TRIVENI TURBINES LTD - Online Share Trading

TRIVENI TURBINES LTD

Initiating Coverage
STOCK IDEA – 25 June 2012
tiating Coverage
ting Coverage
g Coverage
Coverage
verage
rage
ge
Triveni Turbines Ltd.
4
Recommendation BUY Company Overview
Triveni Turbine Ltd (TTL) is a leading manufacturer of industrial steam turbine
CMP (22/06/2012)
Rs.41.5 commanding ~54% market share in India up to 30MW range. Company has recently
Target Price
Rs.50
entered into a joint venture with General Electric for manufacturing and marketing of
advanced technology steam turbine in the 30-100MW range.
Sector
Capital Goods
Stock Details
BSE Code 533655
NSE Code
Bloomberg Code
TRITURBINE
TRIV IN
Market Cap (Rs cr) 1369
Free Float (%) 25.03
52- wk HI/Lo (Rs) 52/30
Avg. volume BSE (Quarterly) 27617
Face Value (Rs) 1
Dividend (FY12) 20%
Shares o/s (Crs) 32.9
Relative Performance 1Mth 3Mth 1Yr
TTL -5.5% -3.58% NA
Sensex 5.9% -1.3% -3.2%
Investment Rationale
Market leadership position and a diversified customer profile
TTL commands a dominating position in 1-30MW turbines. It enjoys ~70% market
share in 1-15MW and ~30% market share in 15-30MW turbines, outperforming the big
guns like Siemens and BHEL in its class. It caters to the ever growing industries like
Sugar, Paper & Pulp, Metals, Power, Cement, Agro, Chemicals etc. Its strong existence
in the turbine manufacturing industry can be attributed to its focused efforts on R&D
and after sales service.
Order inflows to drive the topline growth
Company is bullish on maintaining a strong order inflow rate as it pushes for growth in
international markets. (Of the Rs 440 cr order inflow in FY12, 36% was from the
international markets). The current order book stands at Rs. 495 cr which excludes
slow moving orders and orders where execution in uncertain. The management has
indicated to strong order pipeline in the coming quarters. The standing out point here
is that 80% of its orders are repeated orders.
Joint Venture with General Electric the next growth trigger.
TTL & GE has entered into a 50:50 JV to manufacture and market turbines in the range
of 30-100MW forming GE Triveni (GETL). It will use the proven technology and
engineering designs of GE for all turbines in the range 30-100MW which will be
offered in Industrial Power Generation market globally. TTL & GE will market the
product domestically and internationally respectively. There is a huge market of this
product both domestically and internationally ($300mn domestic & $2.5bn
international market). This will also have rub off effect as it will be able to leverage
this partnership to sell its sub 30 MW turbines in the international market.
Shareholding Pattern 31 st Mar 12
Promoters Holding 74.97%
Institutional (Incl. FII) 18.68%
Corporate Bodies 1.2%
Public & others 5.15%
Amish Pansuria – Research Analyst (+91 22 3926 8174)
amish.pansuria@nirmalbang.com
Sunil Jain – Head of Research (+91 22 39268196)
sunil.jain@nirmalbang.com
Valuation & Recommendation
Strong financial performance with very high RoE and negative working capital and its
entry in the 30-100MW turbine market with GE provides a positive outlook on the
company’s growth prospects. The JV with GE will be the key trigger to watch out for as
it will lead to higher share of exports in the revenues. With current situation of large
power projects in the country, focus on captive power will increase which puts TTL in a
strong position to capitalize on this opportunity.
At CMP, the stock trades at 13.5x its FY13E EPS. It is 7.9x its FY13E EV/EBITDA. We
expect a 20% upside potential from current levels. The order inflows in the coming
quarters especially from the JV will provide the key trigger for the stock to move
significantly up from current levels. However we have not factored in revenues from
the JV.
Year
Net Sales
(Rscr)
Growth
(%)
EBITDA
(Rscr)
Margin
(%)
PAT
(Rscr)
Margin
(%)
FY11A 305 NA 69 22.5 49 16.0 1.5 14 NA
FY12A 632 3 151 24.0 91 14.4 2.8 15 132.7
FY13E 716 13 165 23.1 104 14.5 3.1 13 69.7
EPS
(Rs)
PE
(x)
ROE
(%)
25-Jun-12 Please refer to the disclaimer towards the end of the document P a g e | 1

Initiating Coverage
STOCK IDEA – 25 June 2012
tiating Coverage
ting Coverage
g Coverage
Coverage
verage
rage
ge
Triveni Turbines Ltd.
Investment Rationale
Market leadership position and a diversified customer profile
TTL commands a 70-75% market share in the 1-15MW turbines, and a 30% market share in the 15-30MW
turbines. Considering the competition from Siemens and BHEL in this segment, TTL has managed to do
well to capture the market share. This partly lies in its effort on R&D and its focus on after sales service.
The end users for the company’s products are various industries like Sugar, Paper & Pulp, Metals, Power
(Conventional & Renewable), Cement, Agro, Chemicals etc. The areas where TTL’s turbines are used are in
applications like cogeneration, combined heat and power, waste heat recovery, captive power generation
and biomass based IPP. This provides a wide range of user industries and applications for TTL’s products
and helps minimize the risk of concentration on a particular industry.
TTL Market Segments & Offerings
Industry
Applications
Sugar, Metal, Paper, Cement, Chemicals, Food, IPP, Oil & Gas, Pharmaceutical,
Palm Oil, Rice & Wood
Biomass, Captive Power Generation, Cogeneration, Combined Heat & Power
(CHP), Drives, Solar, Incineration, Ships/Offshore
Strong order inflows to drive the topline growth
The outstanding order book for TTL as on 31 st March 2012 stands at Rs. 495 cr. This order book excludes
slow moving orders and orders where there is uncertainty over execution. The company saw order inflow
of Rs 440 cr in FY12. 80% of the company’s orders are repeat orders. Typical order execution cycle is 8-10
months.
The average size of the market for sub 30 MW range of turbines in India for last 5 years was around 1700
MW per annum. However during FY12 the Indian market for the sub 30 MW power products have shown
contraction. The market for FY12 declined by over 40% from the previous year. Whereas order inflow for
Triveni has declined by 11% in FY12 mainly on account of higher order inflow from international markets.
The management expects the market to grow by 25-30% in FY13 on a lower base. Order inflows in the
month of Apr – 12 has been good ~Rs. 68.5 cr.
800
600
400
200
0
FY08 FY09 FY10 FY11 FY12
Order Inflows (cr) Order Backlog (cr)
OB / Sales (x)
(x)
1.2
0.9
0.6
0.3
0.0
Source: Company, Nirmal Bang Research
According to the management the sub 30 MW market for steam turbines in India is estimated to be
around 1800-2000 MW per year in the coming years which translates to ~Rs 990-1100 crs per year.
25-Jun-12 Please refer to the disclaimer towards the end of the document P a g e | 2

Initiating Coverage
STOCK IDEA – 25 June 2012
tiating Coverage
ting Coverage
g Coverage
Coverage
verage
rage
ge
Triveni Turbines Ltd.
JV with GE to help the company enter the higher end market (30-100MW) and increase visibility in the
international market
TTL has entered into a 50:50 JV with GE Oil & Gas to manufacture and market turbines in the range of 30-
100 MW. GE Triveni (GETL) will offer a portfolio of steam turbine products in Industrial Power Generation
(IPG) market globally. It will use proven GE Oil & Gas technology and engineering design for all steam
turbines in the range. GE will market the products in the international market whereas TTL will market
the products in the domestic market. TTL’s facility in Bangalore will be used to manufacture the turbines
in the 30-100 MW range. TTL has in house manufacturing capabilities to the extent of 45% whereas the
rest of the items are bought outs. Of the orders booked by the JV, 40-45% of that will be manufactured by
TTL whereas the rest will be bought out by the JV. TTL stands to benefit from this arrangement. The
management expects the market for these products (30-100 MW steam turbines) to be at $2.5 bn (~22-
25 GW) internationally and $300 mn (~2500-3000 MW) in India. With realizations in the international
market being 20-40% higher as compared to Indian markets and low cost of manufacturing in India, the JV
is expected to deliver higher margins as compared to TTL, primarily because of its focus on international
markets.
The marketing team for the JV is in place and it has already booked one order for a 35 MW turbine for
WHR from the domestic market. The JV is currently in the process of obtaining the necessary approvals
and registration in target markets. It has already obtained technical qualification in some countries. We
believe the JV with GE will be the key trigger for TTL’s growth as it will gain an immediate entry in the 30-
100 MW market and will be able to focus on the export market with the partnership of GE (which is a
strong brand name across the globe). This will also have a rub off effect on TTL as it will be able to
leverage this partnership to sell its sub 30 MW turbines in the international market. The share of export
sales has steadily increased from 6% in FY06 to 14% in FY12. According to the management this is
expected to go up further as TTL focuses on international markets.
Sales Breakup (Domestic/Export)
100%
80%
60%
40%
20%
0%
12 15 21
11 14
88 85 79
89 86
FY08 FY09 FY10 FY11 FY12
Domestic (%) Export (%)
Source: Company, Nirmal Bang Research
25-Jun-12 Please refer to the disclaimer towards the end of the document P a g e | 3

Initiating Coverage
STOCK IDEA – 25 June 2012
tiating Coverage
ting Coverage
g Coverage
Coverage
verage
rage
ge
Triveni Turbines Ltd.
Focus on after sales service to help protect the margins
With 13 service centers across India, TTL provides a dedicated focus on its after sales service segment.
This contributes 17% to the topline and fetches high margins (45% at PBT level). As the company installs
more turbines across the country the share of this in the topline is expected to increase. According to the
management this is one of the key differentiating factors between TTL and its competition. The after sales
service team of the company also does the work on turbines manufactured by other companies and the
high margin business will help support operating margins at current levels.
Sales Breakup (Segment)
100%
80%
11 13 17 16 17
60%
40% 89 87 83 84 83
20%
0%
FY08 FY09 FY10 FY11 FY12
Product Sales (%) After Market (%)
Source: Company, Nirmal Bang Research
The Company’s focus on the high margin aftermarket business continued during the year with a growth of
8% over the previous year even though most customers were postponing ordering insurance spares. The
CAGR growth for this segment has been 22% during the past five years.
Exports to become a major growth driver
The current share of exports in TTL’s business is 14%. The focus is to push this share to 20% in the near
future. Currently TTL has presence in 30 countries, with focus on South East Asia markets of Indonesia,
Malaysia and Thailand, Korea, Europe. The Company will be developing new geographies like South
America, Middle East and Africa in near future. TTL’s revenues from exports have grown at a CAGR of 23%
from FY07-12. The exports turnover grew by 32% in FY12 and is currently at Rs. 88 cr. 25% of the current
order book is exports.
700
600
500
400
300
200
100
0
93
88
85
79
89 86
21
15
7 12
11 14
FY07 FY08 FY09 FY10 FY11 FY12
Total Sales (Rs Cr) Domestic Sales (%) Exports (%)
100
90
80
70
60
50
40
30
20
10
0
Source: Company, Nirmal Bang Research
Increasing consciousness about offsetting the environmental impact of fossil fuels has prompted the
European Commission to promote energy efficiency directives. Co-generation is all set for a revival in
25-Jun-12 Please refer to the disclaimer towards the end of the document P a g e | 4

Initiating Coverage
STOCK IDEA – 25 June 2012
tiating Coverage
ting Coverage
g Coverage
Coverage
verage
rage
ge
Triveni Turbines Ltd.
Europe between 2014 and 2018. Most countries across Europe are expected to increase their cogeneration
capacity. Under the combined heat and power (CHP) directive, Germany, Italy and Spain have
made considerable strides in building a policy framework to support co-generation, while Germany has
set itself a target to double co-generation capacity by 2020. In 2011, the EU identified co-generation as
the energy application that can make the single-largest contribution to achieving the region’s greenhouse
gas reductions, giving a huge thrust to the market. The effective implementation of CHP policies and a
focus on creating favourable conditions for co-generation development are likely to drive the market in
Europe. Efforts of major markets in Latin America to diversify their fuel sources, which rely heavily on
hydropower, are expected to increase preference for thermal power generation and other renewable
sources of energy. The installed capacity for thermal energy in the Asia-Pacific region for 2011 is
estimated at 1372.5 GW. The installed capacity is expected to grow at a CAGR of 6.8% for the period 2012
- 2020, with the total installed capacity expected to be around 1969.3 GW in 2020. All these factors
provide a positive outlook for TTL’s export market.
Strong financial performance
TTL witnessed 3% growth in topline in FY12 mainly due to slowdown in the global economy. We expected
the topline to grow 14% in FY13 on the back of healthy order book and strong order pipeline. EBITDA for
FY12 was Rs. 146 cr with a margin of 23.3%. We expect TTL to post similar margins in FY13, which will be
supported by its share of high margin after sales business. PAT margin for FY12 was 13.6% and we expect
it to improve in FY13 primarily because it will be debt free by that time. The company currently operates
on negative working capital primarily due to 20% advance it receives from its customers, supplier’s credit
and low inventory levels. We see this trend continuing as the company foresees no major problems in
generating cash from its operations. Inventory levels have fallen from 57 days in FY11 to 45 in FY12.
Similarly debtor days have fallen from 63 days in FY11 to 57 days in FY13.
Sales & Sales Growth
EBITDA & EBITDA Growth
800
(%)
20
200
(%)
40
600
150
400
0
100
0
200
50
0
FY09 FY10 FY11 FY12 FY13E
Net Sales (cr) Sales Growth (RHS)
-20
0
FY09 FY10 FY11 FY12 FY13E
EBITDA (cr) EBITDA Growth (RHS)
-40
PBT & PBT Growth
EBITDAM & PBTM
200
150
100
50
(%)
40
0
26
24
22
20
18
23.8 24.4 23.9 24.0
21.5 21.7 21.0 21.4
23.1
21.6
0
FY09 FY10 FY11 FY12 FY13E
PBT (cr) PBT Growth (RHS)
-40
16
FY09 FY10 FY11 FY12 FY13E
EBITDA (%) PBT (%)
Source: Company, Nirmal Bang Research
*Figures for FY11 are for the full financial year as opposed to the ones reported in the balance sheet
25-Jun-12 Please refer to the disclaimer towards the end of the document P a g e | 5

Initiating Coverage
STOCK IDEA – 25 June 2012
tiating Coverage
ting Coverage
g Coverage
Coverage
verage
rage
ge
Triveni Turbines Ltd.
Q4FY12 – Result Update
Q4FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12
Total Sales 146.3 142.1 162.8 161.1 182.3 146.3 142.8
Expenditure 110.83 108.94 126.72 124.4 141.66 111.17 102.7
EBITDA 35.4 33.2 36.1 36.7 40.6 35.2 40.1
EBITDA margins (%) 24.2% 23.3% 22.2% 22.8% 22.3% 24.0% 28.1%
Depreciation 2.99 2.59 2.93 2.8 2.51 2.69 3
Other Income 0.1 0.72 1.64 0 0.03 0.02 2.92
EBIT 32.5 31.3 34.8 33.9 38.1 32.5 40.0
EBIT margins (%) 22.2% 22% 21% 21% 21% 22% 28%
Interest 2 1.72 2.99 2.3 2.32 2 2.9
Extra ordinary items 0 -55.98 0 0 0 0 0
EBT 30.53 -26.42 31.8 31.6 35.82 30.49 37.07
Tax Expense 9.91 9.9 6.2 10.3 11.55 9.9 12.16
Tax Rate (%) 32% -37% 19% 33% 32% 32% 33%
PAT 20.6 -36.3 25.6 21.3 24.3 20.6 24.9
PAT margin (%) 14.1% -25.6% 15.7% 13.2% 13.3% 14.1% 17.5%
Adj PAT 20.6 19.7 25.6 21.3 24.3 20.6 24.9
Adj PAT margin (%) 14.1% 13.8% 15.7% 13.2% 13.3% 14.1% 17.5%
EPS 0.62 -1.10 0.78 0.65 0.74 0.62 0.76
Adj EPS 0.62 0.60 0.78 0.65 0.74 0.62 0.76
Source: Company, Nirmal Bang Research
Risks
Net sales for the quarter were down by 12%, YoY to Rs. 142.7 cr. This was primarily due to
slowdown in the industry. The target market for the company contracted by 40% in FY12.
EBITDA for the quarter was Rs 40 cr up by 11%. EBITDA margin was 28% for the quarter.
PAT for the quarter was Rs. 25 cr, down 3%, YoY. PAT margin however improved from 15.6% in
Q4FY11 to 17% in Q4FY12.
Export revenues for the year grew by 32% and export order booking increased by 36%.
The current order book stands at Rs. 495 cr.
After market sales contributed 17% to the topline. The management expects this to reach 20% in
the near future.
Slowdown in the order inflows
Any slowdown in the order inflows for TTL can have a significant impact on the company’s topline growth.
Considering the current economic environment, this remains a key concern for the company. However
the management insists that the global economic conditions will not impact TTL’s growth plans as it
caters to clients who are now looking at optimizing their processes and improving efficiency as part of
their cost saving methods.
Rising interest rates
This will hamper any new expansion plans in industries which TTL caters to, as project viability becomes
difficult with higher cost of borrowing. This can have a direct impact on TTL’s fortunes in terms of the
company receiving fewer orders.
Increasing competition
Although TTL commands a major market share in the segment it operates in, you cannot rule out the
competition from Chinese or other MNC players. Increasing competition will put pressure on company’s
margin performance.
25-Jun-12 Please refer to the disclaimer towards the end of the document P a g e | 6

Initiating Coverage
STOCK IDEA – 25 June 2012
tiating Coverage
ting Coverage
g Coverage
Coverage
verage
rage
ge
Triveni Turbines Ltd.
Valuation & Recommendation
The company has no significant capex plans or investment lined up in the near future. The management is
confident of maintaining its margins going forward. TTL operates on a negative working capital because it
receives 20% advance from all its customers and maintains low inventory. This trend will continue going
forward. The debt on TTL’s books is Rs. 36.3 cr at the end of FY12 and aims to be debt free by FY13.
The JV with GE will be the key trigger of growth for the company as it enters the 30-100 MW turbine
market. We will have to wait and watch how the operations at the JV unfold in terms of order booking
and execution. We have not factored in revenues coming from the JV.
At CMP, the stock trades at 13.5x its FY13E EPS. It is 7.9x its FY13E EV/EBITDA. We expect a 20% upside
potential from current levels. The order inflows in the coming quarters especially from the JV will provide
the key trigger for the stock to move significantly up from current levels. However we have not factored
in the revenues from the JV.
25-Jun-12 Please refer to the disclaimer towards the end of the document P a g e | 7

Initiating Coverage
STOCK IDEA – 25 June 2012
tiating Coverage
ting Coverage
g Coverage
Coverage
verage
rage
ge
Triveni Turbines Ltd.
Company Background
Triveni Turbine Ltd (TTL), part of the Triveni Group is a leading industrial steam turbine manufacturer with
over four decades of experience. TTL was formed in October 2010 after Triveni Engineering & Industries
Ltd demerged its steam turbine business unit into an independent entity. Post the demerger the stock got
listed on October 28, 2011.
TTL’s main business is manufacturing and selling steam turbines based on customers specifications. It also
manufactures spare parts and provides after sales services for turbines manufactured by the company as
well as others.
The company commands a market share of ~54% in India up to 30 MW range. TTL has done over 2,500
installations, in 18 diverse industries in 30 countries. The manufacturing facility is located in Bangalore
and has an annual capacity of 150 turbines.
Product Streams:
Steam Turbines (upto 30MW)
TTL offers customized condensing and back pressure steam turbines that function at capacities up to 30
MW, with 105 ata steam pressure and 535 deg.c superheat temperature. They have an average uptime of
99%. Every turbine solution is engineered to order and suit the customer specifications. TTL has installed
over 2500 turbines in 30 countries.
After market services (refurbishing and operation & maintenance)
TTL offers dedicated after sales service to its clients where in it undertakes spare part delivery,
refurbishment and operation and maintenance. The company has 13 service centers across the country to
cater to this segment. After market services forms 17% of its FY11 topline and delivers high margins.
Manufacturing Facility:
TTL’s manufacturing facility is based in Bangalore and is spread across 15000 sqm. The facility is equipped
with state of the art equipment which enables the company to manufacture all critical to quality
components like casings, rotors, blades, labyrinth packaging, oil seal holders etc in-house. The facility is
capable of producing 150 turbines a year and can be scaled up with minimal capex requirements.
Year Milestones
1968 Delivered the first steam turbine
1979 Transformation from turbine supplier to solution provider
Commissioned its first turbo generator for Combined Heat
1980 and Power (CHP) application
Exported the first order for a steam turbine in
1983 co-generation application
1997 Began refurbishing services for steam turbines
1997 Established Research & Development (R&D) department
Received an order for the largest steam turbine (high pressure /
2005 high temperature) for 28.0 MW for co-generation application
2007 Commissioned High Speed Balancing Tunnel (SCHENCK
Received an order for a 23 MW 105 bar steam turbine,
2009 commissioned 2011
2010 Signed Joint Venture agreement with GE Oil & Gas for >30-100 MW
2011 Dispatched 112 turbines in FY,11.
2011 First GETL order for 1*35MW
Source: Company, Nirmal Bang Research
25-Jun-12 Please refer to the disclaimer towards the end of the document P a g e | 8

Initiating Coverage
STOCK IDEA – 25 June 2012
tiating Coverage
ting Coverage
g Coverage
Coverage
verage
rage
ge
Financials
Triveni Turbines Ltd.
25-Jun-12 Please refer to the disclaimer towards the end of the document P a g e | 9

Initiating Coverage
STOCK IDEA – 25 June 2012
tiating Coverage
ting Coverage
g Coverage
Coverage
verage
rage
ge
Triveni Turbines Ltd.
NOTES
Disclaimer:
This Document has been prepared by Nirmal Bang Research (A Division of Nirmal Bang Securities PVT LTD). The information, analysis and
estimates contained herein are based on Nirmal Bang Research assessment and have been obtained from sources believed to be reliable. This
document is meant for the use of the intended recipient only. This document, at best, represents Nirmal Bang Research opinion and is meant for
general information only. Nirmal Bang Research, its directors, officers or employees shall not in any way be responsible for the contents stated
herein. Nirmal Bang Research expressly disclaims any and all liabilities that may arise from information, errors or omissions in this connection. This
document is not to be considered as an offer to sell or a solicitation to buy any securities. Nirmal Bang Research, its affiliates and their employees
may from time to time hold positions in securities referred to herein. Nirmal Bang Research or its affiliates may from time to time solicit from or
perform investment banking or other services for any company mentioned in this document.
Nirmal Bang Research (Division of Nirmal Bang Securities PVT LTD)
B-2, 301/302, Marathon Innova,
Opp Peninsula Corporate Park
Off Ganpatrao Kadam Marg
Lower Parel (W), Mumbai-400013
Board No. : 91 22 3926 8000/8001
Fax. : 022 3926 8010
25-Jun-12 Please refer to the disclaimer towards the end of the document P a g e | 10