Indotech Transformers Ltd - Rs 165.00
Established in 1976, Indotech Transformers Ltd (ITL) is primarily engaged in manufacturing of power & distribution transformers, furnace transformers & special transformers upto 100 MVA / 220 kV class. It is amongst the few companies who have the technology to manufacture mobile sub-station transformers upto 60 MVA/220 kV class adhering to American Standards. Lately, company has also ventured into manufacturing of open ventilated dry type transformers which have higher realization and lucrative margins. Till date, ITL boast of supplying over 56,000 transformers of various capacities to over 3900 customers in India. Besides, it also exports various transformers to USA, UK, Canada, Nigeria, Germany, Egypt, Singapore, Qatar, Abu Dhabi, Saudi Arabia, Sri Lanka, Japan, Switzerland etc. Primarily, company derives the revenue from sale of transformers to state electricity boards, EPC contractors, industrial & corporates customers etc with more than 70% of total revenue coming from various SEB’s and has a market share of around 15% in the southern states.
Till last year, ITL was operating thru two manufacturing facilities spread across Palakkad in Kerala & Thirumazhisai in Chennai with combined production capacity of 3450 MVA. But recently it has set up a state-of-the-art Greenfield plant in Kancheepuram with a name plate capacity of 4000 MVA. Though originally conceived with an installed capacity of 2400 MVA, company decided to revise it to 4000 MVA to cater to anticipated demand. So as of now the total transformer production capacity of the company stands at 7450 MVA. Secondly, this Extra High Voltage transformer plant which commenced commercial operation from Feb 2008, is equipped to manufacture large power transformers upto 315 MVA, 400KV class. Earlier in July 2007, ITL has commissioned a dry type 100 MVA transformer plant for which it has signed a MOU with DuPont (USA). Hence it now also manufactures dry transformers between 100KVA/11kV & 2500KVA/33kV class. These transformers are environmental friendly, maintenance free, very safe, with low operating cost & with overloading capability. The dry type transformers are specifically used in urban areas such as residential complex, malls, software technology parks, office complexes, in addition to other special application areas such as petroleum refineries, in ships and in areas where there is a risk of fire.
As of today, ITL has an order book of nearly Rs 120 cr and is expecting to get further Rs 50 cr in near future. In coming years, company finds huge opportunity as far as business from SEB, power projects, public utilities, industrial customers and exports are concerned. Besides govt’s rural electrification programme to electrify all villages in the country is expected to substantially boost the demand for transformers. Moreover a good demand for transformers is anticipated from the power-intensive sectors like cement, metals, chemicals, oil and gas where massive investments are planned in the coming years. With power being a major input, all the companies are looking at captive power plants to achieve cost efficiencies and assured availability. The dry type transformers will also be in great demand as their application increases in shopping malls, hotels and other commercial set-ups. Apart from domestic demand, the power sector in the developing regions of the world like the Middle East, Africa and Asia is on the growth path and this would be a huge opportunity for the players in the industry to export profitably.
Fundamentally as well financially, ITL is on a strong footing. Recently, it came out with excellent set of nos. Sales improved by 30% to Rs 65 cr and net profit jumped up 40% to Rs 14 cr posting an EPS of Rs 13 for the single quarter. For H1FY09 it has already registered an EPS of Rs 23 against Rs 16 for the same period last year. However, the raw material cost forms around 75% of the pricing of a transformer. So any sharp movement in the prices of the raw material, on either side, may put pressure on the margins of the company. Secondly, if the major raw materials like copper and CRGO continue to correct sharply, this would lead to lower realization for the company. Despite all such concerns, ITL may clock a turnover of Rs 240 cr and profit of Rs 40 cr for FY09. This translates into an EPS of Rs 38 on current equity of Rs 10.60 cr. To conclude, considering company’s very low debt equity ratio and impressive profit margin, investors can buy at current levels for a price target of Rs 280 (i.e. 70% return) in 9~12 months.
Till last year, ITL was operating thru two manufacturing facilities spread across Palakkad in Kerala & Thirumazhisai in Chennai with combined production capacity of 3450 MVA. But recently it has set up a state-of-the-art Greenfield plant in Kancheepuram with a name plate capacity of 4000 MVA. Though originally conceived with an installed capacity of 2400 MVA, company decided to revise it to 4000 MVA to cater to anticipated demand. So as of now the total transformer production capacity of the company stands at 7450 MVA. Secondly, this Extra High Voltage transformer plant which commenced commercial operation from Feb 2008, is equipped to manufacture large power transformers upto 315 MVA, 400KV class. Earlier in July 2007, ITL has commissioned a dry type 100 MVA transformer plant for which it has signed a MOU with DuPont (USA). Hence it now also manufactures dry transformers between 100KVA/11kV & 2500KVA/33kV class. These transformers are environmental friendly, maintenance free, very safe, with low operating cost & with overloading capability. The dry type transformers are specifically used in urban areas such as residential complex, malls, software technology parks, office complexes, in addition to other special application areas such as petroleum refineries, in ships and in areas where there is a risk of fire.
As of today, ITL has an order book of nearly Rs 120 cr and is expecting to get further Rs 50 cr in near future. In coming years, company finds huge opportunity as far as business from SEB, power projects, public utilities, industrial customers and exports are concerned. Besides govt’s rural electrification programme to electrify all villages in the country is expected to substantially boost the demand for transformers. Moreover a good demand for transformers is anticipated from the power-intensive sectors like cement, metals, chemicals, oil and gas where massive investments are planned in the coming years. With power being a major input, all the companies are looking at captive power plants to achieve cost efficiencies and assured availability. The dry type transformers will also be in great demand as their application increases in shopping malls, hotels and other commercial set-ups. Apart from domestic demand, the power sector in the developing regions of the world like the Middle East, Africa and Asia is on the growth path and this would be a huge opportunity for the players in the industry to export profitably.
Fundamentally as well financially, ITL is on a strong footing. Recently, it came out with excellent set of nos. Sales improved by 30% to Rs 65 cr and net profit jumped up 40% to Rs 14 cr posting an EPS of Rs 13 for the single quarter. For H1FY09 it has already registered an EPS of Rs 23 against Rs 16 for the same period last year. However, the raw material cost forms around 75% of the pricing of a transformer. So any sharp movement in the prices of the raw material, on either side, may put pressure on the margins of the company. Secondly, if the major raw materials like copper and CRGO continue to correct sharply, this would lead to lower realization for the company. Despite all such concerns, ITL may clock a turnover of Rs 240 cr and profit of Rs 40 cr for FY09. This translates into an EPS of Rs 38 on current equity of Rs 10.60 cr. To conclude, considering company’s very low debt equity ratio and impressive profit margin, investors can buy at current levels for a price target of Rs 280 (i.e. 70% return) in 9~12 months.
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