One of the largest manufacturers of furnace transformers in India

Transformers & Rectifiers India (TRIL) manufactures electrical transformers for the power sector and industrial applications. Promoted by Jitendra U Mamtora and his family, the company was originally incorporated in 1994 as Triveni Electric Company. It subsequently changed its name to the present in 1995.

The two manufacturing units of TRIL are located at Changodar and Odhav near Ahmedabad in Gujarat. They had an aggregate installed capacity of 7,200 MVA end of the financial year ending March 2007 ( FY 2007). The company is in the midst of setting up a Rs 66.68-crore greenfield transformer manufacturing facility at Moraiya near Ahmedabad. The installed capacity of the new plant will be around 16,000 MVA per annum.

With an installed capacity of 6,000 MVA, the Changodar plant manufactures power transformers from 66 KV up to 220 KV. With an installed capacity of 1,200 MVA, the Odhav plant manufactured distribution and industrial transformers up to 33 KV class. The new plant at Moraiya will have the capacity to manufacture transformers up to 765 KV. But TRIL initially plans to manufacture 220-KV and 400-KV transformers at this facility. The Odhav plant came into the fold on the acquisition of the business of the sole proprietary concern of the promoters of the company, from August 20’06.

The average capacity utilisation over the last three years stood at 68%. Capacity utilisation peaked to 80% in FY 2007. Power transformers constituted 77% of the total sales in FY 2007, followed by furnace transformers, accounting for 13% of the sales, and distribution transformers 10%. Sales to state electricity utilities constituted about 51% of the total sales, and the remaining contributed by industrial and other sectors.

TRIL has two subsidiaries: Transweld Mechanical Engineering Works (TMEW) and Tanspares. While the wholly owned subsidiary TMEW manufactures tanks and core channels, Transpares (with 51% stake held by TRIL) produces pressed steel radiators. Aart from meeting captive requirement of its parent, TMEW also caters to a range of third-party public- and private-sector clients.

TRIL also proposes to undertake turnkey projects for setting up substations that form part of the power transmission and distribution (T&D) network, leveraging its established relationship with utilities, power T&D companies and in-house engineering capabilities. Once the new plant at Moraiya becomes operational (expected in FY 2009), the aggregate capacity of the company is expected to touch 23,200 MVA end March 2009.

To part fund the Rs 60.75-crore project and to meet incremental working capital requirement, TRIL is tapping the capital market with an initial public offering.

Strengths

Has wide product portfolio comprising power transformers, distribution transformers and industrial transformers such as furnace transformers and special transformers including mobile substation, rectifiers, and testing transformers. The wide product range is backed by strong longstanding relationship with customers, specially state electricity utilities. Is one of the largest manufacturers of furnace transformers in India.

The standalone order book was Rs 360 crore on 15 November 2007, with the order for power transformers amounting to Rs 325 crore and balance for distribution transformers.

The acquisition of 100% stake in TMEW and 51% in Transpares in FY 2007 has resulted in backward integration to critical components for manufacturing of transformers such as tanks, core channels, and pressed steel radiatiors.

Strong investment envisaged in the power sector, translating into strong demand growth for electrical equipment such as transformers.

Cushion of price-variation clause for supply to state and central power utilities to insulate margin from highly fluctuating inputs costs such as CRGO and copper. Derives around 50% of standalone sales from state utilities. But the share of sales to utilities has eased from 51% in FY 20’07, 51% to 47% in the six months ended September 2007.

Weaknesses

Still to pre-qualify for the supply of 400-KV and 765-KV transformers. Lacks strong technology in this class of transformers and will also face strong competition from MNC players with proven technology with domestic manufacturing facility in this category.

The Gujarat Pollution Control Board (GPCB) has rejected the application for no-objection-certificate for the Changodar unit, citing its operation without consent. The GPCB has stopped any expansion of the Changodar unit without prior permission and to obtain necessary approval for the existing production capacity. Application for Consolidated Consent and Authorisation (CC&A) for the unit is processing. However, if consent is not received in time, operations will be hampered.

Valuation

Consolidated revenue was Rs 221.20 crore and net profit after minority interest Rs 17.62 crore in FY 2007. On standalone basis, sales grew 67% to Rs 218 crore and net profit 118% to Rs 16.66 crore. The EPS on consolidated earning of FY 2007 on post-IPO equity is Rs 14.9 and the PE 28.5 times at the lower price band of Rs 425 and 31.2 times the upper price band of 465. Peers EMCO quotes at a PE of 37.1 times, Bharat Bijlee at a PE of 34.7 times and Indo Tech at a PE of 28.5 times.