Sunday, December 9, 2007

Subscribe to Transformers & Rectifiers IPO: Emkay

Emkay Share and Stock Brokers recommended subscribing to initial public offering of Transformers & Rectifiers (India) (TRIL). TRIL is offering 2.99 million equity shares of Rs 10 each for cash, at a price to be decided through a 100% book building process. The issue is open till December 12 and the price band has been fixed between Rs 425 to Rs 465 a share.

Investment Rationale
In-house design and engineering for all products

TRIL has developed its full range of transformers by utilizing the strengths of its in-house design and engineering team. The company is already manufactures transformers upto 220kV class, and is now venturing into the 400kV class of transformers. This has also helped the company deliver customized special-use transformers for its clients, especially the furnace and rectifier transformers.

Strong Order book position gives revenue visibility
TRIL, on its present capacity of 7,200MVA, has an order book of Rs 3,600 million. This is 1.4x its FY07 revenues. This order book is likely to be executed over the next 9-12 months. The broking house expects that this order book would substantially increase once its new 16,000MVA manufacturing facility is commissioned.

56% earnings growth over FY07-09E
The strong order book and high demand for transformers is likely to ensure that the company is able to grow its revenues at 52% CAGR over the next two years that is FY07-09E. The broking house estimates indicate that the revenue growth also translates in a 56% CAGR growth in EPS over FY07-09E.

At the upper end of the price band of Rs 425-Rs 465 a share the company would quote at 14.3x our estimated FY09 earnings, in line with its peers. At the upper end of the price band the valuations do not seem to be cheap but are justified by the high revenue and earnings growth expected over the next two years on account of a strong order book position as well as a significant ramp up in capacity from 7,200MVA in FY08 to 23,200MVA in FY09.

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