Transformers and Rectifiers Industries Multibagger: Up 686% in a Year, Still a Strong Buy

Even after significant gains, brokerage firm Antique Broking has begun coverage on Transformers and Rectifiers Industries (TRIL) with a target price of ₹847, suggesting another 32% potential upside.

Antique Broking notes that TRIL, a top transformer manufacturer in India, is on a rapid growth trajectory for the next 3-5 years. The company is expanding its capacity, aiming to become the largest transformer manufacturer in India with key inputs controlled through backward integration. Given strong demand, TRIL’s revenue and earnings are projected to increase 3.5 times and 10 times, respectively, by FY27.

Stock Price Trend

The stock has risen over 2% in May so far, marking gains for the third consecutive month. It surged 58.5% in April and 14.3% in March. Despite a slight drop of 0.5% in February, the stock jumped more than 50% in January this year. Currently trading at ₹640, it is 16.5% below its all-time high of ₹766.2 reached on April 24, 2024, but has soared 739% from its 52-week low of ₹76.24 on July 21, 2023.

Long-term performance is also impressive, with the stock increasing 2338% in three years from ₹26.25 in May 2021, and 4767% in five years from ₹13.15 in May 2019.

Investment Rationale

Leading Transformer Player

TRIL is a major player in the transformer industry with a wide range of products and a manufacturing capacity of 37,200 MVA, second only to BHEL. It leads in high-voltage power transformers, inverter duty transformers, and distribution transformers. TRIL is also the only manufacturer in India of specialty transformers like Electric Arc Furnace and Green Hydrogen Energy Application Transformers. With a market share of 22-25%, TRIL benefits from its in-house design and engineering capabilities.

Capacity Expansion

Antique highlights TRIL’s ongoing capacity expansion at the Changodar plant, adding 12,000 MVA mainly for inverter duty transformers, expected to complete by Q4 FY25. The company is also exploring acquiring idle transformer manufacturing capacities, positioning itself to become the largest transformer manufacturer in India with the broadest product range.

Backward Integration

TRIL’s strategy of backward integration into key inputs like tanks, radiators, CRGO, and bushings addresses supply shortages and boosts margins. The company’s focus on these products is set to increase significantly by FY26.

Strong Transmission Capex

India’s transmission capital expenditure is projected at ₹4.8 lakh crore over FY23-27, promising significant demand for transmission and distribution equipment. With plans to add 123,577 ckm of transmission lines and 722,940 MVA of transformation capacity, TRIL is well-positioned to benefit from this surge in demand.

Emerging Growth Opportunities

Antique also points to new growth opportunities in sectors like railways, data centers, manufacturing, and exports. With rising capital expenditure in railways and data centers, and increasing global demand for renewable energy, TRIL stands to gain from these sectors.

Outlook

Antique expects TRIL to experience exponential growth in the next three years, with revenue and profit after tax increasing by 3.6 times and 10 times, respectively, by FY27 from FY24 levels. The company has a ₹500 crore investment plan and has announced raising ₹500 crore in capital.

The brokerage forecasts TRIL to achieve an EBITDA growth of 78% CAGR over FY24-27, driven by a strong revenue CAGR of 53% over the same period. This should improve EBITDA margins from 10% to 16% by FY27. TRIL’s profit after tax is expected to grow at 115% CAGR, supported by strong revenue growth, better margins, and improved working capital management.

Antique notes that TRIL’s return on equity (RoE) has historically been around 5% due to a challenging operating environment from FY12-22. However, with business activities picking up, RoE improved to 10% in FY24 and is expected to rise to 29% by FY27.

Despite a significant re-rating in 2024, TRIL trades at a discount compared to its peers. The brokerage believes this valuation gap will narrow as the company achieves its growth objectives and delivers accelerated earnings. TRIL’s improved balance sheet and return ratios indicate strong execution.