Transformer Industry PDF

SECTOR REPORT
Transformer Industry
03 Feb, 2010
TRIL
CMP
415
Target Price
468
VTL
CMP
Target Price
905
1051
We believe investments in T&D infrastructure will drive growth for Transformer

industry. We initiate coverage on Transformers & Rectifiers India Ltd (TRIL),
and Voltamp Transformers Ltd (VTL). We recommend a Buy at Decline on TRIL
with a price target of INR468 and BUY for VTL with a price target of INR1051.
Investment Thesis
India has set for itself ambitious targets of investments in the power sector, in view
of the significant power deficit and sustaining the economic growth momentum.
The momentum of capacity addition is expected to improve in the later half of the
Eleventh Plan and continue at a higher rate during the Twelfth Plan, with large capacity
additions lined up by the private sector.
Investments of INR3.5 trillion and INR4.7 trillion are expected in the power sector
during the eleventh and twelfth five-year plan periods, respectively. Capacity addition
of 54,000MW is expected during the eleventh plan and ~1,00,000MW is planned for
the twelfth plan periods. With huge power plants coming up, the need for transmission
will drive demand for transformers. Significant opportunities are present in 400 Kv,
220 Kv and 132 Kv classes; ~33,878 ckm of 400KV, 26,510 ckm of 220 Kv, 19,708
ckm of 132 Kv and 8,671 ckm of 66 Kv transmission lines are expected to be added by
the end of the eleventh plan period, which would need step-up/down transformers.
Power Grid Corporation of India (PGCIL) plans to increase interregional transmission
capacity (national grid) from 16,450 MW in 2007 to 37,150 MW by 2012, a CAGR
of 18% over 2007-12. Moreover, power sector reforms such as APDRP and RGGVY
have thrown up opportunities for the industry and TRIL.
Approximately 97,456 MVA of transformer capacity was added during 1983-87 and
238,150 MVA during 1987-91. As average life of a transformer is 25 years they are
expected to be replaced during the eleventh and twelfth plan periods.
Thus, significant capacity addition during the eleventh and twelfth plan periods,
focus on transmission and distribution along with replacement demand will present
significant opportunities for Transformer manufacturers.
We initiate coverage on Transformers & Rectifiers India Ltd (TRIL), and Voltamp
Transformers Ltd (VTL).
TRIL: At CMP of INR415, TRIL is trading at a P/E of 10x its FY11E and 8.9x
its FY12E earnings. Looking at opportunities that lie in the power sector, TRILs
capabilities in 400Kv class category, its annual capacity of 23,200 MVA and strong
order book we assign a P/E multiple of 10x to its FY12E earnings and recommend
a Buy at Decline on the stock with a price target of INR 468.
VTL: As significant portion of balance sheet constitutes of investments, we have
valued core (transformer) business separately and then added investments per share.
We have assigned a P/E of 10x to Voltamps core (transformers) business earnings
of INR 70 (FY12E) to arrive at value per share of INR 700. Considering investments
per share of INR351 (FY12E) and core business value of INR700/share, we initiate
coverage on Voltamp Transformer Limited with a BUY recommendation and a
price target of INR1051.
Analyst
Chinmay Gandre
research@acm.co.in
Tel: (022) 2858 3407
ACMIIL
SECTOR REPORT
Power industry
Demand/supply scenario
Power demand increased at a 5% CAGR to 700 billion Kwh in 2007-08 from 410
billion Kwh in 1996-97. However, supply remains a concern. Supply rose to 650
billion Kwh in 2007-08, from 360 billion Kwh in 1996-97.
Supply
2007-08
2006-07
2005-06
2004-05
2003-04
2002-03
2001-02
2000-01
1999-00
1998-99
1997-98
1996-97
1995-96
1994-95
1993-94
1992-93
(billion Kwh)
1991-92
700
650
600
550
500
450
400
350
300
250
200
Demand
Source: CRISIL
Expected capacity addition of

~54,000 MW in the eleventh
plan and Target capacity
addition of 1,00,000 MW for the
twelfth plan
Demand is estimated to grow at 7% and 8% CAGR in the eleventh and twelfth

five-year plan periods, respectively, which would be catered to by new capacity
additions.
In line with the power requirements of the country, GoI is targeting capacity additions
of 70,000MW and 100,000MW in the eleventh and twelfth five-year plan periods,
respectively. However, looking at the trend of actual capacity additions, ~54,000MW
is expected to be added during the eleventh five-year plan period.
Planned Vs Actual Capacity Addition
MW
100000
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
1980-85
1985-90
1992-97
1997-02
2002-07
Target
Actual
2007-12E
2012-2017E
Source: CRISIL, ACMIIL Research
Deficit is expected to continue
Power deficit expected to

continue in eleventh plan
Power deficit was ~10% in 2007-08. Despite the estimated addition of ~54,000MW
in the eleventh five-year plan period, the deficit would continue. However, a
balanced scenario is expected by the end of twelfth five-year plan period.
ACMIIL
SECTOR REPORT
Per cent
Bn Kwh
1600
2%
1400
1200
-2%
1000
-4%
800
-6%
600
400
-8%
200
-10%
0.0
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
Requirement
Availability
-12%
Surplus (deficit) percent
Source: CRISIL Research
Investments in the power sector

Investments in the power sector are expected to grow at a 7% CAGR to INR3.5
trillion in the eleventh five-year plan period, a huge rise from the last few five
year plans. A large share of investment, ~INR2.2 trillion, could be in generation,
followed by INR0.9 trillion and INR0.4 trillion in distribution and transmission,
respectively.
Investment in transmission
Transmission is split into transmission lines and substation, with each accounting
for 50% of the cost. Transformers form a major component of substation and
account for around 30% of the cost, while switchgears account for nearly 40%.
Transmission
Transformers accounts
for ~30% of the substation
component cost
Transmission Line
(50%)
Transmission Line
Towers (TLT) (35%)
Substation component
(50%)
Conducters
(45%)
Others
(20%)
Transformers
(30%)
Switchgears, circuit
breakers, SCADA, etc (40%)
Others
(30%)
Source: CRISIL
ACMIIL
SECTOR REPORT
Overview
The power sector value chain comprises generation, transmission and distribution
(T&D). Electricity generated at a power plant is transmitted to the nearest grid via
step-up transformers and then to the state grid (via step-up or step-down transformers).
Then it is transmitted to a power substation via step-down transformers. Finally,
distribution transformers are used to transmit power from the sub-transmission point
to end consumers.
Transmission
line towers (TLT)
Power generating
station
[1.1 kv-33 kv]
Transmission
line towers (TLT)
Distribution
Transformer
[33kv-220kv]
Step up transformer
[220kv-765kv]
Receiving substation
[220kv-765kv]
Step down power

Transformer
[33kv-220kv]
Step down power

Transformer
[330kv-220kv]
End Users
[Residential/
commercial
users]
Source: CRISIL
Power transformers account for 70-75% of the total installed capacity while
distribution transformer accounts for the remaining 20-25%. In the power transformer
segment, step-down transformers account for 75-80% of the total installed capacity
while step-up transformers account for the rest.
Demand Supply
Demand
Installed transformer capacity on the grid has increased at a 6% CAGR to
1,019,283 MVA in 2007 from 467,517 MVA in 1994. Power generation capacity
grew to 132,329 MW in 2007, from 76,754 MW in 1994. Thus, for addition of
each MW in generation, ~7 MVA of transformer capacity was added on the grid.
MVA per MW increased from 6 MVA per MW in 1994 to 7.7 MVA per MW in
2007 and is expected to increase further given the Government of Indias (GoI)
increased focus on transmission and distribution to reduce transmission losses.
Year
Transformer Capacity
Total Power capacity (MW)
MVA per MW
installed on the Grid (MVA)

1994
467,517
76,754
6.09
1995
493,793
81,172
6.08
1996
511,432
83,295
6.14
1997
497,412
85,796
5.80
1998
580,319
89,103
6.51
1999
584,095
93,416
6.25
2000
655,962
97,948
6.70
2001
649,455
101,997
6.37
2002
687,646
105,112
6.54
2003
725,837
108,085
6.72
2004
759,240
112,171
6.77
2005
906,107
114,164
7.94
2006
965,198
124,287
7.77
2007
1,019,283
132,329
7.70
Source: ACMIIL Research, CRISIL
ACMIIL
SECTOR REPORT
Demand for transformers includes fresh demand (i.e. ~7MVA per MW) and
replacement demand, as average life of a transformer is 25 years.
Demand for
Transformers
Capacity Addition
Replacement
Demand
Fresh Demand
Development of new
Industrial areas
-Sez's
-Industrial Belt, etc
Policies Development of
National Grid RGGVY APDRP
Export Demand
Source: ACMIIIL Research

Note: RGGVY: Rajiv Gandhi Grameen Vidyutikaran Yojana, APDRP: Accelerated Power Development & Reforms
Programme
Eleventh five-year plan

Capacity of ~54,000MW is expected to be added in the eleventh five-year plan period.
This translates into incremental demand of ~415,353 MVA for transformers. The
average life of a transformer is 25 years, which means that transformers installed
during 1982-83 to 1986-87 would be due for replacement in the eleventh five-year
plan period. Around 97,456 MVA of transformer capacity was added during 1982-83
to 1986-87. Thus, demand of ~ 512,809 MVA of transformer capacity is expected
during the eleventh five-year plan period. In addition, ~12,000 to 15,000 MVA of
transformers are exported every year.
Demand for transformers - 11th five year plan
Year
Total Generation
Capacity (MW)
Generation addition
(MW)
2008
143,061
2009
2010E
Transformer Capacity
required (MVA)
Fresh demand for

Transformer (MVA)
Replacement
demand (MVA)
Transformer Demand
(MVA)
10,732
1,101,570
82,287
19,491
101,778
147,965
4,904
1,139,334
37,764
19,491
57,255
158,030
10,065
1,216,834
77,501
19,491
96,992
2011E
171,933
13,903
1,323,887
107,053
19,491
126,544
2012E
186,316
14,383
1,434,636
110,749
19,491
130,240
415,353
97,456
512,809
Total
Source: CRISIL, ACMIIL Research
Twelfth five-year plan

Assuming that ~65,000 MW of capacity would be added during the twelfth fiveyear plan period, incremental demand of 500,500 MVA and replacement demand of
238,150 MVA is expected.
Particulars
12th plan
Capacity Addition (MW)

Expected Demand of Transformers - MVA
65,000 MW
New
Replacement
Total
Power Transformer
370,371
209,359
579,730
Distribution Transformer
130,129
28,791
158,920
500,500
238,150
738,650
Total Demand
Source: ACMIIL Research, CRISIL
Supply
Over the past four years, organized players have accounted for 80-85% of
production of transformers in India. These players increased their capacity from
97,787 MVA in FY06 to 152,065 MVA in FY09 to tap demand and grab the
opportunity arising from the demand-supply mismatch. Installed capacity of these
players currently stands at 172,065 MVA.
ACMIIL
SECTOR REPORT
Top 10 players (Organized sector)
Particulars (MVA)
FY06
FY07
FY08
FY09
Current capacity
Capacity
97,787
113,360
144,190
152,065
172,065
Production
68,008
90,810
107,723
122,487
NA
69.5
80.1
74.7
80.5
NA
Utilization level
Source: ACMIIL Research
Considering the expansion projects under implementation, an additional capacity of

~40,000 MVA is expected by the end of the eleventh plan period, which would take
the total capacity to ~2,10,000 MVA p.a. Thus installed capacity should be sufficient
to cater to the demand for transformers.
Peer group profile

Fragmented industry with ~10 to 12 organized players
The Indian transformer industry (including un organized players) was estimated
to be around INR80 billion as of FY08. The industry is fragmented with only
a few organized players such as BHEL, ABB, Crompton Greaves, Areva T&D,
EMCO, Bharat Bijlee, Indo Tech Transformers Ltd, Voltamp, Vijai Electricals,
TRIL, and IMP Powers. Market share of organised players is to be approximately
80-85% per cent.
Product Profile Primary presence in up to 220 Kv class
In the power transformer category, companies in the high-end segment (400
KV and above) mainly include international players such as ABB, Areva T&D
India, and Siemens and Indian manufacturers such as BHEL, Crompton Greaves,
TRIL and Vijai Electricals. Most other players are present in up to 220 Kv and
in distribution transformers.
Particulars
Power Transformers
Up to 220 Kv
Emco Ltd
Bharat Bijlee Ltd
Indo Tech Transformers Ltd
Voltamp Transformers Ltd
Vijai Electricals
TRIL
220 Kv to 400 Kv
Distribution
Transformers
400 Kv & above

-
Source: CRISIL
Significant capacity expansion

Large players such as BHEL, ABB, Areva T&D, Crompton Greaves, and Siemens
have capacity of more than 15,000 MVA p.a. However, they are diversified power
equipment players and the transformer segment is not a major revenue contributor.
Among players who primarily manufacture transformers, TRIL is the largest by
capacity followed by EMCO, Vijai Electrics, Voltamp, and Bharat Bijlee. Most
players have significantly expanded capacity to tap demand. Over the past four
years, capacity utilization has improved to 80%, on the back of strong demand and
as expansion projects were under construction for majority of the companies.
ACMIIL
SECTOR REPORT
Particulars MVA
Voltamp
TRIL
Bharat Bijlee
EMCO
Indo tech
ABB
Crompton Greaves
BHEL
Areva T&D
Vijai Electrics
Top 10 players
FY06
FY07
FY08
FY09
Capacity
5,400
7,200
9,000
Production
4,503
6,188
7,898
9,000 (13,000-Current Capacity)

9,541
Utilization
83.4
85.9
87.8
106.0
7,200 (23,200 Current capacity)
Capacity
5,400
7,200
7,200
Production
3,780
5,040
5,763
7,248
Utilization
70.0
70.0
80.0
100.7
Capacity
8,000
8,000
8,000
11,000
Production
4,019
6,359
8,111
7,589
Utilization
50.2
79.5
101.4
69.0
Capacity
10,000
10,000
20,000
20,000
Production
7,443
8,406
10,743
10,946
Utilization
74.4
84.1
53.7
54.7
Capacity
2,450
3,350
7,450
7,450
Production
1,843
2,298
2,783
3,101
Utilization
75.2
68.6
37.4
41.6
Capacity
10,000
12,000
12,000
16,875
Production
5,555
8,127
8,944
15,151
Utilization
55.6
67.7
74.5
89.8
Capacity
23,404
25,970
24,670
24,670
Production
14,381
18,895
22,765
23,405
Utilization
61.4
72.8
92.3
94.9
Capacity
16,000
17,500
20,500
20,500
Production
14,847
18,783
17,960
21,704
Utilization
92.8
107.3
87.6
105.9
Capacity
8,500
9,000
15,000
15,000
Production
5,588
8,450
12,075
14,635
Utilization
65.7
93.9
80.5
97.6
Capacity
8,633
13,140
20,370
20,370
Production
6,049
8,264
10,681
9,167
Utilization
70.1
62.9
52.4
45.0
Capacity
97,787
113,360
144,190
152,065
Production
68,008
90,810
107,723
122,487
Utilization
69.5
80.1
74.7
80.5
Currently, BHEL and Areva T&D are undertaking capacity expansion of 25,000
MVA and 15,000 MVA, respectively, which would be commissioned by the end of
the eleventh five year plan. Going forward, it appears unlikely that companies would
undertake new projects given that significant capacity has built up in the industry.
Order Book Revenue visibility of 6 to 9 months
Most transformer manufacturers have a strong order book, with revenue visibility
of 6 to 9 months. Companies such as TRIL and EMCO, which have doubled
capacity to 20,000 MVA and above, have been successful attracting in incremental
orders.
Particulars
Voltamp
TRIL
Order book Q2 FY10 (INR Mn)
4,510
4,491
Order book Q2 FY10 (MVA)
8,110
0.87
Order book to TTM Sales
Bharat Bijlee
EMCO
Indo tech
3,919
5,440
700
10,200
NA
11,700
NA
1.10
0.72
0.56
0.56
ACMIIL
SECTOR REPORT
The industry is typically characterized by high revenue growth, healthy return
ratios, and negligible debt
Particulars
Net Sales
Voltamp
TRIL
Bharat Bijlee
EMCO
Indo tech
6,430.6
4,305.0
5,447.0
9,962.6
2,067.4
Sales CAGR FY06-09
37.2
48.7
21.9
35.0
30.7
OPM
23.3
15.7
15.1
13.9
29.2
NPM
17.9
10.5
8.8
5.3
18.8
EPS CAGR FY06-09
70.8
46.1
12.4
21.8
49.4
D/E
0.0
0.2
0.1
0.8
0.1
RONW
43.4
18.2
24.0
12.1
26.6
ROCE
64.0
24.2
36.2
17.4
40.0
Over the past three years, the industry has recorded strong sales growth CAGR
of more than 30% back by demand and rise in commodity prices.
Over the years operating margins have also improved owing to strong demand
and limited supply (as capacity expansion plans were under construction during
the period).
The industry is characterized by healthy return ratios. Players such as Voltamp
have outperformed the industry with ROCE and RONW in excess of 40% owing
to focus on the industrial segment. Voltamp sold customized products to industrial
clients, which fetched better margins. It also enjoyed lower working capital
requirement on account of faster recovery of dues from industrial clients.
Most players have negligible debt as well as investments in liquid funds.
ACMIIL
SECTOR REPORT
BUYatDecl i n e
Key Data
(INR)
CMP
415
Target Price
468
Key Data
Bloomberg Code
Reuters Code
TRIL IN
TRNF.BO
BSE Code
532928
NSE Code
TRIL
Face Value (INR)

Market Cap. (INR Mn.)
10
5221
52 Week High (INR)
459
52 Week Low (INR)
102.6
Avg. Daily Volume (6m)
23267
Shareholding
Promoters
Transformers & Rectifiers India Ltd

Transformers & Rectifiers India Ltd (TRIL), incorporated in 1994, manufactures
power, distribution, furnace and specialty transformers. The company has three
manufacturing facilities in Changodhar, Odhav and Moraiya. Currently, it has the
second-largest installed capacity (23,200 MVA) in India. SEBs and utility companies
comprise ~70% of its clients. TRILs current order book (Q3FY10) stands at INR3,732
million, ~0.85x TTM sales.
Product Range
TRIL primarily manufactures power transformers. In this segment company has
capability to manufacture 220 kv as well as 400 Kv class transformers. Recently, it
successfully executed an order for supply of 400 Kv transformers to LANCO. The
company also produces distribution and industrial transformers.
Types of
Transformers
%
76.8
FII
2.0
DII
4.6
Others
16.7
Total
100
Power
Transformers
Distribution
Transformers
Furnace
Transformers
Rectifier
Transformers
5 MVA to 160
MVA/400KV
160 KVA & above,

upto 33KV class
105 KA
Upto 160KA DC
Source: Company, CRISIL
Facilities
TRIL has three manufacturing units in Moraiya, Odhav and Changodar near
Ahmedabad, Gujarat. It started a new facility with an annual capacity of 16000 MV
p.a. in Moraiya in May 2009. As a result, the total annual capacity has increased
to 23,200 MVA from 7,200 MVA in FY09. For FY10, TRIL expects production of
3,000-4,000 MVA from this plant. The plants in Moraiya and Changodar primarily
manufacture power transformers, while Odhav produces distribution transformers.
Particulars
Annual Capacity
Built-up area
Moraiya
16,000 MVA
14,000 Sq. M
Changodar
6,000 MVA
7,200 Sq. M
Odhav
1,200 MVA
600 Sq. M
Capability
Production and testing of 765 kV Transformers
Production and testing of 245 kV Transformers, up to
160 MVA.
Production and testing of transformers up to 66 kV, up
to 15 MVA
Source: Company
Order book
Order book growth
The order book grew from INR3,398 million in FY08 to INR3,732 million in
3Q FY10. The MVA order book increased from 6350 MVA in FY08 to 9095
MVA in 3Q FY10. Order intake increased sharply during 1Q FY10 as the same
period also saw Moraiya facility coming on stream. The current order book of
INR3732 million is ~0.85x TTM sales and provides revenue visibility for six to
nine months.
ACMIIL
SECTOR REPORT
Order book
12,000
10,728
10,000
Current order book of INR3732

million is ~0.85x TTM sales and
provides revenue visibility for
six to nine months
8,000
6,000
10,200
9,229
7,240
6,350
7,093
3,837
3,830
Q1 FY09
Q2 FY09
4,000 3,398
9,095
7,134
3,888
4,574
4,892
4,491
Q1 FY10
Q2 FY10
3,732
2,000
0
FY08
Q3FY09
INR Mn
Q4 FY09
Q3 FY10
MVA
Source: Company
Majority of orders are of 120 Kv

and 220 Kv
Order book break up

Over the past three quarters, power transformer orders have been in excess of
70% of the total order book. By transformer class, majority of orders are for 120
Kv and 220 Kv.
Order Book Break up (Q3 FY 10)
Order Book-Transformer Class

>36 KV & <72.5 KV
2%
Export
4%
Furnace & Rectifier
6%
Power
85%
Distribution
5%
>72.5 KV & <145 KV

32%
<36 KV
15%
>245 KV
1%
>145 KV & <245 KV

50%
Source: Company
Capex
TRIL undertook capex of INR700 million for the 16,000 MVA green field facility
in Moraiya. The project was primarily funded through proceeds from an IPO during
FY08. TRIL started the facility in May 2009; with this, the company has more than
tripled its production capacity to 23,200 MVA p.a. TRIL has no further capex plans
in the near term.
ACMIIL
10
SECTOR REPORT
SWOT Analysis
Strengths
Capability to manufacture 400 & above Kv class transformers: TRIL is one
of the few players that can manufacture transformers of 400 Kv & above. The
Moraiya facility is well equipped and has a capacity to produce and test up to765
Kv transformers. So far, in 400KV, the company has supplied two transformers
to LANCO.
Particulars
Emco Ltd
Bharat Bijlee Ltd
Indo Tech Transformers Ltd
Vijai Electricals
TRIL
Power Transformers
Up to 220 Kv
220 Kv to 400 Kv
400 Kv & above
Source: Crisil Research
The company has also developed in-house design and engineering capabilities. It
has approval from utilities for manufacturing power transformers of up to 400 kv
without any external technological support. Recently, it implemented a LANCO
order with in-house technology.
SEBs account for 70% of revenue
TRIL primarily supplies transformers to SEBs which contribute to ~70% of its
total revenue; industrial users account for the rest (Annexure III- TRIL Client List).
With SEBs as its customers, TRIL is insulated from fluctuation in raw material
prices to an extent, as owing to the built-in price variation clause (Annexure IV
Price Variation Formulae), it is passed on to the SEBs. Moreover, the company
is also protected from any slowdown in investments in the private sector.
Negligible debt and investments in liquid funds
The gestation period to manufacture a transformer is 3 to 6 months; this, coupled
with debtor days of more than 120 (as majority clients are SEBs) result in a higher
working capital requirement. In a working capital-intensive business, funding and
working capital management are important success factors. TRIL has INR761.7
(FY09) million in current investments and a low D/E ratio of 0.2, which enable
the company to fund its working capital requirements.
Second-largest facility: TRIL has a production capacity of 23,200 MVA, secondlargest after Crompton Greaves. Thus, the company should be able to explore
significant growth opportunities.
Strong order book: TRIL has a strong orderbook of INR3,732million (~0.85x
TTM sales), which provides revenue visibility for six to nine months.
Weaknesses
Significant capacity build-up to impact realization: Over the past five years,
owing to the demand-supply mismatch, transformer manufacturers have recorded
higher realization and profitability. However, significant capacity has been built
up in the industry. Transformer capacity has increased to ~2,00,000 MVA from
~1,25,000 MVA in FY06. In addition, ~40,000 MVA is expected to be operational
by the end of the eleventh plan period. Thus, considering this and the competition,
realizations are expected to drop and in turn impact the growth of the company.
ACMIIL
11
SECTOR REPORT
Dependence on imports for CRGO (Cold Rolled Grain Oriented Steel): CRGO
constitutes ~35% of the raw material cost. The component is not manufactured in
India due to high manufacturing cost. Indian manufacturers including TRIL are
thus exposed to possible constraints on timely availability of CRGO.
Opportunities
Significant capacity addition during the eleventh and twelfth plan periods:
Capacity addition of 54,000MW is expected during the eleventh plan and
~1,00,000MW is planned for the twelfth plan periods. With huge power plants
coming up, the need for bulk transmission will drive demand for higher class
transformers.
Focus on transmission and distribution:
Power Grid Corporation of India (PGCIL) plans to increase interregional
transmission capacity (national grid) from 16,450 MW in 2007 to 37,150 MW
by 2012, a CAGR of 18% over 2007-12. Moreover, power sector reforms such as
APDRP and RGGVY have thrown up opportunities for the industry and TRIL.
Replacement demand:
Approximately 97,456 MVA of transformer capacity was added during 1983-87
and 238,150 MVA during 1987-91. As average life of a transformer is 25 years,
transformers are expected to be replaced during the eleventh and twelfth plan
periods.
Threats
Severe competition: MNCs such as ABB and Areva T&D have strong presence
in the Indian market. In addition, ten to twelve domestic manufacturers as well as
un-organized players are competing for orders from SEBs, utilities and industrial
clients. This makes the market very competitive, especially since the orders
normally are awarded to bidders with a high technical score and the lowest bid.
Financials
Net sales
TRILs net sales grew at a 49% CAGR to INR4,305 million in FY09, from INR1,308.3
million in FY06, driven by capacity addition and healthy realization on the back of
rise in commodity prices.
Capacity and Production Details
6000
5,662
4,305
4000
1000
0
4,686
1,308
5,000
FY07
FY08
FY09
FY10E
FY11E
23,200
23,200
23,200
FY12E
80
60
12,000
49
5,400
2,630
FY06
7,200
4,328
FY07
7,200 7,526 7,200

43
5,543
10,000
FY08
Production
120
100
77
15,000
10,000
2,212
FY06
105
20,000
3,057
3000
2000
6,2579
MVA
Rs. mn
5000
25,000
FY09
Capacity
FY10E
52
13,000
56
60
Net Sales
7000
40
20
FY11E
Utilization Level
FY12E
Source: ACMIIL Research, Company
We expect TRILs realization to decrease (FY09-12) due to significant capacity

build-up in the industry. However, we expect net sales to grow at a CAGR of 12%
to INR6,257 million in FY12, from INR4,305 million in FY09, primarily driven by
volume growth.
ACMIIL
12
SECTOR REPORT
Margins
We expect operating profit margin to decrease in FY11E and FY12E to 15% and
14.5%, respectively, due to capacity build-up in the industry.
Margins
20
Percentage
18
16
14
12
10
8
6
4
2
0
19.0
15.6
15.8
11.3
10.5
FY08
FY09
15.5
15.0
14.5
9.4
9.5
9.7
FY11E
FY12E
8.0
FY07
OPM
FY10E
NPM
Source: ACMIIL Research, Company
We estimate PAT margin to fall to 9.5% and 9.7% in FY11E and FY12E from 10.5%
in FY09 owing to fall in operating margins.
Valuation and Recommendation

At CMP of INR415, TRIL is trading at a P/E of 10x its FY11E and 8.9x its FY12E
earnings. Looking at opportunities that lie in the power sector, TRILs capabilities
in 400Kv class category, its annual capacity of 23,200 MVA and strong order book
we assign a P/E multiple of 10x to its FY12E earnings and recommend a Buy at
Decline on the stock with a price target of INR 468.
700
One year forward P/E Chart
600
500
400
300
200
100
28-Dec-07
28-Jan-08
28-Feb-08
28-Mar-08
28-Apr-08
28-May-08
28-Jun-08
28-Jul-08
28-Aug-08
28-Sep-08
28-Oct-08
28-Nov-08
28-Dec-08
28-Jan-09
28-Feb-09
28-Mar-09
28-Apr-09
28-May-09
28-Jun-09
28-Jul-09
28-Aug-09
28-Sep-09
28-Oct-09
28-Nov-09
28-Dec-09
28-Jan-10
Close Price
11 PE
12 PE
10 PE
8 PE
ACMIIL
13
SECTOR REPORT
Profit & Loss Account
Particulars
INR Mn
FY06
FY07
FY08
FY09
FY10E
FY11E
FY12E
Net Sales
1,308.3
2,212.0
3,057.1
4,305.0
4,686.4
5,662.5
6,257.0
Total Expenditure
1,165.7
1,867.2
2,474.8
3,627.0
3,960.0
4,813.1
5,349.8
Operating Profit
142.6
344.8
582.2
678.0
726.4
849.4
907.3
6.7
7.6
59.1
108.1
50.0
75.0
100.0
149.3
352.4
641.3
786.1
776.4
924.4
1,007.3
8.4
16.8
21.5
28.0
53.7
61.8
64.6
140.9
335.5
619.7
758.1
722.7
862.6
942.7
21.2
55.0
81.1
74.8
48.0
42.0
20.0
PBT
119.7
280.6
538.7
683.3
674.7
820.6
922.7
Taxes
43.2
100.1
186.5
225.3
236.1
283.1
318.3
PAT
76.5
176.3
346.0
452.4
438.6
537.5
604.4
69.1
38.2
40.8
8.9
20.8
10.5
Growth in Operating profits (%)
141.8
68.9
16.5
7.1
16.9
6.8
Growth in PAT (%)
130.3
96.3
30.7
-3.1
22.6
12.4
10.9
15.6
19.0
15.7
15.5
15.0
14.5
5.9
8.0
11.3
10.5
9.4
9.5
9.7
Other Income
EBIDTA
Depreciation
EBIT
Interest
Growth in sales (%)
OPM (%)
Net Profit Margin (%)
Source: Company, ACMIIL Research
Balance Sheet
Particulars
INR Mn
FY06
FY07
FY08
FY09
FY10E
FY11E
FY12E
Sources of Funds
Share Capital
68.2
70.9
129.2
129.2
129.2
129.2
129.2
Reserves and Surplus
147.4
345.2
1,963.3
2,354.9
2,733.5
3,211.0
3,755.4
Total Shareholders Funds
215.5
416.2
2,092.5
2,484.2
2,862.7
3,340.2
3,884.6
Total Loan Funds
174.1
317.3
384.2
608.9
400.0
350.0
100.0
14.8
15.3
2.1
9.6
9.6
9.6
9.6
Net Deferred Tax Liability

Minority interest
Total Capital Employed
0.0
18.5
24.6
28.1
28.1
28.1
28.1
404.4
767.3
2,503.5
3,130.7
3,300.4
3,727.9
4,022.3
152.5
251.6
321.5
560.5
1,074.0
1,124.0
1,174.0
Application of Funds
Gross Block
Less: Accumulated Depreciation
41.4
61.4
82.6
109.8
163.5
225.3
289.9
111.1
190.2
238.9
450.7
910.5
898.7
884.1
Capital Work in Progress
9.8
51.3
191.7
413.5
20.0
20.0
20.0
Investments
0.0
2.1
760.9
766.5
766.5
766.5
1,216.5
Net Block
Net Current Assets
282.9
523.4
1,311.4
1,499.9
1,603.3
2,042.6
1,901.6
Total Assets
404.4
767.3
2,503.5
3,130.7
3,300.4
3,727.9
4,022.3
ACMIIL
14
SECTOR REPORT
Cashflow Statement
Particulars
Pre tax profit
INR Mn
FY06
FY07
FY08
FY09
FY10E
FY11E
FY12E
119.7
280.6
538.7
683.3
674.7
820.6
922.7
Depreciation
8.4
16.8
21.5
28.0
53.7
61.8
64.6
Interest Exp
21.2
55.0
81.1
74.9
48.0
42.0
20.0
Add
Profit before working capital changes
147.1
353.6
613.0
719.8
776.4
924.4
1,007.3
-113.4
-249.0
-814.2
-236.0
-100.3
-407.0
106.8
Less Taxes
-45.2
-49.6
-206.7
-208.3
-236.1
-283.1
-318.3
Net Cash flow from operating activities
-11.5
55.1
-407.9
275.5
440.0
234.2
795.7
Net Cash flow in investment activities
-41.6
-85.2
-936.6
-404.9
-120.0
-50.0
-500.0
Net Cash flow from financing activities
52.9
36.7
1,361.7
105.8
-316.8
-152.0
-330.0
Net increase /(decrease) in cash
Working capital changes
-0.2
6.7
17.2
-23.7
3.2
32.3
-34.2
Op. balance of cash and cash equivalents
0.4
1.4
8.0
25.2
1.5
4.7
37.0
Cl. balance of cash and cash equivalents
0.2
8.0
25.2
1.5
4.7
37.0
2.7
Ratios
Particulars
FY06
FY07
FY08
FY09
FY10E
FY11E
FY12E
Profitability Ratios
OPM (%)
PAT Margin (%)
10.9
15.6
19.0
15.7
15.5
15.0
14.5
5.9
8.0
11.3
10.5
9.4
9.5
9.7
RONW (%)
35.5
42.4
16.5
18.2
15.3
16.1
15.6
ROCE (%)
34.8
43.7
24.8
24.2
21.9
23.1
23.4
EPS (Rs.)
11.2
24.9
26.8
35.0
33.9
41.6
46.8
CEPS (Rs.)
12.5
27.8
28.9
37.6
38.1
46.4
51.8
BV Per Share (Rs.)
31.6
58.7
161.9
192.2
221.5
258.5
300.6
P/E (x)
12.2
10.0
8.9
P/CEPS (x)
10.9
8.9
8.0
P/BV (x)
1.9
1.6
1.4
Debt/Equity
0.8
0.8
0.2
0.2
0.1
0.1
0.0
Current Ratio
1.4
1.6
2.5
2.6
2.5
2.6
2.4
Debtors turnover ratio
2.5
3.6
3.1
3.0
2.9
3.0
3.0
Inventory turnover ratio
4.2
6.1
5.8
7.0
7.0
7.0
7.1
11.8
11.6
12.8
9.6
5.1
6.3
7.1
Per Share Ratios
Valuation Ratios
Capital Structure Ratios
Turnover Ratios
Fixed Asset Turnover

ACMIIL
15
SECTOR REPORT
B U Y
CMP
Target Price
(INR)
905
1051
Key Data
Bloomberg Code
VAMP IN
Reuters Code
VOTL.BO
BSE Code
532757
NSE Code
VOLTAMP
Face Value (INR)

Market Cap. (INR Mn.)
52 Week High (INR)
52 Week Low (INR)
Avg. Daily Volume (6m)
Shareholding
10
9318.5
1050
265
85663
%
Promoters
46.1
FII
23.8
DII
10.0
Others
20.1
Total
100
Voltamp Transformers Ltd (VTL), established in 1963, manufactures power,

distribution transformers and dry-type transformers. The company has manufacturing
facilities in Vadodara and Vadadla with installed capacity of 9,000MVA and 4,000MVA
respectively. The industrial segment accounts for ~80-90% of VTLs client base. The
companys current order book stands at INR4,176.3 million, 0.8x TTM sales.
Product Range
The company manufactures power, distribution and dry type transformers. In the
power transformer segment, VTL manufactures up to 100 MVA and 220 Kv class
transformers. In dry type transformers, the company is a leader with a market share
of 40%. It manufactures two types of dry transformers, vacuum resin impregnated up
to 5 MVA, 11Kv and Cast resin up to 7.5MVA, 33 Kv, in technical collaboration with
MORA (Germany) and HTT (Germany) respectively. Power transformers (49%)
contribute to the majority of VTLs revenue followed by distribution and dry-type
transformers.
Revenue Break Up FY09
Product Portfolio
Power transformer
5MVA, 33KV to 100MVA, 220KV
Distribution
315KVA, 11KV to 5MVA, 33KV
Dry
63KVA, 11KV to 7.500 MVA, 33KV
Power Transformer
49%
32%
Dry Transformer
19%
Source: Company
Facilities
Particulars
Annual Capacity (MVA)
Capability
9,000
Produce and test up to 220 Kv and 100 MVA primarily power
Vadodara
transformers
Vadadla
4,000
Manufacture Distribution and dry type transformers
Source: Company
Voltamp has two manufacturing units in Vadodara and Vadadla, Gujarat. Its Greenfield
unit in Vadadla has an installed capacity of 4,000MVA and commenced operations in
November 2009. As a result, its total annual capacity has increased to 13,000MVA,
comprising 6,000MVA, 5,000MVA, and 2,000MVA of power, distribution and
dry type transformer capacities respectively. The plant in Vadodara primarily
manufactures power and distribution transformers, while the new facility at Vadadla
will manufacture dry and distribution transformers.
Capacity Break Up
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2300
2700
3500
4800
4800
6000
1700
2000
2700
3200
3200
5000
MVA
Key Data
500
700
1000
1000
1000
2000
FY05
FY06
FY07
FY08
FY09
FY10
Dry Transformer
Power Transformer
Source: Company
ACMIIL
16
SECTOR REPORT
Order Book
VTLs order book grew from INR1,489 million in FY06 to INR4,176.3 million in
January 2010. Current order book is ~0.8x TTM sales, providing revenue visibility
for 6-9 months. Majority of the order backlog comprises power transformers (~51%)
followed by distribution (26%) and dry transformers (23%).
Order Book
5000
4750
4500
4072
4000
4176.3
3505
3500
INR MN
Majority of orders comprises of

orders from industrial users
4510
2926
3000
2500
2000
1500
1489
1000
500
0
FY06
FY07
FY08
FY09
Jun 09
Oct 09
Jan 10
Source: Company
Nature of contracts
VTL primarily supplies to industrial clients, which contribute to ~80 to 90% of its
total revenue. Industrial orders are at fixed prices and thus expose the company to
movement in raw material prices. However, to protect itself from fluctuating raw
material prices, VTL hedges with the help of forward contracts.
Capex
The company undertook capex of INR261.7 million for the 4,000MVA Greenfield
facility in Vadadla. The project was primarily funded through internal accruals. It
incurred expenditure of INR143.8 million in FY09 and the rest has been spent in
FY10. The facility started operations in November 2009; with this, the company
has a production capacity of 13,000MVA p.a. VTL has no further capex plans in the
near term.
SWOT Analysis
Strength
Efficient working capital management and funding:
Funding and working capital management are important factors for a transformer
company. VTL primarily supplies to industrial clients, and as a result, working
capital being blocked in the form of debtors is considerably low compared with
peers. Debtor days for VTL are ~53 versus 75-120 days for peers.
FY09
Debtor days
Voltamp
TRIL
Bharat Bijlee
EMCO
Indo tech
52.4
119.8
108.7
162.6
76.6
The company also has INR1,352 million (FY09) as current investments and zero
debt, which helps fund working capital requirement.
Diverse client base
VTL has a diverse industrial client base and it is not dependent on any particular
industry. It supplies to various industries such as petrochemicals, metals, cement,
real estate and others. No sector contributes more than 15% to its revenue. In
FY09, its top 10 clients accounted for 39% of its revenue.
ACMIIL
17
SECTOR REPORT
Industry Wise Revenue Break Up
Sugar
2%
Chemicals
2%
Others
11%
Petro chemicals
15%
Textile
2%
Auto & auto ancl
4%
Metals
11%
Engg& Electricals
5%
Private utilities
5%
Power Projects
10%
Infra project
7%
SEBS
8%
Real estate
9%
Cement
9%
Source: Company
Presence in dry type transformers: VTL is a leading manufacturer of dry

transformers with a market share of ~40%. It manufactures vacuum resin
impregnated dry and cast resin transformers. The segment contributes ~ 20%
to revenue and grew at a CAGR of 29% (FY06-09). Dry transformers find
application in high-rise buildings, hotels, stadiums, airports, and ports as they are
non-inflammable, environment-friendly and maintenance-free.
Strong order book: VTL has an order book of INR4,510 million (~0.9x TTM
sales), which provides revenue visibility for 6-9 months.
Weaknesses
Significant capacity build-up to impact realization: Over the past five years,
owing to the demand-supply mismatch, transformer manufacturers have recorded
higher realization and profitability. However, significant capacity has been built
up in the industry. Transformer capacity has increased to ~2,00,000MVA from
~1,25,000MVA in FY06. In addition, ~40,000MVA is expected to be operational
by the end of the eleventh plan period. Thus, given this and the competition,
realizations are expected to drop and in turn impact the growth of the company.
Dependence on industrial clients: As VTL primarily supplies to industrial clients
such as Reliance industries, Jindal steel, Infosys, Siemens, ABB, L&T, and Reliance
Energy, it is exposed to the slowdown in investments in the private sector.
Dependence on imports for CRGO (Cold Rolled Grain Oriented Steel): CRGO
constitutes ~35% of the raw material cost. The component is not manufactured
in India due to high manufacturing cost. Indian manufacturers including VTL are
thus exposed to possible constraints on timely availability of CRGO.
Opportunities
Thrust of GOI on the power sector
Capacity addition of 54,000MW is expected during the eleventh plan and
~1,00,000MW is planned for the twelfth plan periods. Moreover, initiatives
such as development of a national grid along with power sector reforms such
as APDRP and RGGVY have brought about significant opportunities for the
industry and VTL.
Private sector investments:
Investments in the private sector have recorded strong growth from 2006 onward.
Projects under implementation have grown from INR4.1 trillion in Q2FY06 to
19.8 trillion in Q2 FY10. New project announcements have also registered healthy
growth of 44% during the same period. Although the global financial crisis has
slowed down project announcements, current announcements of INR17.2 trillion
are significantly higher compared with the average of INR2.0 trillion during
2002-05.
ACMIIL
18
SECTOR REPORT
Private Sector-Investments
25
INR trillion
20
15
10
5
De
cAu 1999
g2
De 000
c-2
Au 000
g2
De 001
c-2
Au 001
g2
De 002
c-2
Au 002
g2
De 003
c-2
Au 003
g2
De 004
c-2
Au 004
g2
De 005
c-2
Au 005
g2
De 006
c-2
Au 006
g2
De 007
c-2
Au 007
g2
De 008
c-2
Au 008
g20
09
Under Implementation
Announcement
Source: CMIE
Threats
Severe competition: MNCs such as ABB and Areva T&D have strong presence
in the Indian market. In addition, 10-12 domestic manufacturers as well as unorganized players compete for orders from SEBs, utilities and industrial clients.
This makes the market very competitive.
Financials
Net Sales
Net Sales
8000
7000
6000
5,553
Rs. mn
5000
5,250
4,058
4000
3000
7,091
6,536
6,431
2,488
2000
1000
0
FY06
FY07
FY08
FY09
FY10E
FY11E
FY12E
VTLs net sales grew at a 46% CAGR to INR6,430.6 million in FY09, from
INR2,487.9 million in FY06, driven by capacity addition and healthy realization on
the back of rise in commodity prices.
Capacity & Production Details
88
74
2,000
0
FY07
FY08
FY09
Capacity
Production
9624
9,000
9541
13,000
FY06
9,000
7898
4,000
7,200
6188
6,000
100
88
82
80
13,000
11500
86
8,000
5,400
4503
MVA
83
13,000
10600
12,000
10,000
120
106
60
14,000
40
20
FY10E
FY11E
Utilization level
FY12E
ACMIIL
19
SECTOR REPORT
In FY10E, we expect VTLs net sales to dip INR5,250 million owing to fall in
realizations. For FY11E and FY12E, we expect sales to increase to 6,536.3 million
and INR 7,091.3 million respectively, backed by volume growth.
Margins
In FY08 and FY09, VTL recorded exceptional margins in excess of 20% as the
period was characterized by strong demand due to huge investments and liquidity in
the economy. However, operating margins have dropped to the 19% in 9M FY10, as
investments have slowed down. For FY11E and FY12E, we expect operating profit
margins to remain low at 16.3% and 16% respectively.
Margins
25
21.2
Percentage
20
15
10
13.6
15.1
23.3
19.1
17.9
14.4
15.6
18.0
16.5
14.5
16.0
13.0
12.8
9.7
9.3
5
0
FY06
FY07
FY08
FY09
OPM
9M FY10
FY10E
FY11E
FY12E
NPM
We estimate PAT margin to fall to 13% and 12.8% in FY11E and FY12E respectively,
owing to fall in operating margins and increase in depreciation cost.
Valuation and Recommendation

As significant portion of balance sheet constitutes of investments, we have used valued
core (transformer) business separately and then added investments per share.
Looking at opportunities that lie in the power sector, investment announcements in
private sectors, and a strong order book, we assign a P/E of 10x to Voltamps core
(transformers) business earnings of INR 70 (FY12E) to arrive at value per share of
INR 700.
Considering investments per share of INR351 (FY12E) and core business value of
INR700/share, we initiate coverage on Voltamp Transformer Limited with a BUY
recommendation and a price target of INR1051.
Particulars
Core business
Adjusted PAT
(FY12E)
Adjusted EPS
(FY12E)
P/E multiple
Segment value
per share (INR)
707.9
70.0
10
700
Investments per share
351
Target Price
1051
ACMIIL
20
SECTOR REPORT
Financials
Profit & Loss Account
Particulars
INR Mn
FY06
FY07
FY08
FY09
FY10E
FY11E
FY12E
Net Sales
2,487.9
4,058.0
5,553.5
6,430.6
5,249.6
6,536.3
7,091.3
Total Expenditure
2,148.6
3,444.5
4,374.9
4,932.1
4,304.7
5,457.8
5,956.7
Operating Profit
339.4
613.5
1,178.6
1,498.6
944.9
1,078.5
1,134.6
42.8
48.7
107.6
239.7
240.0
265.0
300.0
382.2
662.2
1,286.2
1,738.3
1,184.9
1,343.5
1,434.6
19.2
21.7
31.3
44.7
62.0
70.7
71.8
363.0
640.5
1,254.8
1,693.6
1,123.0
1,272.8
1,362.8
10.1
12.6
5.0
4.7
6.2
6.2
6.2
PBT
352.9
627.9
1,249.8
1,689.0
1,116.8
1,266.6
1,356.6
Taxes
122.7
232.3
450.8
540.9
357.4
418.0
447.7
PAT
230.2
395.6
799.0
1,148.0
759.4
848.6
908.9
Adj PAT (Core Business)
202.3
364.9
730.3
985.1
596.2
671.1
707.9
Growth in Sales (%)
63.1
36.9
15.8
-18.4
24.5
8.5
Growth in Operating Profits (%)
80.8
92.1
27.1
-36.9
14.1
5.2
Growth in PAT (%)
71.8
102.0
43.7
-33.9
11.8
7.1
Growth in Adj PAT
80.4
100.1
34.9
-39.5
12.6
5.5
Other Income
EBIDTA
Depreciation
EBIT
Interest
OPM (%)
13.6
15.1
21.2
23.3
18.0
16.5
16.0
PAT (%)
9.3
9.7
14.4
17.9
14.5
13.0
12.8

Balance Sheet
Particulars
INR Mn
FY06
FY07
FY08
FY09
FY10E
FY11E
FY12E
Sources of Funds
Share Capital
101.2
101.2
101.2
101.2
101.2
101.2
101.2
Reserves and Surplus
593.5
894.4
1,545.5
2,545.6
3,187.6
3,918.9
4,710.5
Total Shareholders Funds
694.7
995.6
1,646.7
2,646.7
3,288.8
4,020.1
4,811.6
Total Loan Funds
189.5
9.0
10.4
0.0
10.0
10.0
10.0
Total Capital Employed
884.2
1,004.5
1,657.1
2,646.7
3,298.8
4,030.1
4,821.6
177.4
215.3
324.5
370.7
632.4
642.4
652.4
Less: Accumulated Depreciation
96.6
116.4
147.0
190.3
252.3
322.9
394.7
Net Block
80.9
98.9
177.6
180.4
380.2
319.5
257.7
Application of Funds
Gross Block
Capital Work in Progress
3.5
27.2
16.9
143.8
10.0
10.0
10.0
Investments
0.5
232.3
581.1
1,352.5
2,200.0
2,650.0
3,550.0
Net Current Assets
797.8
636.3
879.0
965.4
704.0
1,045.9
999.3
Differed Tax Assets
1.4
9.9
2.5
4.6
4.6
4.6
4.6
884.2
1,004.5
1,657.1
2,646.7
3,298.8
4,030.1
4,821.6
Total Assets
ACMIIL
21
SECTOR REPORT
Cashflow Statement
INR Mn
Particulars
FY06
FY07
FY08
FY09
FY10E
FY11E
FY12E
Pre tax profit
366.6
665.8
1,249.6
1,689.0
1,116.8
1,266.6
1,356.6
Depreciation
19.2
21.7
31.3
44.7
62.0
70.7
71.8
Interest Exp
10.1
12.6
5.0
4.7
6.2
6.2
6.2
Add
Profit before working capital changes
392.3
694.3
1,244.2
1,673.6
1,184.9
1,343.5
1,434.6
Working capital changes
-255.0
76.0
-340.4
-93.9
285.0
-334.5
65.8
Less Taxes
-151.9
-215.5
-447.7
-521.0
-357.4
-418.0
-447.7
Net Cash flow from operating activities
-14.6
554.8
456.1
1,058.7
1,112.6
591.0
1,052.7
Net Cash flow in investment activities
-26.3
-288.9
-406.4
-881.1
-975.4
-460.0
-910.0
Net Cash flow from financing activities
38.3
-198.9
-98.3
-163.0
-113.6
-123.6
-123.6
Net increase /(decrease) in cash
-2.7
66.9
-48.6
14.5
23.7
7.4
19.1
Op. balance of cash and cash equivalents
30.5
27.8
94.7
46.1
60.6
84.3
91.8
Cl. balance of cash and cash equivalents
27.8
94.7
46.1
60.6
84.3
91.8
110.9
FY06
FY07
FY08
FY09
FY10E
FY11E
FY12E
13.6
15.1
21.2
23.3
18.0
16.5
16.0

Ratios
Particulars
Profitability Ratios
OPM (%)
PAT Margin (%)
9.3
9.7
14.4
17.9
14.5
13.0
12.8
RONW (%)
33.1
39.7
48.5
43.4
23.1
21.1
18.9
ROCE (%)
41.1
63.8
75.7
64.0
34.0
31.6
28.3
Adj RONW (%)
29.1
47.8
68.5
76.1
54.8
49.0
56.1
Adj ROCE (%)
35.1
75.0
106.2
112.0
79.8
72.6
83.1
EPS (Rs.)
22.8
39.1
79.0
113.5
75.1
83.9
89.8
Adj EPS
20.0
36.1
72.2
97.4
58.9
66.3
70.0
CEPS (Rs.)
24.7
41.3
82.1
117.9
81.2
90.9
96.9
BV Per Share (Rs.)
68.7
98.4
162.8
261.6
325.1
397.4
475.6
P/E (x)
12.1
10.8
10.1
P/CEPS (x)
11.1
10.0
9.3
P/BV (x)
2.8
2.3
1.9
Debt/Equity
0.3
0.0
0.0
0.0
0.0
0.0
0.0
Current Ratio
3.4
1.9
2.0
2.4
2.2
2.1
2.2
6.5
10.7
9.2
7.0
6.9
8.5
7.9
Per Share Ratios
Valuation Ratios
Capital Structure Ratios
Turnover Ratios
Debtors turnover ratio
Inventory turnover ratio
Fixed Asset Turnover
3.9
5.9
7.1
9.7
9.1
9.3
8.6
30.8
41.0
31.3
35.6
13.8
20.5
27.5
ACMIIL
22
SECTOR REPORT
Annexure I - Transformers
For transmission and distribution networks to transfer large amounts of alternating current electricity over long distances with
minimum losses and least cost, different voltage levels are required in various parts of networks. A generation unit produces
electric current at a lower voltage, which has to be increased for efficient transmission and for reducing T&D losses during the
transmission of electricity. The voltage again has to be lowered for the purpose of Sub transmission and Distribution of electricity
for end use consumption. Transformers enable requisite changes in voltage.
A transformer has two types of circuits: primary circuit and secondary circuit. The primary and secondary coils are wrapped
around a core. A changing current in the first circuit (the primary) creates a changing magnetic field, which in turn induces a
changing voltage in the second circuit (the secondary). This process is known as mutual induction. By adding a load to the secondary
circuit, one can make current flow into the transformer, thus transferring energy from one circuit to the other
The iron core forms a complete magnetic circuit and is made up of laminated strips of special steel having low hysteresis loss
and high electrical resistivity. The lamination of the core reduces the eddy-current loss. For an average transformer used in a
MAGNETIC FLUX
SECONDARY WINDING
PRIMARY WINDING
AC
APPLIED
VOLTAGE
OUTPUT POWER=
INPUT POWER
MINUS LOSSES
INPUT
POWER
OUTPUT
AC
VOLTAGE
IRON CORE
ESSENTIALS OF A TRANSFORMER
power station, the conductor used for the windings consists of paper insulated copper bar or wire. In assembling the transformer,
great care is taken to ensure windings are well insulated, both from the iron core and from each other. The basic construction of
a core type transformer consist of an iron core, a cylinder of insulation followed by the low voltage winding, a further insulating
cylinder and a high voltage winding. Clamps are used to hold the assembly in place.
Raw material break up
Copper: 30-35%
MS Steel: 8-10%
Transformer Oil: 5-10%
Components & Others: 15-20%
CRGO Steel: 30-35%
(CRGO performs the function of generating magnetic flux in the transformers and is a key raw material besides copper. As CRGO
steel is not manufactured domestically, it is imported directly from global majors like Thyssen of Germany, Kawasaki and Nippon
Steel of Japan, AK Steel of USA or indirectly through Minerals and Metals Trading Corporation and local traders.)
Type of transformer
Power transformers:
Power Transformers are used for changing the voltage of electric supply from generators while connecting them to power
evacuation system and further in transmission. They can be Step up (for increasing voltage levels) or Step down transformers
(for reducing voltage levels) e.g. the power at generation level is of low voltage and has to be changed to higher voltage
level for the purpose of transmission. They range from 11 kV to 765 kV and account for 70-75% of the total value of the
transformer industry.
Distribution transformers:
Distribution Transformers are used for changing the voltage at various stages of sub-transmission and distribution - the power
at transmission level is of higher voltage and has to be changed to lower voltage level for the purpose of sub transmission and
distribution. Distribution transformers are used to transfer power from transmission to distribution points. They account for
25- 30% of the total value of the transformer industry.
ACMIIL
23
SECTOR REPORT
Dry type transformers:
Dry type transformers can either be a power transformer, distribution transformer or an industrial transformer. They are used in
places where there are high chances of a fire breaking out. As there is no oil used in the transformer, the fire risk is considerably
reduced in this type of transformers. Dry type simply means it is cooled by normal air ventilation. The dry type transformer
does not require a liquid such as oil or any other liquid to cool the electrical core and coils.
Annexure II - Transmission system in India

The transmission system in India operates at several voltage levels:
Extra high voltage: High voltage direct current (HVDC), 765 kV, 400 kV, 220 kV and 132 kV
High tension: 66kV, 33 kV, 11kV
Low tension : 6.6 kV, 3.3 kV, 1.1 kV, 220 V
Annexure III TRIL Client List

Utilities
Industrial clients:
Transmission Corp of Andhra Pradesh Ltd
LNT
Maharashtra State Electricity Transmission Co
Seimens
Gujarat Energy Transmission Corporation Ltd
Rohit Ferro-Tech Ltd
Uttar Pradesh Corporation
Suzlon Energy
Tamil Nadu Electricity Board
Monnet Ispat & Industries Ltd
Kerala State Electricity Board

NTPC
Annexure IV Price Variation Formulae

Assuming delivery is in the month of December
Assuming order was tender in the month of May
Original price (Po)
100.00
Raw material
Copper
CRGO
WPI - Iron & steel
Insulation Material
Transformer Oil
CPI Industrial worker Index
Price
Weight
August - 4 M prior to delivery
Prices as of
C
125
0.23
0.29
March - 2 M prior to Tender
Co
100
Sept - 3 M prior to delivery
ES
110
0.28
0.31
April - 1 M prior to Tender
ESo
100
Saturday Sept - 3 M prior to Delivery
IS
105
0.07
0.07
Saturday Feb - 3 M prior to Tender
ISo
100
Sept - 3 M prior to delivery
IM
115
0.07
0.08
April - 1 M prior to Tender
IMo
100
Oct- 2M prior to delivery
TO
108
0.07
0.08
March - 2M prior to Tender
TOo
100
Sept- 3M prior to delivery
105
0.15
0.16
Feb - 3M prior to Tender
Wo
100
0.13
Revised price
0.13
111.3
ACMIIL
24
SECTOR REPORT
Notes:
Institutional Sales:
Ravindra Nath, Tel: +91 22 2858 3400
Kirti Bagri, Tel: +91 22 2858 3731
Himanshu Varia, Tel: +91 22 2858 3732
Email: instsales@acm.co.in
Institutional Dealing:
Email: instdealing@acm.co.in
Disclaimer:
This report is based on information that we consider reliable, but we do not represent that it is accurate or complete and it should not be relied upon such. ACMIIL or
any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information
contained in the report. ACMIIL and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report.
To enhance transparency we have incorporated a Disclosure of Interest Statement in this document. This should however not be treated as endorsement of the views
expressed in the report
Disclosure of Interest
Transformers & Rectifiers India Ltd
1. Analyst ownership of the stock
NO
NO
2. Broking Relationship with the company covered
NO
NO
3. Investment Banking relationship with the company covered
NO
NO
4. Discretionary Portfolio Management Services
NO
NO
This document has been prepared by the Research Desk of Asit C Mehta Investment Interrmediates Ltd. and is meant for use of the recipient only and is not for
circulation. This document is not to be reported or copied or made available to others. It should not be considered as an offer to sell or a solicitation to buy any security.
The information contained herein is from sources believed reliable. We do not represent that it is accurate or complete and it should not be relied upon as such. We
may from time to time have positions in and buy and sell securities referred to herein.
ACMIIL
25

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SECTOR REPORT

We believe investments in T&D infrastructure will drive growth for Transformer

Expected capacity addition of

Demand is estimated to grow at 7% and 8% CAGR in the eleventh and twelfth

Source: CRISIL, ACMIIL Research

Deficit is expected to continue

Power deficit expected to

Surplus (deficit) percent

Source: CRISIL Research

Investments in the power sector

Step down power

Step down power

Total Power capacity (MW)

installed on the Grid (MVA)

Source: ACMIIL Research, CRISIL

Source: ACMIIIL Research

Eleventh five-year plan

Fresh demand for

Twelfth five-year plan

Capacity Addition (MW)

Considering the expansion projects under implementation, an additional capacity of

Peer group profile

400 Kv & above

Significant capacity expansion

9,000 (13,000-Current Capacity)

Source: ACMIIL Research

Order book Q2 FY10 (INR Mn)

Order book Q2 FY10 (MVA)

Order book to TTM Sales

Source: ACMIIL Research

Sales CAGR FY06-09

EPS CAGR FY06-09

Source: ACMIIL Research

Most players have negligible debt as well as investments in liquid funds.

Face Value (INR)

52 Week High (INR)

52 Week Low (INR)

Avg. Daily Volume (6m)

Transformers & Rectifiers India Ltd

160 KVA & above,

Source: Company, CRISIL

Current order book of INR3732

Majority of orders are of 120 Kv

Order book break up

Order Book Break up (Q3 FY 10)

Order Book-Transformer Class

>72.5 KV & <145 KV

>145 KV & <245 KV

400 Kv & above

Source: Crisil Research

7,200 7,526 7,200

Source: ACMIIL Research, Company

We expect TRILs realization to decrease (FY09-12) due to significant capacity

Source: ACMIIL Research, Company

Valuation and Recommendation

One year forward P/E Chart

Source: ACMIIL Research

Growth in Operating profits (%)

Growth in PAT (%)

Growth in sales (%)

Reserves and Surplus

Total Shareholders Funds

Total Loan Funds