Transformers & Rectifiers India Ltd Q4 FY2024 Concall Summary

Key Takeaways

• Strong Q4, but FY24 revenue fell 7%: Q4 revenue grew 18% YoY to ₹500 crore with EBITDA margin up 576 bps to 12.9%, but full-year revenue declined to ₹1,273 crore as H1 weakness weighed.
• Order book swelled 72% to ₹2,582 crore: Highest ever annual order inflow of ₹2,050 crore, with a ₹17,000+ crore inquiry pipeline under negotiation.
• Deliberate shift to EPC customers improved cash flows: State and central utility revenue share fell from 51% to 31% YoY, a conscious choice to quote less to SEBs and more to EPC contractors servicing them.
• Capacity expansion and backward integration are the FY25 story: A new 8,000 MVA automated plant targets December 2024 readiness, while full backward integration is targeted by December 2025, both aimed at margin improvement.
• What to watch next quarter: QIP completion, new plant commissioning timeline, conversion of the ₹17,000 crore inquiry pipeline into orders, and whether EBITDA margins hold at the guided 12.5%-13% band as the low-margin legacy order book runs off.

Order Book & Demand Pipeline

• Record order inflow: FY24 order inflow reached ₹2,050 crore, pushing the unexecuted order book to ₹2,582 crore, a 72% jump over FY23.
• Inquiry pipeline is deep: ₹17,000+ crore of inquiries are under negotiation across renewable energy, power, and furnace transformer segments. Management expects a 15%-20% conversion rate, implying ₹2,500-₹3,500 crore of potential order inflow.
• Green energy dominates: 60% to 70% of Power Grid orders are for green energy directly and indirectly, and the order book is split roughly 50-50 between conventional and green energy.
• Railway opportunity emerging: RDSO approval secured for Scott-connected and V-connected transformers, with short-circuit testing expected by end-May. Orders have already started coming in.
• Majority of orders carry price variation clauses, protecting margins from raw material volatility.

Jitendra Mamtora: "you can say that 60% to 70% of these transformers are for green energy directly and indirectly."

Revenue & Margin Trajectory

• Q4 profitability jump: EBITDA margin hit 12.9% in Q4, up 576 bps YoY, driven by faster execution of major orders, better production planning, improved receivables, and internal control systems. PAT margin rose 509 bps to 7.2%.
• FY25 margin guidance is flat to Q4: Management expects EBITDA margin to remain between 12.5% to 13%, with the current order book to be delivered over the next 15 months.
• Low-margin legacy orders remain a drag: Management declined to quantify the share of low-margin orders in the current book, but the guided margin band implies limited near-term upside from mix improvement alone.
• Backward integration as margin lever: The company is at 40%-50% backward integration today and targets full integration by December 2025, which management says will lift margins from present levels.
• Cycle time reduction underway: Cycle time has been cut from 55 days to 40 days, with a further target of 32-35 days, directly improving working capital and throughput.

Chanchal Rajora: "the current order book what we have is to be delivered in next 15 month's time. So, we are trying to achieve that. And EBITDA margin will remain somewhere between 12.5% to 13% levels."

Capacity Expansion & Automation

• New 8,000 MVA plant by December 2024: The expansion is focused on green hydrogen transformers and solar park transformers of ~20 MVA rating, designed for mass production of 80-100 units per month.
• Automation to reduce failure rate: The new plant will use automated machinery to minimize human intervention and reduce failure rates, targeting the high-volume, repetitive production segment.
• Total capacity to reach 12,000 MVA: Combined with existing 36,000-37,000 MVA capacity, the new plant takes total capacity higher, with peak utilization expected by FY26. Current utilization runs at 60%-65% against a practical peak of 85% for manufacturing.
• Inquiries already in place for new capacity: Management is already negotiating with customers for orders to fill the new plant, though no firm orders have been disclosed yet.

Jitendra Mamtora: "They will be around 20 MVA or so but they will be produced in mass because the demand is going to be very high you know 80 to 100 transformers per month. So we're going to make the plant automated by choosing the machines so that the human intervention is reduced and the failure rate is also reduced."

Customer Mix & Working Capital

• Deliberate pivot away from SEBs: Revenue from state and central government customers fell from 51% to 31% YoY, as the company chose to quote less to State Electricity Boards and more to EPC contractors servicing them, improving cash flows.
• Working capital cycle improving: Debtors and creditors have both gone down drastically, and short-term and long-term borrowings have reduced. The target is a 120-day working capital cycle.
• GETCO collections largely resolved: The majority of outstanding receivables from GETCO have been received, with the remainder coming as expected.
• Export margins and payment terms are better: Export orders carry slightly better payment terms and margins than domestic orders, though domestic demand is strong enough that management caps export share at 15% for FY25.
• Utilities vs industrial payment terms: Utility customers pay in 45-60 days from delivery, while industrial and EPC customers offer much better terms, with margins remaining similar across both segments.

Exports & New Markets

• Export revenue surged 117% to ₹139 crore, contributing 11% of total revenue in FY24.
• Export share capped by domestic demand: Management expects exports to stay at ~15% in FY25, rising to 20%-25% by FY27, because domestic demand is growing exponentially and the company prioritizes a balanced mix.
• Data center supply established: The company is already supplying transformers to data centers and describes itself as a pioneer in this segment.
• Overseas OEM inquiries: Inquiries are coming from overseas OEMs for large rating industrial transformers, and an MNC has placed orders for green hydrogen transformers.

Satyen Mamtora: "Exports would not go beyond 15% this year. Because see the local demand for our country is also so high that since this is growing exponentially, exports may not go beyond 15%."

Fundraise & Capital Allocation

• ₹120 crore preferential issue completed in October 2023 via private placement of 1 crore shares.
• ₹500 crore QIP targeted for Q1FY25 completion: Proceeds earmarked for inorganic growth, capacity expansion, backward integration, and reducing working capital burden.
• Borrowings trending down: Both short-term and long-term borrowings have reduced drastically, and management is trying to reduce them further.
• Capex cost for new plant undisclosed: Management declined to share the total project cost for the new 8,000 MVA plant.

Chanchal Rajora: "Pinkesh, by end of first quarter it should be completed."

Guidance & Commitments

Key Metrics