Transformers and Rectifiers (India) Limited (532928) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Transformers and Rectifiers (India) Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Krishna Patel. Thank you, and over to you, ma'am.

Thank you. Good afternoon, everyone. A warm welcome to all participants joining the Q1 FY '27 Earnings Conference Call of Transformers and Rectifiers (India) Limited. Joining us today from the management team are Mr. Satyen Mamtora, Managing Director, CEO; and Mr. Mehul Shah, the Chief Financial Officer, who will discuss the company's operation and financial performance for the quarter and address your questions thereafter. Before we begin, I would like to remind you that certain statements made during this call may constitute forward-looking statements. These statements are based on management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. Please note that the audio recording transcript of this conference call are the property of Transformers and Rectifiers (India) Limited and may not be copied, introduced, rebroadcasted, redistributed in any form without the consent of the company. With that, I would like to now hand over the call to Mr. Satyen Mamtora, the Managing Director and CEO, for his opening remarks. Over to you, sir.

Good evening, everyone, and a warm welcome to the earnings conference call of Transformers and Rectifiers (India) Limited to discuss the company's business and financial performance for Q1 FY '27. We concluded our Board meeting yesterday and have subsequently uploaded our financial results along with the investor presentation to the stock exchange and company website. We hope all the participants have -- had enough opportunity to review this material. Thank you for joining us today, and we look forward to sharing our performance highlights and addressing the questions during the course of this call. First of all, I'd like to begin with the call by setting the tone of the company and outlining what stakeholders can expect from TARIL in FY '27. First and foremost, I would like to assure all our stakeholders that we are committed to providing only those guidance parameters that we are confident of achieving, going forward, our focus is firmly on delivering on our commitments and letting our performance speak for itself. We recognize that the trust and confidence of our stakeholders are paramount and we remain committed to protecting and strengthening that trust throughout -- through consistent execution and transparent communication. In line with this objective, we have appointed Ernst & Young to support [indiscernible] our Investor Relations initiatives ensuring timely, transparent and effective engagement with the investment community. Quarter 1 FY '27 updates. As of June 30, 2026, our Un-executed Order Book stood at INR 6,630 crores, reflecting a 26% year-on-year growth, providing a strong revenue visibility over medium term. During the quarter, we successfully completed dynamic short-circuit testing of 4 transformer units with significant technical milestone that validates our product's ability to withstand extreme electrical and mechanical stresses under fault conditions in accordance with the stringent international standards. The current un-executed order book is executable over the next 18 to 24 months, and we remain confident of delivering these orders within the stipulated time lines as we have adequate manufacturing capacity, resources and execution capabilities in place to support timely project deliveries. Our existing transformer manufacturing capacity of 75,000 MVA-plus across all plants, coupled with a recent expansion initiatives provides us the capability to support annual revenues in the range of INR 5,000 crores to INR 6,000 crores over the medium term. Our immediate priority is not adding further transformer manufacturing capacity, but maximizing utilization and improving throughput and enhancing operational efficiency across all facilities. During quarter 1 FY '27, we have received a healthy order inflow of INR 2,114 crores, 218% year-on-year growth. 218% year-on-year growth over low base around last year this time. Major orders received during this quarter were Ultra Mega Order from PGCIL above INR 1,000 crores for manufacturing of transformers of various ratings within 30 months. Order from GETCO of about INR 228 crores for manufacturing transformers and reactors. Order from RRVPNL of INR 175 crores for manufacturing transformers and reactors. Export Order from PDC AK LPIV, LLC - USA of about INR 150 crores for manufacturing of transformers. We currently have INR 23,000 crore of inquiries under negotiation. Historically, our win ratio is in the range of 10% to 15%, and we are confident of achieving that. Out of the inquiries under negotiation, we are bidding for 80% domestic and 20% export orders. With an equal mix between government, private customers and utilities, and industrial customers. Alongside our core transformer manufacturing expansion, we are building a comprehensive backward integration ecosystem that will strengthen our supply chain reliability, improve margins, enhance quality control and reduce dependence on external vendors. Three projects under implementation include CTC facility 8,000 metric tons per annum and Phase II is 24,000 metric tons per annum targeted commissioning by Q2 FY '27. Pressboard and insulation facility, 5,000 metric tons per annum, Phase I and 10,000 metric tons per annum, Phase II targeted to commission by Q3 FY '27. RIP bushings facility, 3,000 units per annum and 6,000 units per annum in Phase II, targeted commissioning Q4 FY '27. Fabrication facility, 25,000 metric tons per annum. Phase I, 50,000 metric tons per annum, targeted commissioning by Q1 FY '28. CRGO processing facility, already commissioned and operational. Upon completion of these facilities to cater approximately 80% to 85% of our raw material requirement in-house, significantly enhancing our manufacturing integration and operational efficiency. In transformer industry, where component availability remains a key bottleneck globally, we believe backward integration will become a significant competitive advantage for TARIL over the coming years. We acknowledge that there have been delays in commissioning of additional facilities at Changodar plant. The delay is primarily attributed to extreme monsoon conditions impacting the project execution time lines, construction force availability constraints, and additionally, engineering enhancements and modifications across product-specific manufacturing lines and testing infrastructure. I'm pleased to share that the projects are now progressing in the line with revised execution schedule. Changodar expansion involving investment of approximately INR 150 crores and backward integration initiatives entailing a total investment of INR 900 crores to INR 1,000 crores remain key strategic priorities, and we are confident that these facilities will be commissioned as per the timelines outlined. During quarter 1 FY '27, TARIL delivered 10% year-on-year growth in revenue. However, on a sequential basis, revenue growth was impacted comparatively lower capacity utilization at Changodar facility where ongoing expansion and modernization of the -- modernization activities are temporarily affecting the operational throughput. Importantly this does not reflect any weakness in demand or order inflow or execution capability. The impact was purely project related temporary in nature. We have accelerated the execution of the project and placed the implementation process on a fast track. As the expanded facilities progressively stabilize, we expect meaningful improvement in operational efficiency and execution levels with the growth expected to pick up from Q3 FY '27 onwards. At TARIL we remain confident of our growth trajectory and are targeting 25% revenue growth in FY '27 along with EBITDA margin of 16% and PAT margin of 9% to 10%. These targets are underpinned by a healthy order book, expanding manufacturing capabilities and sustainable demand outlook for the power transmission and distribution sector. As we enter the remaining part of FY '27, our focus are clear: timely execution of the order book, ramping up utilization at Changodar, commissioning backward integration facilities as per revised time lines, sustaining margins through operational efficiencies, converting a healthy inquiry pipeline into executable orders, strengthening high-value product opportunities. The transformer industry in India continues to offer significant growth opportunities driven by sustained investments in power and infrastructure and grid modernization. Additionally, emerging demand on data centers expansion and railway electrification. EV charging infrastructure, renewable energy integration are evolving substantial opportunities for transformer manufacturing over the coming years. While the business environment remains favorable, we continue to closely monitor certain external factors, particularly the unforeseen geopolitical development subject to the factors remaining stable. We remain committed to delivering on the guidance shared with our stakeholders. Thank you.

Good evening, everyone. Thank you for joining us today. I would like to take you through the company's financial risk profile, covering our profitability, leverage, working capital, liquidity position, capital allocation and the key risk monitorable from a finance perspective. For Q1 FY '27, stand-alone revenue from operations stood at INR 559 crores, registering a 10% year-on-year growth. EBITDA stood at INR 87 crores with EBITDA margin at 15.6%, while PAT stood at INR 50 crores with a PAT margin of 8.9%. The quarter was impacted on a sequential basis due to lower capacity utilization at Changodar plant as ongoing expansion activities affected operational throughput. However, this is transitional in nature and with the expansion expected to complete by August '26, we expect utilization level to improve progressively. From a consolidated perspective, revenue from operations stood at INR 572 crores, EBITDA stood at INR 110 crores and PAT stood at INR 64 crores in quarter 1 FY '27. Importantly, consolidated EBITDA margin remained healthy at 19.2%, which reflects the benefit of our integrated operations and contribution from subsidiaries. Coming to the balance sheet, our leverage profile remains comfortable. On a stand-alone basis, total debt stood at around INR 424 crores as of financial year '26 against a tangible net worth of approximately INR 1,410 crores, translating into a debt-to-equity ratio of around 0.3x. Our debt-to-EBITDA stood at around 1.1x, which remains well within a prudent range for our manufacturing business of our size and growth profile. While borrowings have increased compared to FY '25, this increase is largely linked to working capital requirements and growth-related investments rather than any structural weakness in the balance sheet. Given the strong order book, expansion-led scale-up and maintained profitability profile, we believe the current leverage remains manageable and supports our growth plan. On liquidity, TARIL remains adequately positioned. We ended FY '26 with a stand-alone cash and bank balance of approximately INR 139 crores. In addition, around INR 145 crores of unutilized proceeds from the QIP remains earmarked for backward integration initiatives. This provides us with additional funding flexibility as we execute our planned CapEx program. The ongoing expansion at Changodar involves CapEx of around INR 150 crores, while the backward integration program is expected to involve investment of around INR 900 crores to INR 1,000 crores. We intend to fund this through a disciplined mix of QIP proceeds, leasing arrangement, internal accruals and debt if required. The objective is to maintain an efficient capital structure while ensuring that growth does not come at the cost of the balance sheet discipline. A key area we continue to monitor closely is working capital. As of FY '26, stand-alone inventory stood at INR 561 crores and receivables stood at INR 1,057 crores. Net working capital days increased to around 170 days with inventory days of approximately 85 days and receivable days at 130 days. This reflects the nature of our business where large transformer orders typically involve long manufacturing cycle, milestone-based billing, testing requirements and project-linked customer approval. Our backward integration initiatives are strategically important from a risk management perspective. The new facilities for CTC conductor, pressboard insulation, bushing, fabrication and CRGO are expected to strengthen supply chain control, improve availability of critical inputs, support timely delivery and create cost efficiency over the medium term. Our fully commissioned, this initiative should reduce dependency on external suppliers and improve resilience against supply side disruption. I would like to sum up my remarks by highlighting that TARIL continues to operate from a position of financial strength. Over the last few years, the company has scaled its revenue base meaningfully while improving the quality of earnings, strengthening net worth and maintaining leverage at a comfortable level. On a stand-alone basis, the revenue from operation has grown at a 5-year CAGR of 27%, EBITDA at 38% and PAT at 101%, reflecting strong operating leverage and improved profitability across the business cycle. From a return profile standpoint, TARIL has demonstrated consistent improvement in stand-alone ROCE improved from 11.1% in FY '21 to 19.1% in FY '26, while return on equity improved from 2.1% in FY '21 to 15.7% in FY '26. These metrics underline that the company has been able to deploy capital more efficiently while scaling operations. Thank you. I now hand it back for the question-and-answer session.

[Operator Instructions] We take the first question from the line of Abhijeet Singh from Systematix.

Sir, first question is on the revenue and execution front. So in Q1, we have seen that the revenue growth has moderated to an extent given the kind of order book we have. And sir, you've mentioned also in the PPT and your remarks that the ongoing expansion at Changodar maybe like to be [ teething ] issues in this quarter. Sir, can this also be attributed to some kind of supply chain issues especially given the geopolitical climate right now and some of the sourcing that was challenging during the quarter. So that is my first question. And how to look at it going forward in Q2 and H2.

So as far as the revenue is concerned, that is mainly on account of the lower capacity utilization at the Changodar plant. It does not involve. So we have enough orders on hand. Only thing is that new facilities are yet to commence, and that will be commenced from August '26. And mainly, it will be stabilized by -- going forward since quarter 3. And as far as the second question is related to the availability of the raw material. So mostly, we have covered ourselves by procuring this material, say, up to December till the time our backward integration facilities are up and running. So till that time, we are well covered ourselves. So majorly, the geopolitical reason is not affecting much as far as the raw material is concerned.

Sir, so has our inventory increased a lot at the end of Q1...

Yes, we have. Yes, inventory levels are high.

So that means you might see increased interest cost in the balance 9 months, right? Because of that. We might need more working capital for this to sustain this kind of execution in the next 9 months?

Yes. But see, this will be a temporary feature to protect ourselves. And it will be modernized once our backward integration facilities are up and running. So that will start reducing the inventory levels also.

Sir, on second question is on the other expenses. So this quarter, we have seen the other expenses on the lower side a little bit. Usually they would hover around 13%, 14%. This quarter is around 12% of sales. And I would expect that some kind of commodity and ForEx pressure would eat into our margins. So could you explain that why is the other expenses on the lower side in this quarter? Is there a one-off there?

No, no, there is no one-off. There is -- if you look at our quarter 1 other expense, it is around INR 69.74 crores last year. It is around INR 66 crores. So there is no major reduction as such.

Right. And sir, lastly, on the order inflow for the full year. I've seen that we have done very strongly in Q1 in terms of exports. We've got this INR 150 crores order from U.S. in that light for the full year FY '27, what is our expectation for the order inflow, both from the domestic and the export markets? If you could highlight also geography-wise, because as far as I understand, there's a lot of good demand for greener transformers in Europe also. Right? From that perspective, what is the inflow situation for FY '27, that we expecting?

So we would be maintaining about 30% growth rate in both domestic and export market. We are currently looking at the Americans, Americas, as we say it, North America and South America and some of the Australian orders where we are very confident that we are going to get a good growth in terms of numbers in transformers. May I request the moderator to keep one question per person, please?

Sure, sir. [Operator Instructions] We take the next question from the line of Subhadip Mitra from Nuvama.

Just wanted to check on the guidance. I think you mentioned for FY '27, 25% increase in revenue and a 16% EBITDA margin. Is that the right number?

Yes, that is 25% as far as the revenue and 16% EBITDA margin and 10% reserve of PAT.

At the PAT level. Also just wanted to understand that from a slightly longer-term perspective, if I -- let's say, we look into FY '28 and beyond, what kind of revenue growth and margins do you think are sustainable? And in the past, you had talked about reaching $1 billion kind of a top line at some point of time in the future. So any thoughts on that?

So the company is constantly working and progressing towards [ $1 billion ] by '28, '29. So we are constantly working on that. And we should be -- we are very confident that we should be able to reach [ $1 billion ] by '28, '29.

Understood. And for FY '28, any thoughts on revenue and EBITDA margin?

We'll get to it when we get there. So quarter 4, we will give you a clear guideline on FY '28.

We take the next question from the line of Jainam Vora from Saltoro Investment Advisors.

Congratulations on the INR 1,000 crores PGCIL order win.

PGCIL order win.

Yes. Yes. Apologies, INR 1,000 crores plus PGCIL order. I just wanted to understand the thought process behind that win. I think even the biggest companies, your peers wouldn't have received a single-shot order like that. So what was the requirement? What was the thinking? If you could spend a couple of minutes behind that? And do we see given the kind of energy transition and the opportunity that is there, PGCIL wanting to give such orders even in future. So that would be very helpful.

So this order, like we said that we have about INR 23,000 crores in our order pipeline with orders under negotiation -- inquiries under negotiation. This was one of them and which finalized in the first quarter. We have many more about INR 23,000 crores worth in pipeline. So our win ratio is about 15% to 20%. So we should be winning those inquiries.

No, I understand that. I want to understand specific to this order. I think single shot order of this nature would be first for the company and also for the industry, right? So what typically goes into this order? Is it just L1 bidding? And going forward as well, what indication is PGCIL giving to companies like us given the opportunity, if you could explain that?

So yes, all the tenders that we quote in India are on L1 basis. And I think -- as far as we have multiple more inquiries with PGCIL, which are under negotiation. So they will take some time.

Got it. So we can expect such Ultra Mega Orders to keep flowing in given the opportunity and PGCIL has the appetite to give such orders to companies like us.

Yes, of course.

We take the next question from the line of [ Shivam Singh ] from [ Capital Ark ].

Hello, am I audible?

Yeah, you are audible, Shivam.

Sir, I just wanted to understand, sir, in our previous quarter, our employee cost was INR 38 crores and this quarter it's INR 22 crores. Could you quantify what these changes are.

Yes. See, in the last quarter, we have made some provision as far as the ESOP and the MD commission. So that is there in the last quarter. And this year, it is already part of that.

Okay, sir. And sir, I had one more small question. Sir, we told that low order margins that we were taking in, we have stopped taking that, and we are going for higher margin orders. But that is not reflecting in our actual business. When do we expect that to kick in?

Yes. See, this result, et cetera, number, et cetera, if you look at this EBITDA margin of around 16%. That is consistently we are maintaining in this year, last -- if you look at quarter 4, our margins was in that line. Even if you look at our entire number of financial year '26, that is almost on the same line. So Definitely, this will be continue in the near future also.

We take the next question from the line of Prathamesh from Motilal Oswal.

Hi. Am I audible?

Yes.

Just wanted to know if you could please provide a breakdown of power transformer order book by rating class and also who -- which players we compete within each classes?

So we compete with almost all players in India. We -- our business starts from 33 kV all the way up to 1,200 kV. So in 33 kV, we have competitors which are small manufacturers from 132 kV to 220 kV, we have competitors like other Baroda-based manufacturers. And then for EHV and UHV transformers, we have competitors which are mostly multinationals.

Okay. And our INR 5,300 crores order book for power transformer, if we were to split it by rating class, which would be the top 2 or top 3 classes and their percentages?

So we have always fairly spread out amongst all classes. So from 66 kV to 765 kV, we have -- these are very fairly spread.

Okay. And sir, if we were to just check the revenue split of power transformer for this quarter, is it the same? Are we fairly split across classes in that -- for revenue for power transformers in this quarter? Or are we heavy in some particular segment only?

So this quarter has been slightly heavy on the 220, 400, 765 kV segment because our Changodar plant is currently going through expansion. By August end, this will be fairly spread across all ratings. So IGTs, distribution transformers, small power transformers, large power transformers, EHV and UHV transformers, all transformers it will be fairly spread across.

We take the next question from the line of Darshil Jhaveri from Crown Capital.

Firstly, congratulations on a good performance in a very challenging condition, sir. Sir, just wanted to clarify one thing. Sir, we mean a $1 billion top line by FY '29, right?

Yes. We are working on it. We are constantly progressing towards it. '29 looks very achievable.

No. Fair enough, sir. And sir, with all the backward integration that we are doing, like in terms of margin benefit, what can we see flowing through from FY '28? Because most of our facility this year in backward integration will come in the later half, right? So FY '28 would be the year with nearly most of it coming online, right? So what kind of backward integration benefit we can see in margins, sir?

Yes, it will be basically between 200 basis points to 300 basis points. But see, these facilities will come up in Q1 FY '28. So the FY -- from starting from FY '28, we will see gradual increase in the margin.

So the CTC plant will be commissioned by Q2. The Pressboard plant will be commissioned by Q3. And the Bushing plant, which is a large bottleneck for us currently, will be commissioned by Q4.

Will be a gradual improvement as scale improves. Yes, fair enough, sir. That's not an issue. Yes. And just the depreciation would hit in FY '28, right, sir...

Yes. Once this capitalization is done.

We take the next question from the line of Balasubramanian from Arihant Capital.

Sir, the order flow is almost [ 200% ] plus year-on-year, nearly INR 2,000 crores plus. Earlier we used to maintain like 18 to 24 months execution time line. But right now, we are taking up to within 30 months as a large order. Is there any changes in the strategic direction for taking orders in terms of time line and whether.

Most of the orders that we are taking are currently from 18 to 24 months. Since this was a single bid, we call this for 30 months. Otherwise, most of the orders that we are categorically taking are from 18 to 24 months.

Okay. This one is exceptional, right, sir?

This is only an exception right now.

Okay, sir. Okay. And secondly, sir, like right now, the global market is shifting towards voltage source converter-based HVDC systems, which are more complex than line-communicated converter systems. So what is our design strategy based on like LCC, VSC or hybrid side? If you could talk about like I think we are coming with our own process. So how do you look at compared to like some big competitors like Hitachi, Siemens or GE? And what is the estimated...

We are looking at hybrid. So -- and these are basically not patented, but manufacturing secrecy kind of thing. So we would not like to discuss any further on this, but it will be based on hybrid systems.

Okay. Any R&D CapEx required for this, sir?

Not currently.

We take the next question from the line of Gaurav Khemka from Mars Ventures. Sorry to interrupt Mr. Gaurav, we are not able to hear you. Please come closer to your device and then speak.

Hi. Am I audible now?

Yes, Gaurav. Go ahead.

First of all, congratulations for a 10% increase in the revenue and posting a good number. So I just wanted to know about since our inventory is getting increased, so -- and the inventory turnover is also getting increased. So when can we see our inventory getting like the sales and reflecting in our profit and loss statement and getting the cash flows?

See, basically, as we told you that looking at the current geopolitical situation in the raw material, we have decided to keep the higher inventory level. So till the time our backward integration facilities are up and running, we will maintain this level, and you will start gradual reduction from, say, from quarter 4 of the next financial year. So till December, we are covered as far as the raw material is concerned.

So looking at the geopolitical situation, we have protected ourselves until December, and we are pretty much sure that all our backward integration plants will be ready by December. So we have protected ourselves until December in terms of raw material.

We take the next question from the line of Vaibhav Mishra from Finvestors.

Sir, I have one question. The EBITDA margins that we are targeting for FY '27 of 16%, these are excluding other income, correct? These are operational EBITDA margin, correct?

Yes. This has been calculated as including other income.

So this quarter, we have done 19% and we are guiding for 16% for the whole year we are going to go down below 15% as well?

No, no 16% at a transformer level. This 19% margin is with including the subsidiary at a consolidated level.

Okay. So for consolidated number, margin that you would like to guide for FY '27, like-for-like 19% this quarter that we have achieved. What kind of number can we see for the whole year?

I think a couple of percent more. 20%, 21% or beyond that.

And one small question, sir. Like our orders, how do we protect the margins? Do we have price variation clause or we buy the inventory as orders are received? What kind of model we follow?

We are protected by price variation clause. But looking at the geopolitical situation, currently, we have stocked up our inventory until December 2026. So that we are protected as we have large orders and we need to execute these orders on time. We have protected ourselves in terms of inventory. But after December, all our backward integration plants will be functional. So we are pretty much sure that material -- raw material problem we will not face.

And one small update regarding Moraiya expansion. I think it was to be completed by Q3. So is that on track, sir?

No. Moraiya expansion is Q3 2027 and that is on track.

We take the next question from the line of Yash Gupta from Asit Koticha Family Office.

Sir, my first question on the debt levels. How are we looking at the debt level going forward as currently we have already at INR 400-plus crores of debt and working capital requirement to complete this INR 6,600 crores of unexecuted order along with that INR 1,000 crores of CapEx that we are going to build. So how you are looking at the debt number for next couple of years?

See, we will not like to increase anything in the debt. As far as the CapEx is concerned, we have enough cash as well as the QIP money plus we have the arrangement through the leasing. So for CapEx, we will not be needing much fund. If anything is required, there may be a small debt. But working capital level, we try to reduce the working capital cycle. And from that only, we will generate the additional capital that is required for INR 6,600 crores order book. So there won't be any substantial...

But if you look at like INR 150 crores of the QIP money left for the backward integration. But currently, we are at INR 400 crores and INR 1,000 crores from the -- for the CapEx. And if like we say 80% on the current uncompleted order book of INR 6,600 crores, then INR 5,000 crores for debt, so how are we going to manage it for next 2 years?

See, basically, INR 150-odd crores from the QIP money, we have arrangement for the leasing, et cetera, for the plant machinery. So that CapEx part is gone. There is no fund requirement as far as the CapEx is concerned. And then we may utilize certain internal accruals if required. So the CapEx will be funded in that line. And the working capital, we would like to squeeze our working capital cycle to generate the additional fund so that we can manage the additional revenue that what we are planning.

So this INR 1,000 crores of CapEx, then what would be the number after leasing if we are going for finance leasing?

Finance leasing would be roughly around, say, INR 500 crores.

So we need to spend only INR 500 crores then?

Yes.

Sir, INR 1,000 crores for backward integration, what turnover ratio we can expect on this? I understand that we'll be utilizing this capacity for captive utilization. But what will be the turnover ratio on this INR 1,000 crores of backward integration?

In the first phase, this will be entirely for the TARIL. And in the second phase, we will look to see into the market. There is a third-party sale. So that will roughly give us additional, say, around INR 800 crores to INR 1,000 crores additional revenue from this...