Transformers & Rectifiers India: Q2-25 Earnings Call Highlights
In Q2 FY25, TRIL reported strong revenue growth and a healthy order book, targeting $1B in three years while expanding into new markets and focusing on specialty transformers.
transformerindia.com | NSE: TARIL
1. Key Takeaways
1.1 TLDR
Strong Q2 and H1 FY25 results, highlighting a successful turnaround and strong growth trajectory.
Confident of achieving its revenue targets and becoming a debt-free, billion-dollar revenue company in the next three financial years.
The earnings call conveyed a positive outlook with the company demonstrating strong growth momentum and strategic initiatives in place to achieve its ambitious targets.
Management appeared confident in its ability to navigate challenges and capitalize on the growing opportunities in the transformer market.
1.2 Highlights
Robust Order Book: Total order book stands at ₹3,500 crores as of September 30, 2024, with ₹1,700 crores added in the last quarter. The current order book is expected to be executed in the next 18 months.
Impressive Revenue Growth: Standalone revenue reached ₹457 crores in Q2 FY25, marking a 75% YoY increase. H1 revenue stood at ₹773 crores, an 86% YoY increase.
Significant Profitability Improvement: EBITDA for Q2 FY25 reached ₹76 crores, a 236% YoY increase. H1 EBITDA stood at ₹118 crores, a 348% YoY increase. Operating EBITDA margin was 16.53% for Q2 and 15.28% for H1.
Strong PAT Growth: Profit after tax for Q2 FY25 stood at ₹42.18 crores, representing a significant 1272% YoY growth with a net margin of 9.22%.
Demand outlook: Management does not foresee any overcapacity issues in the next 2-3 years, given the strong demand outlook and challenges faced by new entrants in setting up capacity.
Capacity Utilization: TRIL achieved 50% capacity utilization in FY24 and aims for 75-80% in FY25. However, the company believes its effective capacity can be increased by 20% through operational efficiency improvements.
Margin Outlook: While acknowledging the potential for margin improvement, TRIL is maintaining a conservative stance on margin guidance, considering the varying margins across different product categories. The company believes it can reach its historical high of 19% EBITDA margin in the medium term, potentially by FY27.
Strategic Initiatives: TRIL has implemented various strategic initiatives to achieve sustainable profitability and expansion, including:
Capacity Expansion: A new 15,000 MVA capacity will be commercially operational from January 2025.
Backward Integration: The company aims to be 100% backward integrated by Q1 FY26, with a fully automated radiator manufacturing facility and a new fabrication unit becoming operational soon.
Inorganic Growth: Acquisitions are in advanced stages for a CRGO processing unit and a bushing manufacturing facility. Another significant inorganic acquisition is expected to be announced soon.
Focus on Exports: TRIL is targeting a 25% increase in export share, focusing on Europe, Africa, and America, particularly for specialized transformers like electric arc furnace transformers. Strategic tie-ups are being explored with global giants in renewable energy, oil & gas, and specialized rectifier transformers.
Working Capital Management: TRIL is actively working on reducing its working capital cycle, targeting 120 days by next year. The company is converting industrial customers to LC payment terms and is focusing on timely collections from utility customers.
Supply Chain Management: To mitigate supply chain risks, TRIL is focusing on backward integration initiatives for key components like CRGO steel, tanks, and bushings. Long-term contracts have been secured for CRGO steel and copper supply.
Transformers and Rectifiers India Limited Q2 FY25 Earnings Call FAQ
Financials
1. The company's EBITDA margin, excluding other income, has been around 16% for the last two quarters. Is this the target margin or can we expect further improvement?
The company expects further improvement in EBITDA margin. They believe this is not the peak margin and are striving to reach even higher profitability, potentially even reaching 19% achieved in the past.
Exports
2. What is the current percentage of exports in the order book, and what are the targeted export markets?
Exports currently constitute 10% of the order book. The company is aiming to increase this to 25% by FY26, targeting markets in Europe, Africa, and the Americas.
3. What competitive advantages does Transformers and Rectifiers India Limited have in the export market?
The company's key competitive advantage in the export market lies in its ability to deliver products quickly, as global competitors have long lead times stretching into 2029. They also specialize in special duty transformers, such as electric arc furnace transformers, where they face less competition.
Capacity and Expansion
4. When will the new 15,000 MVA capacity addition become operational, and when can we expect it to reach full utilization?
Commercial production from the new facility is expected to start in January 2025. Full capacity utilization is anticipated by Q3 FY26.
5. The company plans to be 100% backward integrated by Q1 FY26. Will this lead to a revised EBITDA margin guidance?
While backward integration will improve margins, the company currently maintains its existing EBITDA margin guidance. The benefits from backward integration will contribute to achieving overall revenue and profitability targets.
Demand and Growth
6. What is the outlook for demand in the transformer industry, particularly with new capacity additions coming online? Is there a risk of overcapacity?
The company does not foresee any risk of overcapacity in the next 2-3 years. There is a strong demand for transformers globally, with a substantial order pipeline and continuous inquiries.
7. What are the company's growth targets for the next few years, and what are the key drivers of this growth?
The company has embarked on a journey to reach US $1 billion in revenue in the next three financial years. This growth will be driven by a combination of organic and inorganic growth initiatives. Organic growth will be fueled by increasing capacity utilization, expanding into new markets, and focusing on special duty transformers. The company also has plans for inorganic growth through strategic acquisitions.
Source: Link to Earning Call Recording
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