Triveni Turbine - Visit Note - Edelweiss

We met with the management of Triveni Turbine Ltd. (TTL) and came out positive. The key takeaways from our interaction are:

- Triveni Turbine is one of the largest manufacturers of industrial turbines in India. It caters to 18 different industries, which protects it from cyclicality factor associated with an industry. Its diversified presence across the globe and across various sectors also enables it to beat recession blues.

- Triveni has strong ROCE with no history of capital raising post IPO. The higher ROCE is supported by asset turnover of 4x, strong EBITDA margin of 25% and negative working capital cycle.

- It is in JV with GE for 30 MW to 100 MW turbines range, which would expand its product range in India and abroad. The JV with GE is currently executing an order of 35 MW for a domestic customer. GE is the market leader in more than 100MW category.

- Triveni Turbine has an order book of INR 480 crore with INR 240 crore coming in Q2FY13. The company is hopeful of strong order inflow going forward as they have received enquiries from domestic and international markets.

- The company is hopeful of achieving 5-7% revenue growth in FY13 with a PAT margin of 15%. This translates into H2FY13 revenue growth of 20%.

Largest domestic player in sub-30MW turbine space

Triveni Turbine is one of the largest manufacturers of industrial turbines in up to 30 MW segment with a domestic market share of 65%. Siemens is its biggest competitor in this space. In the below 20MW and the 20-30MW segments, the company has a market share of ~75% and 35%, respectively. The current domestic market opportunity for steam turbines up to 30 MW range is estimated at approximately 1,700-1,800 MW. Siemens is a key competitor to the company in the sub-30MW steam turbine segment.

Reviving capex: A key trigger

We believe that the improvement in order book will be a precursor to revival in the capex cycle. Currently, the company has an order book of INR 480 crores, with INR 240 crores orders coming in Q2 FY13. The company is hopeful of strong order inflow going forward as well. They have received enquiries totaling 4500 MW in the export business, which has doubled in the last one year. Further, they have received enquiries for 4000 MW in the Indian market.

JV with GE to expand product range

Triveni Turbine has entered into a JV with GE for design, manufacture, sell and service of advanced technology steam turbines in 30-100MW range for both domestic and global markets. The JV started its operations in November 2010 and is currently executing an 35MW order from a domestic client. The JV with GE would give an edge to Triveni in expanding its product range and compete with global peers.

Strong balance sheet to support growth; Capital raising risk low

Triveni Turbine has a strong balance sheet with net debt to equity at 0.3x and negative working capital cycle. It has strong ROCE of 135%, which is relatively high on account of carry forward losses adjusted from the previous retail business. Triveni Turbine has a free cash flow generating business model with no history of capital raising post IPO (by pre-demerger Triveni Engineering). The turbine business of the company has grown at a CAGR (FY06-12) of 15% and 24% in terms of revenue and PBT, respectively. It has maintained a strong PBT margin of more than 21% in the past 5 years. We expect that the company's balance sheet is robust enough to maintain growth in future.

Well diversified across industries and geograpies

Triveni Turbines caters to 18 different user industries like Sugar, Paper, steel, Biomass IPP, etc. It thus has a non-cyclical business - downturn in one user industry is offset by upturn in another one. Further, its strategy to focus across geographies has started yielding results, with strong 39% yoy growth in order inflows in FY12. In addition, the geographical diversification protects it from slowdown in a particular economy.

Valuations

Triveni Turbine has shown a de-growth of 15% in revenue, with flattish bottomline in H1FY13. The management is hopeful of 5-7% yoy growth in FY13, which entails a growth of 20-25% in H2FY13. At CMP of INR 53, the stock is trading at PE of 20x on FY12 EPS of INR 2.6.

Source : Equity Bulls

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