The energy demand in India is rising at a rapid rate. New capacities are announced on the back of multi-billion dollar investments. Transformer manufacturers are going to enjoy this boom in the power sector. Naturally, many of them are gearing up to cater the rising demand for their products.
Business
Transformers And Rectifiers (India) (TARI) is a company engaged in the business of manufacturing of transformers upto 220 KV class, having an installed capacity of 7200 MVA transformers per annum at two facilities in Gujarat.
It manufactures a wide range of transformers ranging from power generation, transmission and distribution transformers, industrial transformers and a wide range of specialty transformers.
For FY2006-2007 the company operated at 80% of installed capacity. For FY2006-2007 TARI had 96.86% of its total sales coming from the domestic sector. As of November 15, 2007 the company has an unexecuted order book of Rs 360 crore, out of which power transformers are for Rs 325 crore, whereas the rest comes from distribution transformers.
Financials
The company on standalone basis has enjoyed a good growth in revenues from Rs 31.66 crore in FY 2002-2003 to Rs 229.40 crore, depicting a CAGR of 64%.
On the other hand, the net profit registered a handsome growth from Rs 1.18 crore to Rs 16.71 crore over the same period, denoting a CAGR of 94%.
For the 6 months ended September 2007, TARI reported a top line and bottom line of Rs 137.50 crore and Rs 12.50 crore.
Objectives
The company is tapping the capital market to fund its expansion plans. It intends to set up a greenfield manufacturing facility at Moraiya, near Ahmedabad, Gujarat for manufacturing transformers. It also intends to part finance incremental working capital requirements using part proceeds of the issue.
Outlook
The stock on offer is valued at 21 to 23 times at the lower and upper end of the price band respectively, considering its annualised earnings for the first half of FY2007-2008 on its fully diluted equity capital. The order book, which stands at approximately 1.5 times its FY2006-2007 sales, offers good revenue visibility in the near term. ICRA has allotted an IPO grading of 4 out of 5, indicating above average fundamentals.
The company, though available at attractive valuations, one must note the execution risks attached with the greenfield project and its dependence on the power sector and the state electricity boards for business. Investors with a long-term view will be better off than those with a short-term view on the company.