SECTOR REPORT

Transformer Industry
03 Feb, 2010 We believe investments in T&D infrastructure will drive growth for Transformer
industry. We initiate coverage on Transformers & Rectifiers India Ltd (TRIL),
TRIL and Voltamp Transformers Ltd (VTL). We recommend a Buy at Decline on TRIL
CMP 415 with a price target of INR468 and BUY for VTL with a price target of INR1051.
Target Price 468
Investment Thesis
VTL India has set for itself ambitious targets of investments in the power sector, in view
CMP 905 of the significant power deficit and sustaining the economic growth momentum.
Target Price 1051 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, TRIL’s
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 Voltamp’s 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

Transformer Industry 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.
(billion Kwh)
700
650
600
550
500
450
400
350
300
250
200

2000-01
1994-95

2004-05
1992-93

1997-98

2002-03

2007-08
1995-96

1998-99

2005-06
1991-92

1993-94

1999-00

2001-02

2003-04
1996-97

2006-07
Supply Demand
Source: CRISIL

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
Expected capacity addition of additions.
~54,000 MW in the eleventh
In line with the power requirements of the country, GoI is targeting capacity additions
plan and Target capacity
of 70,000MW and 100,000MW in the eleventh and twelfth five-year plan periods,
addition of 1,00,000 MW for the
respectively. However, looking at the trend of actual capacity additions, ~54,000MW
twelfth plan
is expected to be added during the eleventh five-year plan period.
Planned Vs Actual Capacity Addition
100000
90000
80000
70000
60000
50000
MW

40000
30000
20000
10000
0
1980-85 1985-90 1992-97 1997-02 2002-07 2007-12E 2012-2017E
Target Actual
Source: CRISIL, ACMIIL Research

● Deficit is expected to continue

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
Power deficit expected to balanced scenario is expected by the end of twelfth five-year plan period.
continue in eleventh plan

Transformer Industry ACMIIL 

 SECTOR REPORT

Bn Kwh Per cent

1600 2%
1400 0
1200 -2%
1000
-4%
800
-6%
600
400 -8%

200 -10%
0.0 -12%
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17
Requirement Availability 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

Transmission Line Substation component

(50%) (50%)
Transformers accounts
for ~30% of the substation Transmission Line Conducters Others
component cost Towers (TLT) (35%) (45%) (20%)

Transformers Switchgears, circuit Others

(30%) breakers, SCADA, etc (40%) (30%)
Source: CRISIL

Transformer Industry ACMIIL 

 SECTOR REPORT

Transformer Industry
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 Power generating Step up transformer Receiving substation

station
line towers (TLT) [1.1 kv-33 kv] [220kv-765kv] [220kv-765kv]

Distribution Step down power Step down power

Transmission Transformer Transformer Transformer
line towers (TLT) [33kv-220kv] [33kv-220kv] [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 India’s (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

Transformer Industry 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 Replacement

Fresh Demand
Transformers Demand

Development of new
Capacity Addition Policies Development of Industrial areas Export Demand
National Grid RGGVY APDRP -Sez's
-Industrial Belt, etc
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 Generation addition Transformer Capacity Fresh demand for Replacement Transformer Demand
Capacity (MW) (MW) required (MVA) Transformer (MVA) demand (MVA) (MVA)
2008 143,061 10,732 1,101,570 82,287 19,491 101,778
2009 147,965 4,904 1,139,334 37,764 19,491 57,255
2010E 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
Total 415,353 97,456 512,809
Source: CRISIL, ACMIIL Research

Twelfth five-year plan

Assuming that ~65,000 MW of capacity would be added during the twelfth five-
year plan period, incremental demand of 500,500 MVA and replacement demand of
238,150 MVA is expected.
Particulars 12th plan
Capacity Addition (MW) 65,000 MW
Expected Demand of Transformers - MVA New Replacement Total
Power Transformer 370,371 209,359 579,730
Distribution Transformer 130,129 28,791 158,920
Total Demand 500,500 238,150 738,650
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.

Transformer Industry 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
Utilization level 69.5 80.1 74.7 80.5 NA
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 Distribution
Transformers
Up to 220 Kv 220 Kv to 400 Kv 400 Kv & above
Emco Ltd ü - ü
Bharat Bijlee Ltd ü - - ü
Indo Tech Transformers Ltd ü ü - ü
Voltamp Transformers Ltd ü - - ü
Vijai Electricals ü ü ü ü
TRIL ü ü ü ü
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.

Transformer Industry ACMIIL 

 SECTOR REPORT

Particulars – MVA FY06 FY07 FY08 FY09

Capacity 5,400 7,200 9,000 9,000 (13,000-Current Capacity)
Voltamp Production 4,503 6,188 7,898 9,541
Utilization 83.4 85.9 87.8 106.0
Capacity 5,400 7,200 7,200 7,200 (23,200 –Current capacity)
TRIL 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
Bharat Bijlee 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
EMCO 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
Indo tech 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
ABB 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
Crompton Greaves 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
BHEL 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
Areva T&D 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
Vijai Electrics 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
Top 10 players Production 68,008 90,810 107,723 122,487
Utilization 69.5 80.1 74.7 80.5
Source: ACMIIL Research

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 Bharat Bijlee EMCO Indo tech
Order book Q2 FY10 (INR Mn) 4,510 4,491 3,919 5,440 700
Order book Q2 FY10 (MVA) 8,110 10,200 NA 11,700 NA
Order book to TTM Sales 0.87 1.10 0.72 0.56 0.56
Source: ACMIIL Research

Transformer Industry ACMIIL 

 SECTOR REPORT

The industry is typically characterized by high revenue growth, healthy return

ratios, and negligible debt
Particulars Voltamp TRIL Bharat Bijlee EMCO Indo tech
Net Sales 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
Source: ACMIIL Research

● 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.

Transformer Industry ACMIIL 

 SECTOR REPORT
BUYatDecl i n e

Transformers & Rectifiers India Ltd

Key Data (INR)
Transformers & Rectifiers India Ltd (TRIL), incorporated in 1994, manufactures
CMP 415
power, distribution, furnace and specialty transformers. The company has three
Target Price 468
manufacturing facilities in Changodhar, Odhav and Moraiya. Currently, it has the
Key Data second-largest installed capacity (23,200 MVA) in India. SEBs and utility companies
Bloomberg Code TRIL IN comprise ~70% of its clients. TRIL’s current order book (Q3FY10) stands at INR3,732
Reuters Code TRNF.BO million, ~0.85x TTM sales.
BSE Code 532928 Product Range
NSE Code TRIL TRIL primarily manufactures power transformers. In this segment company has
Face Value (INR) 10 capability to manufacture 220 kv as well as 400 Kv class transformers. Recently, it
Market Cap. (INR Mn.) 5221 successfully executed an order for supply of 400 Kv transformers to LANCO. The
52 Week High (INR) 459 company also produces distribution and industrial transformers.
52 Week Low (INR) 102.6 Types of
Avg. Daily Volume (6m) 23267 Transformers

Shareholding %
Promoters 76.8
Power Distribution Furnace Rectifier
FII 2.0 Transformers Transformers Transformers Transformers
DII 4.6
Others 16.7
Total 100 5 MVA to 160 160 KVA & above, Upto 160KA DC
MVA/400KV upto 33KV class 105 KA

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 Capability
Moraiya 16,000 MVA 14,000 Sq. M Production and testing of 765 kV Transformers
Changodar 6,000 MVA 7,200 Sq. M Production and testing of 245 kV Transformers, up to
160 MVA.
Odhav 1,200 MVA 600 Sq. M 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.

Transformer Industry ACMIIL 

 SECTOR REPORT

Order book
12,000
10,728
10,200
10,000 9,229 9,095
Current order book of INR3732
8,000
million is ~0.85x TTM sales and 6,350
7,240 7,093 7,134

provides revenue visibility for 6,000

4,892
six to nine months 4,000 3,398 3,837 3,830 3,888
4,574 4,491
3,732

2,000

0
FY08 Q1 FY09 Q2 FY09 Q3FY09 Q4 FY09 Q1 FY10 Q2 FY10 Q3 FY10
INR Mn MVA
Source: Company

Majority of orders are of 120 Kv ● Order book break up

and 220 Kv 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

>72.5 KV & <145 KV
Export >36 KV & <72.5 KV 32%
4% 2%
Furnace & Rectifier Power
6% 85% <36 KV
15%
Distribution
5%

>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.

Transformer Industry 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 Power Transformers
Up to 220 Kv 220 Kv to 400 Kv 400 Kv & above
Emco Ltd ü - -
Bharat Bijlee Ltd ü - -
Indo Tech Transformers Ltd ü ü -
Voltamp Transformers Ltd ü - -
Vijai Electricals ü ü ü
TRIL ü ü ü
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, second-
largest 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.

Transformer Industry 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
TRIL’s 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.
Net Sales Capacity and Production Details
7000 25,000 120
6,2579 23,200 23,200 23,200
105
6000 5,662
20,000 100
5000 4,686
4,305 77 80
4000 15,000
60 13,000
%
MVA

12,000
Rs. mn

3,057 60
3000 49
10,000 56
2,212 52
7,200 7,200 7,526 7,200 40
43
2000 5,400 5,543
1,308 5,000 4,328 10,000
2,630 20
1000

0 0 0
FY06 FY07 FY08 FY09 FY10E FY11E FY12E
FY06 FY07 FY08 FY09 FY10E FY11E FY12E
Production Capacity Utilization Level
Source: ACMIIL Research, Company

We expect TRIL’s 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.

Transformer Industry 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
18 19.0
16
15.6 15.8 15.5
14 15.0 14.5

Percentage
12
10 11.3 10.5
8 9.4 9.5 9.7
8.0
6
4
2
0
FY07 FY08 FY09 FY10E FY11E FY12E
OPM 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, TRIL’s 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.
One year forward P/E Chart
700
600
500
400
300
200
100
0
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
28-Dec-07

Close Price 11 PE 12 PE 10 PE 8 PE
Source: ACMIIL Research

Transformer Industry ACMIIL 13

 SECTOR REPORT

Profit & Loss Account INR Mn

Particulars 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
Other Income 6.7 7.6 59.1 108.1 50.0 75.0 100.0
EBIDTA 149.3 352.4 641.3 786.1 776.4 924.4 1,007.3
Depreciation 8.4 16.8 21.5 28.0 53.7 61.8 64.6
EBIT 140.9 335.5 619.7 758.1 722.7 862.6 942.7
Interest 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
Growth in sales (%) 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
OPM (%) 10.9 15.6 19.0 15.7 15.5 15.0 14.5
Net Profit Margin (%) 5.9 8.0 11.3 10.5 9.4 9.5 9.7
Source: Company, ACMIIL Research

Balance Sheet INR Mn

Particulars 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
Net Deferred Tax Liability 14.8 15.3 2.1 9.6 9.6 9.6 9.6
Minority interest 0.0 18.5 24.6 28.1 28.1 28.1 28.1
Total Capital Employed 404.4 767.3 2,503.5 3,130.7 3,300.4 3,727.9 4,022.3
Application of Funds
Gross Block 152.5 251.6 321.5 560.5 1,074.0 1,124.0 1,174.0
Less: Accumulated Depreciation 41.4 61.4 82.6 109.8 163.5 225.3 289.9
Net Block 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 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
Source: Company, ACMIIL Research

Transformer Industry ACMIIL 14

 SECTOR REPORT

Cashflow Statement INR Mn

Particulars FY06 FY07 FY08 FY09 FY10E FY11E FY12E
Pre tax profit 119.7 280.6 538.7 683.3 674.7 820.6 922.7
Add
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
Profit before working capital changes 147.1 353.6 613.0 719.8 776.4 924.4 1,007.3
Working capital changes -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 -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
Source: Company, ACMIIL Research

Ratios
Particulars FY06 FY07 FY08 FY09 FY10E FY11E FY12E
Profitability Ratios
OPM (%) 10.9 15.6 19.0 15.7 15.5 15.0 14.5
PAT Margin (%) 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
Per Share Ratios
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
Valuation Ratios
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
Capital Structure Ratios
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
Turnover Ratios
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
Fixed Asset Turnover 11.8 11.6 12.8 9.6 5.1 6.3 7.1
Source: ACMIIL Research

Transformer Industry ACMIIL 15

 SECTOR REPORT

B U Y
Voltamp Transformers Ltd
Key Data (INR) Voltamp Transformers Ltd (VTL), established in 1963, manufactures power,
CMP 905 distribution transformers and dry-type transformers. The company has manufacturing
Target Price 1051 facilities in Vadodara and Vadadla with installed capacity of 9,000MVA and 4,000MVA
respectively. The industrial segment accounts for ~80-90% of VTL’s client base. The
Key Data company’s current order book stands at INR4,176.3 million, 0.8x TTM sales.
Bloomberg Code VAMP IN
Product Range
Reuters Code VOTL.BO
BSE Code 532757
The company manufactures power, distribution and dry type transformers. In the
NSE Code VOLTAMP
power transformer segment, VTL manufactures up to 100 MVA and 220 Kv class
Face Value (INR) 10
transformers. In dry type transformers, the company is a leader with a market share
Market Cap. (INR Mn.) 9318.5
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
52 Week High (INR) 1050
MORA (Germany) and HTT (Germany) respectively. Power transformers (49%)
52 Week Low (INR) 265
contribute to the majority of VTL’s revenue followed by distribution and dry-type
Avg. Daily Volume (6m) 85663
transformers. Revenue Break Up FY09

Product Portfolio
Shareholding %
Power Transformer Distribution Transformer
Power transformer 5MVA, 33KV to 100MVA, 220KV 32%
Promoters 46.1 49%
Distribution 315KVA, 11KV to 5MVA, 33KV Dry Transformer
FII 23.8 19%
Dry 63KVA, 11KV to 7.500 MVA, 33KV
DII 10.0
Source: Company
Others 20.1
Total 100 Facilities
Particulars Annual Capacity (MVA) Capability
Vadodara 9,000 Produce and test up to 220 Kv and 100 MVA – primarily power
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%
2300 2700 3500 4800 4800 6000
70%
60%
50%
MVA

40%
30% 1700 2000 2700 3200 3200 5000
20%
10%
500 700 1000 1000 1000 2000
0%
FY05 FY06 FY07 FY08 FY09 FY10
Dry Transformer Distribution Transformer Power Transformer
Source: Company

Transformer Industry ACMIIL 16

 SECTOR REPORT

Order Book
VTL’s 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
4510
4500 4176.3
4072
4000
3505
3500
Majority of orders comprises of 3000 2926
orders from industrial users
INR MN
2500
2000
1489
1500
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 Voltamp TRIL Bharat Bijlee EMCO Indo tech
Debtor days 52.4 119.8 108.7 162.6 76.6
Source: ACMIIL Research

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.

Transformer Industry ACMIIL 17

 SECTOR REPORT

Industry Wise Revenue Break Up

Others
Chemicals 11% Petro chemicals
Sugar 2%
15%
2%
Textile
2%
Auto & auto ancl Metals
4% 11%
Engg& Electricals
5%
Private utilities
5%
Power Projects
10%
Infra project
7%
SEBS Cement
8% Real estate 9%
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.

Transformer Industry ACMIIL 18

 SECTOR REPORT

Private Sector-Investments
25

20

15

INR trillion
10

De 001
Au 001
De 000
Au 000

De 003
Au 003
Au 1999

De 002
Au 002

De 008
Au 008
09
De 006
Au 006
De 004
Au 004
De 005
Au 005

De 007
Au 007

20
2
c-2
2
c-2

2
c-2
2
c-2

2
c-2
2
c-2
2
c-2

2
c-2

2
c-2
g-
g-

g-
c-

g-

g-

g-
g-
g-

g-

g-
De
Announcement Under Implementation
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 un-
organized players compete for orders from SEBs, utilities and industrial clients.
This makes the market very competitive.
Financials
Net Sales
Net Sales
8000
7,091
7000 6,431 6,536
6000 5,553
5,250
5000
4,058
Rs. mn

4000

3000 2,488
2000

1000

0
FY06 FY07 FY08 FY09 FY10E FY11E FY12E

Source: Company, ACMIIL Research

VTL’s 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
14,000 120
106
12,000 100
86 88 88
10,000 83 82
74 80
8,000
60
13,000

13,000

13,000
MVA

%
11500

6,000
10600
9541

9624
9,000

9,000

40
7898

4,000
7,200
6188
5,400
4503

2,000 20

0 0
FY06 FY07 FY08 FY09 FY10E FY11E FY12E
Capacity Production Utilization level
Source: Company, ACMIIL Research

Transformer Industry ACMIIL 19

 SECTOR REPORT

In FY10E, we expect VTL’s 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 23.3
21.2
20 19.1
18.0
16.5 16.0
15.1 17.9
13.6
Percentage

15 15.6
14.4 14.5
13.0 12.8
10
9.3 9.7

0
FY06 FY07 FY08 FY09 9M FY10 FY10E FY11E FY12E
OPM NPM
Source: Company, ACMIIL Research

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 Voltamp’s 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 Adjusted PAT Adjusted EPS P/E multiple Segment value
(FY12E) (FY12E) per share (INR)
Core business 707.9 70.0 10 700
Investments per share 351
Target Price 1051
Source: ACMIIL Research

Transformer Industry ACMIIL 20

 SECTOR REPORT

Financials
Profit & Loss Account INR Mn
Particulars 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
Other Income 42.8 48.7 107.6 239.7 240.0 265.0 300.0
EBIDTA 382.2 662.2 1,286.2 1,738.3 1,184.9 1,343.5 1,434.6
Depreciation 19.2 21.7 31.3 44.7 62.0 70.7 71.8
EBIT 363.0 640.5 1,254.8 1,693.6 1,123.0 1,272.8 1,362.8
Interest 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
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
Source: Company, ACMIIL Research

Balance Sheet INR Mn

Particulars 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
Application of Funds
Gross Block 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
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
Total Assets 884.2 1,004.5 1,657.1 2,646.7 3,298.8 4,030.1 4,821.6
Source: Company, ACMIIL Research

Transformer Industry 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
Add
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
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
Source: Company, ACMIIL Research

Ratios
Particulars FY06 FY07 FY08 FY09 FY10E FY11E FY12E
Profitability Ratios
OPM (%) 13.6 15.1 21.2 23.3 18.0 16.5 16.0
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
Per Share Ratios
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
Valuation Ratios
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
Capital Structure Ratios
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
Turnover Ratios
Debtors turnover ratio 6.5 10.7 9.2 7.0 6.9 8.5 7.9
Inventory turnover ratio 3.9 5.9 7.1 9.7 9.1 9.3 8.6
Fixed Asset Turnover 30.8 41.0 31.3 35.6 13.8 20.5 27.5
Source: ACMIIL Research

Transformer Industry 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 OUTPUT POWER=
APPLIED INPUT
INPUT POWER
VOLTAGE POWER
MINUS LOSSES

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.

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● 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 Prices as of Price Weight
Copper August - 4 M prior to delivery C 125 0.23 0.29
March - 2 M prior to Tender Co 100
CRGO Sept - 3 M prior to delivery ES 110 0.28 0.31
April - 1 M prior to Tender ESo 100
WPI - Iron & steel Saturday Sept - 3 M prior to Delivery IS 105 0.07 0.07
Saturday Feb - 3 M prior to Tender ISo 100
Insulation Material Sept - 3 M prior to delivery IM 115 0.07 0.08
April - 1 M prior to Tender IMo 100
Transformer Oil Oct- 2M prior to delivery TO 108 0.07 0.08
March - 2M prior to Tender TOo 100
CPI Industrial worker Index Sept- 3M prior to delivery W 105 0.15 0.16
Feb - 3M prior to Tender Wo 100
0.13 0.13
Revised price 111.3

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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 Voltamp Transformers 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.

Transformer Industry ACMIIL 25