>TIL (EDELWEISS)

■ Differentiated business model: A major boon
TIL’s uniqueness lies in its ability to provide total infrastructure solutions rather than supplying only products. In its material handling equipment (MHE) division, TIL designs and manufactures port cranes, forklifts and reach stackers, which find application in heavy construction activities in projects or for movement of materials. In its agency businesses (Caterpillar), the company sells earthmoving products to mining and construction industries. Moreover, it has huge potential of supplying spare parts and offering after sales service to the installed customer base.

■ GoI’s increased port spending to drive TIL’s future growth
Infrastructure development is a priority for the Government of India (GoI) for sustained GDP growth. GoI is doubling the port capacity at an investment of INR 600 bn over the next five years. From our interaction with industry sources, we have learnt that ~12% of this spending is likely on equipment like cranes, forklifts, and material handling systems, translating into an opportunity of INR 72 bn over next five years. We believe TIL’s MHE division will be a key beneficiary of this spend. Even if we assume a 10% market share for TIL, it could translate into revenues of INR 7 bn over the next five years (4x its MHE revenues) in FY09.

■ Recovery likely in H2FY10; new products give FY11 visibility
As on June 30, 2009, TIL has an unexecuted order book of INR 2.61 bn, including order from principal sales of INR 1.1 bn. We expect H2FY10 to be better on account of a low base of last year and expected improvement in the order book. Also, from Q4FY10, new product launches from the new plant will kick in, targeting the port, bulk material handling and roads segments. Moreover, the
company is exploring the option of supplying components to its technical collaborators FY11 onwards from the new plant, which could provide upside to our estimates, as we have not factored in the related revenues in our assumptions. Further, new product launches could aid margin expansion; we estimate EBITDA margin to expand from 8.8% to 10.4% by FY11.

■ Outlook and valuations: Going steady; initiating coverage with ‘BUY’
At CMP of INR 248, TIL is trading at 5.7x its FY10E consolidated EPS of INR 43.9 and 4.5x its FY11E EPS of INR 55.6. Given: (1) the huge opportunity; (2) expected accretion to order book; (3) decent valuations; and (4) potential rerating from likely restructuring (with transfer of agency business to a whollyowned subsidiary), we initiate coverage on TIL with ‘BUY’ recommendation.

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