Assets

797.8

636.3

879.0

965.4

704.0

1,045.9

999.3

Differed Tax Assets

1.4

9.9

2.5

4.6

4.6

4.6

4.6

884.2

1,004.5

1,657.1

2,646.7

3,298.8

4,030.1

4,821.6

Total Assets Source: Company, ACMIIL Research

Transformer Industry

ACMIIL

21


SECTOR REPORT Cashflow Statement

INR Mn

Particulars

FY06

FY07

FY08

FY09

FY10E

FY11E

FY12E

Pre tax profit

366.6

665.8

1,249.6

1,689.0

1,116.8

1,266.6

1,356.6

Depreciation

19.2

21.7

31.3

44.7

62.0

70.7

71.8

Interest Exp

10.1

12.6

5.0

4.7

6.2

6.2

6.2

Add

Profit before working capital changes

392.3

694.3

1,244.2

1,673.6

1,184.9

1,343.5

1,434.6

Working capital changes

-255.0

76.0

-340.4

-93.9

285.0

-334.5

65.8

Less Taxes

-151.9

-215.5

-447.7

-521.0

-357.4

-418.0

-447.7

Net Cash flow from operating activities

-14.6

554.8

456.1

1,058.7

1,112.6

591.0

1,052.7

Net Cash flow in investment activities

-26.3

-288.9

-406.4

-881.1

-975.4

-460.0

-910.0

Net Cash flow from financing activities

38.3

-198.9

-98.3

-163.0

-113.6

-123.6

-123.6

Net increase /(decrease) in cash

-2.7

66.9

-48.6

14.5

23.7

7.4

19.1

Op. balance of cash and cash equivalents

30.5

27.8

94.7

46.1

60.6

84.3

91.8

Cl. balance of cash and cash equivalents

27.8

94.7

46.1

60.6

84.3

91.8

110.9

FY06

FY07

FY08

FY09

FY10E

FY11E

FY12E

13.6

15.1

21.2

23.3

18.0

16.5

16.0

Source: Company, ACMIIL Research Ratios Particulars Profitability Ratios OPM (%) PAT Margin (%)

9.3

9.7

14.4

17.9

14.5

13.0

12.8

RONW (%)

33.1

39.7

48.5

43.4

23.1

21.1

18.9

ROCE (%)

41.1

63.8

75.7

64.0

34.0

31.6

28.3

Adj RONW (%)

29.1

47.8

68.5

76.1

54.8

49.0

56.1

Adj ROCE (%)

35.1

75.0

106.2

112.0

79.8

72.6

83.1

EPS (Rs.)

22.8

39.1

79.0

113.5

75.1

83.9

89.8

Adj EPS

20.0

36.1

72.2

97.4

58.9

66.3

70.0

CEPS (Rs.)

24.7

41.3

82.1

117.9

81.2

90.9

96.9

BV Per Share (Rs.)

68.7

98.4

162.8

261.6

325.1

397.4

475.6

P/E (x)

-

-

-

-

12.1

10.8

10.1

P/CEPS (x)

-

-

-

-

11.1

10.0

9.3

P/BV (x)

-

-

-

-

2.8

2.3

1.9

Debt/Equity

0.3

0.0

0.0

0.0

0.0

0.0

0.0

Current Ratio

3.4

1.9

2.0

2.4

2.2

2.1

2.2

6.5

10.7

9.2

7.0

6.9

8.5

7.9

Per Share Ratios

Valuation Ratios

Capital Structure Ratios

Turnover Ratios Debtors turnover ratio Inventory turnover ratio Fixed Asset Turnover

3.9

5.9

7.1

9.7

9.1

9.3

8.6

30.8

41.0

31.3

35.6

13.8

20.5

27.5

Source: ACMIIL Research

Transformer Industry

ACMIIL

22


SECTOR REPORT Annexure I - Transformers For transmission and distribution networks to transfer large amounts of alternating current electricity over long distances with minimum losses and least cost, different voltage levels are required in various parts of networks. A generation unit produces electric current at a lower voltage, which has to be increased for efficient transmission and for reducing T&D losses during the transmission of electricity. The voltage again has to be lowered for the purpose of Sub transmission and Distribution of electricity for end use consumption. Transformers enable requisite changes in voltage. A transformer has two types of circuits: primary circuit and secondary circuit. The primary and secondary coils are wrapped around a core. A changing current in the first circuit (the primary) creates a changing magnetic field, which in turn induces a changing voltage in the second circuit (the secondary). This process is known as mutual induction. By adding a load to the secondary circuit, one can make current flow into the transformer, thus transferring energy from one circuit to the other The iron core forms a complete magnetic circuit and is made up of laminated strips of special steel having low hysteresis loss and high electrical resistivity. The lamination of the core reduces the eddy-current loss. For an average transformer used in a MAGNETIC FLUX SECONDARY WINDING

PRIMARY WINDING AC APPLIED VOLTAGE

OUTPUT POWER= INPUT POWER MINUS LOSSES

INPUT POWER OUTPUT AC VOLTAGE IRON CORE

ESSENTIALS OF A TRANSFORMER

power station, the conductor used for the windings consists of paper insulated copper bar or wire. In assembling the transformer, great care is taken to ensure windings are well insulated, both from the iron core and from each other. The basic construction of a core type transformer consist of an iron core, a cylinder of insulation followed by the low voltage winding, a further insulating cylinder and a high voltage winding. Clamps are used to hold the assembly in place. Raw material break up Copper: 30-35% MS Steel: 8-10% Transformer Oil: 5-10% Components & Others: 15-20% CRGO Steel: 30-35% (CRGO performs the function of generating magnetic flux in the transformers and is a key raw material besides copper. As CRGO steel is not manufactured domestically, it is imported directly from global majors like Thyssen of Germany, Kawasaki and Nippon Steel of Japan, AK Steel of USA or indirectly through Minerals and Metals Trading Corporation and local traders.) Type of transformer â&#x2014;? Power transformers: Power Transformers are used for changing the voltage of electric supply from generators while connecting them to power evacuation system and further in transmission. They can be Step up (for increasing voltage levels) or Step down transformers (for reducing voltage levels) e.g. the power at generation level is of low voltage and has to be changed to higher voltage level for the purpose of transmission. They range from 11 kV to 765 kV and account for 70-75% of the total value of the transformer industry. â&#x2014;? Distribution transformers: Distribution Transformers are used for changing the voltage at various stages of sub-transmission and distribution - the power at transmission level is of higher voltage and has to be changed to lower voltage level for the purpose of sub transmission and distribution. Distribution transformers are used to transfer power from transmission to distribution points. They account for 25- 30% of the total value of the transformer industry. Transformer Industry

ACMIIL

23


SECTOR REPORT ● Dry type transformers: Dry type transformers can either be a power transformer, distribution transformer or an industrial transformer. They are used in places where there are high chances of a fire breaking out. As there is no oil used in the transformer, the fire risk is considerably reduced in this type of transformers. “Dry type” simply means it is cooled by normal air ventilation. The dry type transformer does not require a liquid such as oil or any other liquid to cool the electrical core and coils.

Annexure II - Transmission system in India The transmission system in India operates at several voltage levels: ● Extra high voltage: High voltage direct current (HVDC), 765 kV, 400 kV, 220 kV and 132 kV ● High tension: 66kV, 33 kV, 11kV ● Low tension : 6.6 kV, 3.3 kV, 1.1 kV, 220 V

Annexure III – TRIL Client List Utilities

Industrial clients:

Transmission Corp of Andhra Pradesh Ltd

LNT

Maharashtra State Electricity Transmission Co

Seimens

Gujarat Energy Transmission Corporation Ltd

Rohit Ferro-Tech Ltd

Uttar Pradesh Corporation

Suzlon Energy

Tamil Nadu Electricity Board

Monnet Ispat & Industries Ltd

Kerala State Electricity Board NTPC

Annexure IV – Price Variation Formulae Assuming delivery is in the month of December Assuming order was tender in the month of May Original price (Po)

100.00

Raw material Copper CRGO WPI - Iron & steel Insulation Material Transformer Oil CPI Industrial worker Index

Price

Weight

August - 4 M prior to delivery

Prices as of C

125

0.23

0.29

March - 2 M prior to Tender

Co

100

Sept - 3 M prior to delivery

ES

110

0.28

0.31

April - 1 M prior to Tender

ESo

100

Saturday Sept - 3 M prior to Delivery

IS

105

0.07

0.07

Saturday Feb - 3 M prior to Tender

ISo

100

Sept - 3 M prior to delivery

IM

115

0.07

0.08

April - 1 M prior to Tender

IMo

100

Oct- 2M prior to delivery

TO

108

0.07

0.08

March - 2M prior to Tender

TOo

100

Sept- 3M prior to delivery

W

105

0.15

0.16

Feb - 3M prior to Tender

Wo

100 0.13

Revised price

0.13 111.3

Transformer Industry

ACMIIL

24


SECTOR REPORT

Notes:

Institutional Sales: Ravindra Nath, Tel: +91 22 2858 3400 Kirti Bagri, Tel: +91 22 2858 3731 Himanshu Varia, Tel: +91 22 2858 3732 Email: instsales@acm.co.in Institutional Dealing: Email: instdealing@acm.co.in

Disclaimer: This report is based on information that we consider reliable, but we do not represent that it is accurate or complete and it should not be relied upon such. ACMIIL or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in the report. ACMIIL and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency we have incorporated a Disclosure of Interest Statement in this document. This should however not be treated as endorsement of the views expressed in the report Disclosure of Interest

Transformers & Rectifiers India Ltd

Voltamp Transformers Ltd

1. Analyst ownership of the stock

NO

NO

2. Broking Relationship with the company covered

NO

NO

3. Investment Banking relationship with the company covered

NO

NO

4. Discretionary Portfolio Management Services

NO

NO

This document has been prepared by the Research Desk of Asit C Mehta Investment Interrmediates Ltd. and is meant for use of the recipient only and is not for circulation. This document is not to be reported or copied or made available to others. It should not be considered as an offer to sell or a solicitation to buy any security. The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We may from time to time have positions in and buy and sell securities referred to herein.

Transformer Industry

ACMIIL

25

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