Tuesday, September 8, 2009


Core infrastructure play

Play on core infrastructure
TRF provides engineered equipment, systems and services, including EPC/EPCM (equipment procurement and construction/maintenance) services, bulk material handling systems and equipment, coal beneficiation systems, coal dust injection systems and coke oven equipment for steel plants, and port and yard equipment. It caters to thermal power plants, and coal, mining, steel and ports sectors. Over the past three years, 75% of the company’s revenues have come from power and ports sectors.

Order book provides revenue visibility
As on March 31, 2009, TRF had an order book of INR ~14 bn (2.6x FY09 standalone sales), which provides strong revenue visibility for the next two years. Generally, order execution for TRF is for a period of two years. TRF has a policy of declaring its order book only once a year; it declares new projects only if they are of a size of INR 500 mn or more. Hence, tracking the order book on a quarterly basis becomes difficult.

Eyeing ultra mega power projects for future growth
TRF is targeting ultra mega power projects (UMPP) for its future growth. With planned investments of 15,880 MW already announced by GoI under UMPP, we estimate an investment of INR 665 bn over the next five years. Based on our interaction with various industry sources, bulk material handling system will be able to address ~6% of the envisaged capex, which translates into an investment opportunity of INR 40 bn for the bulk material handling industry. Even if we assume 20% market share for TRF, it means incremental revenues of INR 8 bn over the next five years (which is more than its standalone FY09 revenues).

Outlook and valuations: Attractive; initiate coverage with ‘BUY’
At CMP of INR 458, TRF is trading at 8.8x our FY10E consolidated EPS of INR 51.8 and 7x our FY11E consolidated EPS of INR 65.9. Based on historical valuations, we ascribe one-year forward multiple of 9, which gives the company a fair value of INR 593 per share over the next 12 months. Given TRF’s track record in project execution, management pedigree, revenue visibility, healthy return ratios and attractive valuations, we initiate coverage on it with a ‘BUY’ recommendation.

To see full report: TRF