TRF LTD ACCUMULATE. S t o c k I d e a. Stock vs. Sensex

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1 S t o c k I d e a TRF LTD ACCUMULATE Date: 28-Oct-13 CMP: Rs.105 TARGET: Rs.142 Upside: 35% SENSEX 20,683 NIFTY 6,145 Eq. Cap. (Rs. Crs) 11.0 Face Value (Rs.) 10.0 M. Cap (Rs. Crs) 116 BSE Code NSE Code Financial Year TRF Apr-Mar 52-w H/L 274/86 Avg. Daily Vol. 18,221 TTM EPS (Rs.) P/E (x) N/A N/A BVPS (Rs.) P/BVPS (x) 1.15x M.Cap/Sales 0.10x Dividend (FY13) Stock vs. Sensex NIL TRF Ltd has evolved into one of the most comprehensive sources of engineering equipment, systems and services. It manufactures bulk material handling and processing equipment, bulk material handling systems, coke oven equipment, coal dust injection systems for blast furnaces, coal beneficiation systems, and port and yard equipment.. Strong foothold in Bulk Material Handling Systems (BMHS) TRF Ltd s proven record of 40 years in the field of material handling systems for the core sectors of coal, cement, power, ports, mining, fertilisers and steel has established it as one of the leading companies in India in the field of design, manufacture, supply, installation and commissioning of these systems. Its Portfolio of ongoing assignments consists of both 'concept to commissioning' solutions as well as specific modules for some projects. Port & Yard Equipment (PYE) - Leading supplier to ports in India The company has carved a niche for itself in the global market, as a leading supplier to ports in India, having the potential to compete with global players. In fact, the largest luffing grab cranes and ship un-loaders in India have been supplied by TRF Ltd. Eyeing big orders: Revenue to be better in FY14E TRF Ltd closed FY2013 with order book of worth Rs 1,000 Crs that includes order worth Rs 360 Crs (with reasonable margin) from Nabinagar Power Generating Company Private Ltd. The management has indicated that they will get one-two big orders in current financial year, which should be okay for the company for FY14E. NTPC has announced that they are going to come out with 3-4 major projects and TRF Ltd hope to bid for those projects. Automotive Application Business: Prospects look bright The acquisition of York Transport (YTEA), Singapore - a well known brand with wide range of products - offers stability and robustness to the business, and facilitates quick and smooth entry in to new and profitable ventures. TRF Ltd all subsidiaries are focusing on better cost management, development of new products and new markets. The Indian operations of DLT & AAA are taking steps to reduce dependence on Tata Motors for business and are developing new customers and products. Movement in Project business has been noticed Some movement in project business has been noticed since Q4FY13 and we expect Infrastructure industry to open up with various measures announced and taken by the Govt lately to restore the fiscal health of the economy. The improvement in the investment climate and infrastructure development is expected to have positive impact. If the measures taken by the Govt. crystallize the company could see demand from Power, Steel, Port and Mining Sectors which will create avenues for enhancing its order book position, revenues. Other Key Positives Opportunities in International market being explored through its subsidiary Hewitt Robins International Limited. Robust cost reduction measures undertaken. Emphasis on spares business + New products introduced by auto application business. At the CMP of Rs.105, the stock is trading at 4.0x FY2014E and 2.6x FY2015E consolidated EPS of Rs and Rs respectively. We recommend ACCUMULATE rating on the stock with months Target price of Rs.142, providing an upside of 35% from the current level. Please Refer DISCLAIMER on the Last Page

2 Company Profile The combined competencies of three companies, the erstwhile Tata Robins Fraser (established in 1962), Tata Material Handling Systems (formerly Tata Man. Ghh., established in 1978), and Tata Technodyne (established in 1996), resulted in the formation of TRF Ltd. The company has evolved into one of the most comprehensive sources of engineering equipment, systems and services. It manufactures bulk material handling and processing equipment, bulk material handling systems, coke oven equipment, coal dust injection systems for blast furnaces, coal beneficiation systems, and port and yard equipment. It's Port and Yard Division is also equipped with the technology; EPC and EPCM services for mini blast furnace technology. TRF Ltd caters to diverse industries including power, metallurgy, chemical, mining and cement. Business Segments The Company has three business units which cater to the material handling requirements of customers in the core infrastructure sectors of the economy. TRF Ltd undertakes turnkey projects for infrastructure development industries such as power and steel plants, cement, ports, fertilisers and mining. Its material handling products and systems are well known in the market, in India and overseas, for their reliability, productivity and longevity. The Company been constantly upgrading and developing new products and systems with the help of internationally reputed enterprises having cutting edge technical expertise. The Bulk Material Handling Equipment Division specialises in the design and manufacture of a wide range of material handling equipment used in the infrastructure industries, such as wagon tipplers, stacker reclaimers, ship loaders and unloaders, travelling wagon loaders, etc. The Bulk Material Handling Systems Division offers a complete package of material handling and allied systems and services on a turnkey basis. The Port and Yard Equipment Division focuses on the design, supply, erection and the commissioning of material handling equipment for ports and stockyards including level luffing cranes, ship loaders and unloaders, container cranes, stacker-reclaimers and special purpose cranes for power and metallurgical plants. TRF Ltd Oct-2013

3 INVESTMENT POSITIVES Research Desk Strong foothold in Bulk Material Handling Systems (BMHS) The company broadly operates in two segments: products & services and projects & services. Products & services segment mainly works as Bulk Material Handling Equipment (BMHE) division, whereas, projects & services segment carries out its activity under two sub-divisions namely BMHS (Bulk Material Handling Systems) and P&YE (Port & Yard Equipment). Except BMHS, all other divisions of TRF have been accredited with ISO 9001:2000 certification. TRF Ltd s proven record of 40 years in the field of material handling systems for the core sectors of coal, cement, power, ports, mining, fertilisers and steel has established it as one of the leading companies in India in the field of design, manufacture, supply, installation and commissioning of these systems. TRF LTD also offers state -of-the-art pulverised coal dust injection system for blast furnaces and stamping-charging-pushing machines for coke oven applications. TRF is capable of offering complete design, engineering, manufacturing, erection and commissioning solutions for material handling systems for Steel, Power, Ports, Mining, etc. sectors. Portfolio of ongoing assignments consists of both 'concept to commissioning' solutions as well as specific modules for some projects. Port & Yard Equipment (PYE) - Leading supplier to ports in India TRF Ltd specialises in engineering and manufacturing of unit and bulk material handling equipment for ports, ship-yards, power plants and metallurgical units, while also providing consultancy and maintenance to those sectors. The company has carved a niche for itself in the global market, as a leading supplier to ports in India, having the potential to compete with global players. In fact, the largest luffing grab cranes and ship un-loaders in India have been supplied by TRF Ltd. Eyeing big orders: Revenue to be better in FY14E TRF Ltd closed FY2013 with order book of worth Rs 1,000 Crs that includes order worth Rs 360 Crs (with reasonable margin) from Nabinagar Power Generating Company Private Limited. The company management has indicated that they will get one-two big orders in current financial year, which should be okay for the company for FY14E. The company is targeting the NTPC order. NTPC has announced that they are going to come out with 3-4 major projects and TRF Ltd hope to bid for those projects. Automotive Application Business: Prospects look bright The acquisition of York Transport Equipment (Asia) Pte Ltd (YTEA), Singapore, for TRF Ltd was a major step towards diversification. YTEA, a wholly owned subsidiary of Baker Technology Limited, is the registered & beneficial owner of 9 subsidiaries across the world. YTEA is engaged in the business of trailer under-gear, which includes axles, suspension and other components, with market presence in 27 countries. TRF Ltd Oct-2013

4 This synergy has created new avenues for TRF Ltd to enter into another vertical, accelerating growth, especially in India. Moreover, YTEA's worldwide network of business has paved the path for TRF Ltd to explore new markets overseas. Since YTEA is a well- known brand with wide range of products; it offers stability and robustness to the business, and facilitates quick and smooth entry in to new and profitable ventures. Recognized as the market leader in its field throughout the Asia- Pacific and Australia / New Zealand region, YTEA, Singapore was formed in TRF Ltd has also set up Adithya Automotive Applications (AAA) (JV with M/s. Tata Capital Ltd and Jasper Industries Pvt. Ltd), an automotive applications unit for a fixed body truck application in India. The objective of this venture is to engage in automotive applications and provide end-to-end solutions through fabrication and machining for tippers, load bodies, refrigerated bodies, etc. TRF Ltd acquired the Dutch Lanka Trailer (DLT) Manufacturers Limited, Sri Lanka. DLT is a world class trailer manufacturing company and has manufacturing facilities in Sri Lanka, Oman and India. It exports trailers to as many as 30 countries. More recently TRF has acquired Hewitt Robins International Ltd (HRIL) London which has a world class reputation in bulk material handling and processing equipment. Hewitt Robins is engaged in design, manufacture of Mobile Crushing plants and Screens, and related products in the quarrying, mining, recycling, iron and steel industries. It's proven screen and crusher brands, including the Container Classic' and the Super Jaw', are all setting standards by which competitors' equipment is judged. The said subsidiaries are focusing on better cost management, development of new products and new markets. The Indian operations of DLT & AAA are taking steps to reduce dependence on Tata Motors for business and are developing new customers and products. HRIL has done reasonably well in recent times and is expected to continue to be profitable in European markets because of their superior technology. TRF Ltd Oct-2013

5 Movement in Project business has been noticed: Various measures taken by Govt. recently for funding and removing hurdles The Indian infrastructure sector, in which TRF Ltd operates, has passed through a difficult period over FY Key industry indicators like GDP, inflation, interest rates and rupee depreciation reflected adverse trends resulting in monetary tightening. Land acquisition, environmental clearances, shortage of coal and rising imported coal prices continued to be areas of concern. This resulted in a number of planned investments being postponed, both by the private and public sectors. However, some key initiatives in the Budget for as well as in the 12th Five-Year Plan have given rise to expectations that there would be a turnaround in the infrastructure sector sooner or later. Investment in infrastructure in the 12 th Plan is estimated at Rs.50,000 bn. With the increased investments in the port, power, steel and mining sectors, the company is expected to make good progress as it operates in all these sectors, while new product development and enhancement continues to be a focus area. Some movement in project business has been noticed since Q4FY13 and we expect Infrastructure industry to open up with various measures taken for funding and removing hurdles by the Government. Several measures announced and taken by the government to restore the fiscal health of the economy and to improve the investment climate, industrial growth rate and infrastructure development is expected to have positive impact on the overall growth rate of the economy and industry. The overall Indian economy is expected to grow in the range of 4.5% to 5.0% in FY E. Though the increase in growth rate may not be very substantial, however it will initiate the growth momentum ending the phase of downturn. If the estimates and measures taken by the Government crystallize the Company expects demand from Power, Steel, Port and Mining Sectors to improve thereby creating avenues for enhancing its order book position, revenues and profits. Other Key Positives Opportunities in International market being explored through its subsidiary Hewitt Robins International Limited. Robust cost reduction measures undertaken. Emphasis on spares business + New products introduced by auto application business. TRF Ltd s in-house R&D facility has been approved by the Department of Scientific & Industrial Research (DSIR) which entitles the company to tax benefits on R&D expenditure. CONCERNS As most of the Companies in Infrastructure space have weak order books, any new project order is expected to see severe competition. Slow down in project implementation could impact cash flows. TRF Ltd Oct-2013

6 VALUATIONS At the CMP of Rs.105, the stock is trading at 4.0x FY2014E and 2.6x FY2015E consolidated EPS of Rs and Rs respectively. We recommend ACCUMULATE rating on the stock with months Target price of Rs.142, providing an upside of 35% from the current level. FINANCIAL STATEMENT Profit & Loss A/c - Consolidated - Rs Crs FY09 FY10 FY11 FY12 FY13 Net Sales Y-o-Y 20.8% 27.9% 19.3% -15.9% Total Expenditure Raw Materials Stock Adjustments Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Administration Exp Miscellaneous Expenses Less: Pre-operative Exp. Capitalised EBITDA Margin 10.8% 9.8% 2.3% 5.5% -2.6% Depreciation EBIT Interest Other Income PBT Tax Fringe Benefit Tax Deferred Tax PAT Minority Interest (after tax) Profit/Loss of Associate Company PAT after Minority Interest Extraordinary Items Adjusted PAT Margin 5.7% 5.5% 0.0% 1.0% -8.3% EPS (Rs.) Source: Company, Capitaline Registered Office: 124 Viraj, S,V.Road, Khar (W), Mumbai Tel. (022) , Fax (022) research@lmspl.com LMSPL Network: Fort, Mahalaxmi, Parel, Bandra, Santacruz, Vile Parle, Andheri, Malad, Kandivili, Borivali, Bhayender, Ghatkopar, Mulund, Chunabhatti, Jacob Circle, Masjid Bunder, Cotton Green, Thane, Bhiwandi, Panvel, Pune, Sholapur, Nasik, Malegoan, Ahmednagar, Aurangabad, Akola, Mahekar, Nagpur, Surat, Karjan(Baroda), Khambat, Ahmedabad, Rajkot, Surendranagar, Porbandar, Amreli, Bharuch, Anand, Chennai, Vishakhapatnam, Vizianagaram, Palasa, Kakinada, Karnal, Kolkatta, Bhubhaneshwar, Hyderabad, Bangalore, Jafrabad, Chital, Kodinar, Keshod, Gondal, Haryana, Srikakulam, Mehkar (Buldhana, Jamnagar, Bangalore, Jodhpur, Jalgaon, Malkangiri (Orissa), Karimnagar Dist. (Andhra Pradesh) This document is for information only and is meant for the use of the recipient & not for circulation. The information contained in this document has been taken from publicly available information, trade and statistical services & other sources. While the information contained herein is from sources believed to be reliable, we do not hold ourselves responsible for its completeness and accuracy. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice. Investors are expected to use the information contained in this report at their own risk. This report is not and should not be construed as an offer or the solicitation of an offer to buy or sell any securities. M/s Latin Manharlal Securities Pvt. Ltd. and its affiliates may act as market maker or have assumed an underwriting position in the secure-ties of companies discussed herein and may sell them to or buy them from customers on a principal basis. TRF Ltd Oct-2013