Published on 13/09/2017 3:09:05 PM | Source: Sharekhan

Buy Triveni Turbine Ltd For Target Rs.145.00 - Sharekhan

Key points

* Deferment of deliveries impacted overall performance:

Triveni Turbine’s Q1FY2018 reported a decline in revenues by 25% YoY to Rs122crore. The slide in revenues was on account of rescheduling of the orders by customers, due to deferment of deliveries on account of GST, a malware attack in global shipping company (combined Rs40crore impact) as well as lower orders bagged in H1FY2017. Export revenue declined by 47% YoY to Rs51crore while domestic market grew by 7% YoY to Rs70crore attributable to healthy execution in the domestic market. The sales mix between product and after market was at 74:26. Notably, gross margins (GPM) showed improvement of 200bps to 50.9% coupled with lower employee cost (down 22% YoY). Operating profit margin (OPM) declined by 587bps to 15.1% due to fall in revenues and higher other expenditure (growth of 18% YoY) due to un-absorption of fixed cost. Hence due to poor operational performance, adjusted PAT declined by 52% YoY to Rs13crore. The GE (GETL) joint venture (JV) reported topline of Rs46crore and PAT of Rs9crore in Q1FY2018. Even though this JV did not close any orders during the quarter, the enquiry pipeline is strong enough indicating good order finalization in the coming quarters. GETL has an order backlog of Rs166 crore at end of Q1FY2018.


* Order inflow traction seen in both export as well as domestic market in FY2018:

During Q1FY2018, order inflow showed robust growth of 41% YoY to Rs215crore from both domestic as well as export market. Management stated that they are seen significant enquires (~1.7GW) in the domestic market. The domestic market for TT has also grown by 37% with an increased market share of 80% during the period. Order pickup has been witnessed from sugar co-gen including process on good harvest season in the last as well this year, while waste to energy segment is showing traction on the Governments thrust and customer spending money to set up Waste Heat Recovery (WHR) for efficiency. On export market, the management’s efforts and the global strategy of increasing geographical footprint is seen bearing fruits. The management expects enquires of ~5GW as a result. TT is undergoing a registration process in Middle East and North Africa region and expects to bag orders soon, which is a high margin market post stabilisation of oil prices. The Middle East offices of Saudi Arabia and Dubai have seen a spurt in enquires of orders. The after-market export order enquiry which is slow is expected to pick up from the regions of Middle East, Indonesia and Africa. GETL also expects order finalisation in Q2 from India, South East Asia & South America.


* Retain Buy with revised PT of Rs145:

Despite weaker performance in Q1, the order inflow has grown significantly translating into highest ever order backlog (Rs726crore) in the history of TT. Management has seen uptick in executable orders which got disrupted due to GST in domestic market and expects better orders booking in the exports markets too. Against this backdrop, we have marginally tweaked our estimates factoring the loss of sales due to GST for FY2018. We expect the company’s earnings to grow at a CAGR of 13% for FY2017-19e and continue to generate strong Return on Equity (RoE). The debt-free company will continue to generate a very healthy free cash flow (FCF) to strengthen the balance sheet further. We believe that the company’s global focus and traction in the export business would be a key growth driver going forward. We therefore, retain our ‘Buy’ rating with a revised price target (PT) of Rs145.


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