My observations on TRIL Q1 result and concall:

Company has delivered highest Q1 revenue in history of TRIL. They are manufacturing 132 MV transformer which no Indian company done before and it may put them on the same league as the large European players. The EBITDA is around 7.6% and it's less than Q4 2016 (11%) due to lower sales. The Q1 for these Capital goods company are always low and so nothing much to read there.

However, company plans to raise a QIP of Rs. 150 Cr. As per concall, this is primarily to raise capability than capacity to handle future large transformer business and Arc Furnace Transformer business for export market. So it would be more EBITDA accretive than Volume or Topline accretive. Also, they don't plan to reduce debt from the QIP proceeds but mostly spend on developmental expenditure.

Management plans to complete FY 17 with Rs. 800 Cr topline and 10% EBITDA compared to Rs. 560 Cr topline and Rs.29 Cr EBITDA (5% appx) for FY 2016. But the QoQ improvement in margin and volume is encouraging.

However, to raise Rs. 125 Cr QIP at Rs. 400 Cr. present market cap, the dilution would be almost 24% if the QIP is done at around Rs. 300/- per share. It will reduce promoter shareholding to around 57% from present 74% level.
Also, at full dilution, at Rs. 80 Cr. EBITDA (as management guided) the PAT can be about Rs. 25 Cr max. I used the following assumption to arrive at the figure

EBITDA -- Rs. 80 Crs; Depreciation Rs. 15 Cr. Finance Cost Rs. 35 Cr. (aggressive assumption as higher sales may tie up even more Working Capital) .... So PBT would be Rs. 30 Crs and PAT can be Rs. 24 Cr. at 20% overall tax rate (if they can deploy fund by then possibly tax incidence may can't be more than 20%) ...... So, at 24 Cr. PAT, the fully diluted EPS would be around Rs. 13/ - Rs. 15/- ..... So, currently stock is trading at 20 - 22 PE.

For these types of businesses, increasing revenue exponentially is pretty difficult and cyclicality will give a tailwind for few years to come and company is doing all good things to move up the value chain.

Statutory Disclosure: SEBI Registered Investment Adviser (Regn No. INA100004814). I hold TRIL (<1% of portfolio). No trading done in past 30 days. It is not a recommendation to buy or sell. My comments are for discussion purposes only. It has NOT BEEN recommended to any paid members of our advisory service at https://aveksatequity.com

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