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Transformers & Rectifiers (India) Ltd. Q2FY25

 

Transformers and Rectifiers (India) Limited (TRIL) Q2 FY25 Research Notes

Overview
Transformers and Rectifiers (India) Limited (TRIL) reported a strong financial performance in Q2 FY25, reflecting its robust growth trajectory. Management reiterated confidence in achieving long-term revenue targets while unveiling several strategic initiatives, such as capacity expansion, backward integration, and export market growth, which are expected to drive sustained financial performance.

Key Management Commentary

  • Revenue Growth:
    TRIL reaffirmed its ambition to reach a $1 Billion revenue target within three years. For FY26, management expects a top-line revenue of ₹3,500 crore, driven by its strong order book and strategic initiatives. For FY25, the company expressed confidence in meeting growth targets, without specifying the exact revenue figure.

  • Order Book:
    TRIL’s order book stood at ₹3,500 crore as of September 30, 2024, supported by ₹1,700 crore of new orders in Q2 FY25. The order book is set to be executed over the next 18 months, giving the company solid visibility into future revenue.

  • Strategic Initiatives:
    The company is executing on several key growth strategies, including:

    • Capacity Expansion: A new 15,000 MVA production capacity is expected to go live in January 2025.
    • Backward Integration: TRIL is investing in facilities for CRGO steel processing, tank manufacturing, and a bushing manufacturing collaboration, expected to be operational by Q1 FY26.
    • Export Market Focus: Aiming to increase export share from 10% to over 25%, the company is engaging with global players in renewable energy and special application transformers.

  • Competitive Advantage:
    TRIL specializes in custom-designed transformers, like electric arc furnace transformers, which allows them to command premium prices and compete in niche markets with limited competition. The company also benefits from strong customer relationships and a focus on operational efficiency, aiming for a 120-day working capital cycle and a goal to become debt-free.

Financial Highlights

  • Revenue:

    • Q2 FY25 Revenue: ₹457 crore, marking a 75% Y-o-Y increase.
    • H1 FY25 Revenue: ₹773 crore, reflecting an 86% Y-o-Y increase.

  • Profitability:

    • Q2 FY25 EBITDA: ₹76 crore, up by 2,136% Y-o-Y, with an EBITDA margin of 16.53%.
    • H1 FY25 EBITDA: ₹118 crore, a 3,148% Y-o-Y growth, with a 15.28% margin.
    • Q2 FY25 PAT: ₹42.8 crore, a 1,272% Y-o-Y increase, achieving a 9.22% PAT margin.
    • Management aims to reach historical EBITDA margin levels of 19% in the near future.

  • Order Inflow:

    • Q2 FY25: ₹1,031 crore.
    • H1 FY25: ₹1,729 crore.
    • The company has an inquiry pipeline of ₹18,000-19,000 crore for potential future orders.

Key Drivers of Growth

  • New Products and Technology:
    TRIL is making strides in Green Hydrogen Transformers, positioning itself as the only qualified supplier in India. This product is expected to contribute to future revenue as the green hydrogen industry gains momentum.

  • Export Market Expansion:
    With focus regions including Europe, Africa, and America, TRIL aims to expand its international footprint. The company’s competitive edge lies in its ability to deliver transformers swiftly, addressing the global shortage due to high demand.

  • Backward Integration:
    The acquisition of a 25,000-ton CRGO steel processing unit is in the final stages, ensuring TRIL controls critical supply chain elements. This backward integration will reduce risks from price fluctuations and supply chain disruptions.

Key Highlights from the Q&A Session

  • EBITDA Margin Outlook:
    Management is optimistic about exceeding the 16.53% EBITDA margin achieved in Q2 FY25, with a goal of reaching 19% sooner than FY27. This will be supported by capacity expansion and backward integration.

  • Export Working Capital:
    TRIL is transitioning export customers to Letter of Credit (LC) payment terms, improving working capital management. Some customers are also offering advance payments due to the high demand for transformers.

  • Demand Across Transformer Types:
    The company expects strong demand for IDT, Scott-connected, STATCOM, and Green Hydrogen Transformers. Their expertise in electric arc furnace transformers allows them to target niche markets with limited competition.

Future Outlook and Guidance

  • Revenue Guidance for FY25:
    The company expects to achieve revenue of around ₹2,000 crore in FY25, with the potential to exceed this figure depending on the completion of organic and inorganic growth initiatives.

  • Debt Reduction:
    TRIL’s goal is to become debt-free, with strong focus on improving debtor days to 120 days in the near term, and eventually 90 days over the next three years.

Conclusion

Transformers and Rectifiers (India) Limited is on a positive trajectory, supported by its strong order book, capacity expansion, and strategic focus on backward integration and export market growth. With robust revenue and profitability in Q2 and H1 FY25, the company is well-positioned to meet its ambitious targets. Long-term prospects appear bright, with the company benefiting from strong global demand, a niche market focus, and operational efficiencies aimed at improving profitability and financial stability.

Note: We are not SEBI registered; this is not a buy or sell recommendation.
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