After electrifying returns of over 400% in 1 year, this transformer manufacturing firm's stock gets 'buy' call from Nuvama; check TP

Stock market today: Global brokerage Nuvama has initiated coverage on Transformers and Rectifiers (India) (TRIL) with a 'buy' rating and a base target of Rs 575, implying potential gains of 77 per cent from the last close. Further, in a bull case scenario, the brokerage has set a target of Rs 702, which means an upside potential of 117 per cent.

Nevertheless, the stock slipped in the trade on Tuesday. It ended at Rs 337.10, down over 4 per cent on the BSE.

The brokerage notes that amid increasing manufacturing, power demand, electrification, and the green transition, there is a possibility of an increase in transmission and distribution (T&D) capex. In the next 3–4 years, the segment is expected to see a capex of Rs 2.4 lakh crore, with the transformers witnessing a capex of Rs 36,000 crore.

Furthermore, demand for high-voltage (HV) transformers is expected to see an impressive rise. Currently, there are a handful of suppliers (6-7) catering to the HV transformer demand in the market as the business has high entry barriers, and TRIL is one of the leading suppliers of the product. 

Of the company's total revenue, 70 per cent is accounted for by the high-voltage transformer product line. Foreign investors are also turning bullish on the counter, with their stake increasing to 3.5 per cent as of the quarter ended December 2023, as against 0 per cent in the June quarter of the same year.

Company’s plans

The company, through backward integration, will do away with any potential component shortages. Further, it is aiming to bolster its supply chain as well as expand its capacity. Besides, for better cash conversion, the company is being selective in choosing work orders.

Valuation 

Nuvama maintains that the company is all set to achieve over an 85 per cent EPS CAGR in FY24–27E. Further, the brokerage estimates that the company’s margin, which currently is between 8 and 10 per cent, will grow to 13–15 per cent by FY26–27E. Additionally, with a market share of 15-20 per cent, the company is estimated to log 25–30 per cent growth.

The stock of the company has given multi-bagger returns in the past 12 months, up 438 per cent against the Nifty50's rise of 30 per cent.