Transformers and Rectifiers (India) Limited (TARIL.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Transformers and Rectifiers India Limited Q2 FY '26 Earnings Conference Call hosted by Nuvama Institutional Equities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Subhadip Mitra. Thank you, and over to you, sir.

Thank you, Bhomika. On behalf of Nuvama Institutional Equities, welcoming you all to the 2Q FY '26 Results Call of Transformers and Rectifiers India Limited. We have with us today the senior management of the company represented by Mr. Satyen Mamtora, Managing Director; and Mr. Chanchal Rajora, Director of Finance. I will now hand over the call to Mr. Satyen Mamtora for his opening comments. Over to you, sir.

Good afternoon, ladies and gentlemen. A very warm welcome to all of you, and thank you for joining us on our Q2 FY '26 earnings call. It is a pleasure to connect with you and once again as we continue our journey of transformation and growth. Earlier on Saturday, our Board of Directors approved the financial results for the quarter ended September 30, 2025, which have been submitted to the stock exchanges and published along with the investor presentation. Let me share some key highlights and developments of the quarter. During Q2 FY '26, our revenue stood at INR 460 crores, with an EBITDA of INR 65 crores. The revenue during the quarter was lower primarily due to temporary operational challenges. Firstly, there was a shortage of key raw materials, particularly CTC, and this led to clearance delays and impacted production schedules. Secondly, heavy rainfalls across several regions affected manufacturing sites and readiness, leading to deferred delivery of high-value projects, and resulting in elevated finished goods and work in progress levels. Margins were also impacted this quarter mainly due to delivery of the last batch of low-margin orders and effect of fixed costs on reduced revenue. Despite these short-term challenges, the fundamentals of the business remain strong, the company continues to execute its capacity expansion and backward integration projects as per plan. The Moraiya facility is progressing well, while Changodar expansion is slightly delayed due to the monsoon and equipment delivery issues, is expected to be operational in the next quarter. We deliberately moderated fresh order intake on H1 to align with the extended deliveries, delivery schedules and capacity planning. However, we expect a strong order inflow in H2, with a robust pipeline of opportunities exceeding around INR 8,000 crores. For the full year, we remain confident to achieving at least 25% revenue growth over FY '26, with target of around INR 2,600 crores with EBITDA margin of approximately 16%. Before I conclude, I would like to address the matter related to the World Bank project that has surfaced recently. The project in question is nearly back 4 years back and pertains to transformers supplies made to TCN Nigeria, which was completed successfully with all payments received. This was a World Bank funded project, and we have not received any communication from World Bank post-2023. In relation to it, we would like to reiterate that none of our current or under discussion orders are funded by World Bank. As process-driven organization, corporate governance and compliance remain at the helm of everything that we do. This commitment enabled us to declare our audited results within just 8 days of quarter close, a testimony to our discipline and transparency. On behalf of the entire leadership team, I would like to thank all our customers, employees, suppliers and investors and Board members for their continued trust and support to the organization. Together, we are building future-ready organization poised for global leadership in the transformer industry. I am pleased to inform you that Chanchal Rajora has been elevated as Director of Finance with a larger capacity, and I hand over -- Chanchal has been elevated as Director of Finance, who will be looking after our -- the finances of all our projects. And with the larger capacity, I hand over to him now to take through you the financial details. Chanchal?

Thank you, sir, and good afternoon to everybody. And I know that today, when you all are here, you must be having lots of questions about the company and company's performance. I will be happy to address all of this. Thank you, Satyen sir, for the strategic overview and the continuing leadership during what has been a period of steady execution and realm of sense. I'm also pleased to share that I have been elevated as the Director of Finance with the company, and I would be like to sincerely thank you the Board and management for the trust and opportunities extended to me. It's an honor to continue contributing the TARIL's journey and, therefore, the strength and sustainable growth. During the quarter, our stand-alone basis revenue operations stood to INR 428 crores compared to INR 446 of Q2 FY '25. The moderation was primarily due to the temporary supply side of constraint and the deferred projects delivery. I'll be explaining them further during this call. EBITDA comes to INR 42 crores against the INR 76 crores Q2 FY '26, with the margin affected by the execution of the lower margin orders and also the lower capacity utilization as well as the delay in the deliveries to particular PSUs because of the unreadiness of the sites. Profit after tax stood INR 17 crores. Whereas in consol basis, revenues from the operation stood at INR 460 crores compared to INR 260 crores of Q2 FY '25. EBITDA comes in INR 65 crores in Q2 FY '25, and the profit after tax stood INR 37 crore, right? A very unique feature in this quarter is that all our subsidiaries are doing excellence results. And the profit from the subsidiaries are increasing year by year and quarter by quarter, which shows that company's backward integration strategy is working very well. And the way the -- the manner the company's plan to come up with the backward integration facilities that has been basically reflected in this particular quarter. Despite these near-term impact, our financial position remains very strong. We continue to maintain healthy liquidity, with a current ratio of 3.45, and efficient management of receivables and payables. Our focus on the cash flow generation, working capital optimization and the cost control has enabled us to maintain sustainability even during a softer revenue quarter. The company's balance sheet remains robust, supported by the steady operating cash flow and the conservative leverage profiles. Investment in the capacity expansion and the backward integration are progressing as planned, and are expected to contribute meaningfully to the cost efficiency and margin improvement from mix quarters. Looking ahead, we expect a significant robust H2 FY '26, driven by the normalization of supply conditions, improved plant utilization and execution of our strong order book. For the full year, we are on the track of achieving at least 25% revenue growth for over FY '25 with an EBITDA margin of around 16%. Our commitment to becoming a net debt-free within the next 18 to 24 months remains unchanged. Before I conclude, I would like to draw all of your attention to what just MD sir has explained about the World Bank. I would like to add little on this. This World Bank funded orders, we have executed for the TCN in Nigeria. The order quantity was -- the quantity was 70 transformers worth of 24.7 million, and all these orders have been executed in FY '22, except with the 3 transformers, which has got accidented during the discharges in Nigeria, which was rebuilt and resend to them in FY '23, '24. The 90% payment of entire transformers, we had received in FY '22 itself, and the balance, 10%, we have received in the first quarter of this year, right? Till at present, from our order book, we don't have any single order, which is funded by the World Bank, neither in our inquiry book, any order, which has been funded by the World Bank. Our company is focused on the India growth history. Company wants to contribute main to Indian growth. We don't intend to increase our exports also, and we don't increase to extend any of the project, which is funded by any of authorities like World Bank or Asian development banks. In conclusion, I would like to thank our investors, Board members and the team members for their continuous confidence support. We remain firmly focused on financial discipline, sustainable growth and the long-term value creation to all of our stakeholders. With I conclude my remarks, and thank you all once again for joining us, and now I will all -- now let the floor open for the questions. Thank you.

[Operator Instructions] The first question comes from the line of Piyush Kumar from Magnus Hathaway Investments.

Am I audible?

Yes, you are.

Yes, my first question is regarding the inquiries under negotiation. So currently, as of Q2, we have around INR 18,700 crores of orders under negotiation. So can you just shed some light from which sectors and industries are these orders coming from mainly?

So these are mainly from national utilities and state utilities. Some of them are from GETCO, some of them are from PGCIL, NTPC, and the likewise.

All right. So sir, currently, we have around INR 5,472 crores of unexecuted order book. So can you just shed some light around -- over the next 2 quarters, how much can we execute out of it?

Piyush, I just addressed this issue that as we said that we are trying to basically achieve 25% over and above what we have achieved in last year. We are hoping that in this next 2 months -- 2 quarters' time, we will be somewhere around INR 1,600 crores to INR 1,700 crores of execution.

All right, sir. Sir, just one last question on the World Bank debarment, sir. What TARIL is doing to clear its image because there are a lot of fear in the market around TARIL now, and the World Bank has debarred. So are there any long-term consequences of this investigation?

Look, there is -- this is no investigation. This is -- World Bank has basically debarred us for not participating in near tenders. As of now, as I told you, we don't have any inquiries or orders which is related to the World Bank. We just -- as you all came to know about this last quarter, we -- last month -- last week, we also came in the last week. We are already taking up the matter with the World Bank. And we'll be shortly replying to the World Bank on these matters. As MD has explained to you very well that if our corporate government and processes are not that strong, you would have not able to declare our results within 8 days from the end of the financial year. So we are very strong on our corporate governance side and our processes side. We are taking out with the World Bank. Since we were busy in our quarter end and H1 audits. And now -- tomorrow only, we are taking up with the World Bank issue. We are writing them on that and as well as we'll be sending a clarification to the exchange on these regards. And I would like to ensure everybody on that, that there is no business, which is going to [ deferred ] because of this, because as we don't have any issue, then we don't have any business. Also, I would like to add that if we -- look, this order, which we are was up to 2020. We have concluded in 2022. Last batch of payment we received in April, May 2026 -- '25. It means this year only. If World Bank had any issue, they would have stopped our payment,but they did not do it and they come up with this now in November. So we also need to address it very category and a very clearly. And I would like to tell you in past also, TARIL has come strongly -- came up strongly whenever such issues has come up. And this time also, we will rebound greatly. Don't worry about that.

The next question comes from the line of Balasubramanian from Arihant Capital.

Sir, regarding this World Bank, I think the World Bank...

I'm sorry to interrupt you, Mr. Bala Subramaniam, but your voice sounds muffled. Can you please fix your handset?

Right. Now it's fine, madam?

It's still muffled. Please speak through phone.

I'm now audible, madam?

Yes, sir.

Sir, actually, World Bank and [indiscernible] Vice President, the other dividend signed issued a notice sanction proceeding on July 30, at which your final debarment. I just want to understand we have a inquiry pipeline, which is related to exports nearly 23%. Is there any impact on those export late pipeline last 4 to 5 months? And how is current pipeline is there? And what is your concrete strategy to balance both the domestic demand with the higher margin potential of exports?

Bala, first of all, I would like to tell you that the order inquiry line, what we have as on today is 90% to -- I say, 85% to 90% is the indigenous inquiries, right? And all other inquiries, which export inquiries are there, there is no government entity or there is no World Bank funded or no -- any other funded projects is involved into that. So it is not going to have any impact on us, either on the value or on the margin side or any other side. Yes. It is the matter related to the image of the organization, which we are going to take a very, very aggressive with the World Bank. As they said that they have sent a letter to us, the mail to us on July this year, we haven't received that. So we are going to ask them that whatever the things are there, we are ready to work with them. And if you've seen that letter also that they have mentioned it that we have cooperated with them in past if anything has come up, right? So we strongly believe that this will be resolved very soon. And as far as the business is concerned, it is not going to affect at all on that.

Okay, sir. Sir, on the 35 to 40 percentage of revenue comes from [indiscernible] transformers, like [indiscernible] segments having higher margins. And what our strategy to grow in this segment? And is that cross-selling opportunities [indiscernible] existing our transformer customers? And how does the growth outlook of cold steel and a sector like major key consumers of furnace or transformers impacting this segment process?

Satyen, sir, I would like you to address this, please?

Sorry, Bala, I couldn't get your question clearly. Please can you come back again?

Sir, he wants to understand that special duty transformers, which is our specialization, how is the outlook of that business?

That business is currently looking very lucrative. There are a lot of projects that are coming up in certain countries, which require these special duty transformers. And apart from one of our other competitors from Italy, we are the only qualified vendors for this. So the inquiry pipeline for this is close to about INR 400 crores, INR 500 crores.

Okay, sir. Sir, we have guided a 85% to 90% kind of utilization by this year. This plant utilizations, I think we are starting nearly 22,000 MA of new capacities. And if you could share, is there any risk of execution bottlenecks in terms of project delays? And then if we can ramp up this new capacity?

So the Changodar capacity is slightly delayed by one quarter. But once the Changodar capacity is up and running, I think by end of this quarter, we should be very -- fairly will be placed at a very high because we have orders on those also. And we are currently holding ourselves not to take orders as long as the capacity is not completely up. There are certain unforeseen reasons because of which we have had some issues in completing that project.

Okay, sir. So my last question, we are expanding into CRGO processing unit and other...

Bala, can we please allow others to have any questions? Can you from again, please? Because I'm seeing on the screen there a lot of people are saying that why one person is having so many question. I hope you don't mind.

The next question comes from the line of Gayathri from Amity.

Moderator, can you please ask everybody one question at a time so that other can have opportunity because we are almost 480 people in this call today.

Sure, sir. [Operator Instructions] Please go ahead, Ms. Gayathri?

Am I audible?

Yes.

So sir, question is related to the business. I just want to understand, do we have any pipeline updated with World Bank for this INR 5,000 crores? Do you have any addition to that?

No, there is nothing in our order pipeline related to World Bank.

And not in our inquiry.

So we can say that the entire 18,000 belongs to India only and some other locations apart from World Bank?

Yes.

Okay. And sir, do you have any update -- I got it. I got it. So sir, do we have any other updates related to this quarter as profit has been reduced by drastically. So will be -- it will be covered in the next quarter for October, November, December, do you think it? [indiscernible] Books.

I think one of the reasons why we have also -- there is some the downturn in the profitability is because we have given ESOPs to our people, and that is one of the reasons we wanted to make sure that everybody is now aligned in the growth of the organization. So organization-wise, we have taken a decision that we will give ESOPs to everybody and so that everybody is aligned, and that is the reason why you see some downturn in the profitability.

Okay. I have one more -- one last question. Can I go?

Gayathri, just to end up what MD has said and what is your question is that, look, this is one of the quarter. In a long term, when we're talking about the long-term growth in long-term business, one quarter can come like this, where we have a less margin and less profits. But in coming quarters, the profit will again bounce back on to the levels what we have been achieving last 3, 4 quarters. And I assure that in these quarters, the profits will be much, much higher. You don't need to worry about that, right? There is one addition as we started in this -- from this quarter in our company's books is that, which may have the impact on the bottom line is that earlier August, the company had issued some stock options to around 26 lakh plus stock options to its employees. And as for the Ind AS guidelines, we have to make the provisions for the expenses, which we'll be having once the options will start getting vested. So around INR 3.76 crore impact will come on the -- is coming into the bottom line on that. And every quarter, it is going to come up. So we will be -- from next quarter, we'll be working on that because of some good operational efficiency and some good other returns, we should be able to minimize that one.

Thanks also because I'm invested in [indiscernible] it was trading INR 50. But today, I'm getting some fear. Apart from that, we had some issues with the government body last from 3 or 4 years back with some certifications but I'm pretty much sure that company will come up with this issue again with the profitability but hope so that should come up on the early days by next quarter.

The next question comes from the line of Subhadip Mitra from Nuvama Wealth.

Sir, just wanted to understand that you did mention that the guidance for this year, we are now looking at a number of around INR 2,500 crores, which is a cut from what we were expecting earlier. How much of this guidance cut is because of the delay in the Changodar facility? How much is because of the development of certain projects that you mentioned earlier because of shortage of components, et cetera? And how much of this do you think can be recovered over the rest of the year? And on similar lines, if you can also talk about some color on next year, which is, let's say, FY '27 and '28, how do you see those numbers panning out?

Subhadip, very well asked this question. Let's just tell you that, first of all because of the Changodar facility, not much impact has come on the revenue guidance of earlier, around 10%, 12% should be the impact of that. The majority of the impact, what has come, has come because of the short -- because of the short supply of the raw material, particularly on the CPC and bushing side. Look, when last year, we were not getting the CPC from the indigenous customers, we started importing them, right? And we were the first company to import -- start importing the CPC and giving it to the indigenous customers. What has happened only this quarter, the government of India has come up with the requirement, obviously, the touch copper has come up. Then copper, whatever is importing -- needs to be basically have the BIS certification. So it took some time to us to make the customer authorities understand that this does not -- the material, what we are importing does not come under that review. And because of that reason, almost 12 jobs of ours were stuck for quite some time in the custom clearance. And then we -- with the help of the other authorities, with the help of the Power Grid Letter, we should be able to convince these customs to clear them up. So that has just impacted for the business side. So this is going to be basically save not that much of the trains into the requirements into system is coming up. We are trying to recover as much as receivable in the [ F2 ] but you should understand the job charge-offs, which has been made. If a job is -- it's not this product is not 1 day, maybe it's acquired 35 days to make the product. So to say that, that is the reason we are saying that we will be using somewhere from business this year. As far as the next year is concerned, we are very optimistic about the next year. And I don't think that anything going to be changed in the next year. We will be completely on track for the next year business.

So can I assume that next year's number if I...

Subhadip, I think next year numbers, we'll tell you in this quarter's Board meeting, first, and secondly, adding to what Chanchal has said, from what I have seen, Changodar plant has made a dent of about 25%, 30% in terms of loss of production, which we will be able to make up in this month because the plant is getting much larger, we'll be able to make some of it in this quarter -- in the next quarter.

Understood. Understood. And with regard to the bushing and the CTC short supply, because since that supply is not in our hands, can that remain a challenge going ahead?

So Subhadip, by December or I think September next year, we should have our own CTC plant, which would be doing about 1,500 tonnes a month up and running. Our RIP in bushing plant also should be in June 1, production should be starting in June. So with all that in place, we should have relatively less issues about CPC and bushing next year. Even our tank manufacturing unit should be up and running in August. So all our new projects will be up and running very soon.

The next question comes from the line of [ Ashish Soni ] from Family Office.

Sir, your 1 billion aspiration target by FY '28, what are you doing to achieve that? And any risk mitigation plan, like I think you said your current expansion for cost are there. What mitigation steps are we taking? And can you highlight on that?

Ashish, the '28-'29 target still remain the same, and we are under position that we will be achieving that target, right? Look, whatever risk we have foreseen is -- look, whatever risk we are foreseeing, we had already started working on them with having the backward integration facilities that every year in that way, right? And we hope, as I just -- MD has just explained that by, say, the quarter 3 of next year, all these facilities will be in place. So that -- to achieve that target, there is no problem. We will see into that. Yes, this quarter, I would like to add that why the Changodar facility has got delayed in results. So one very, very important aspect of this, that in this year, the rates are so huge that almost for 2 months, we did not have any work in that plant. And then the equipment got supplied because of that -- this rain and all these things, which is basically was not in our hands. We are trying that ASAP. We should be able to conclude that -- those bottlenecks, and we're working out on that. Regarding the material mitigation is concerned that whatever CPC problems we have faced, we have overcome that. Our customers understood the other things, so we will not have a real problem. And bushing is that we are trying to overcome with finding a new market, new customers, new suppliers of that. And we are making that the government utility should accept those products. So that we will be able to mitigate that. So '28-'29 guidance, we don't see any problems yet.

Just add on to this. Do you think you can achieve INR 5,000 crores revenue next year if your guidance holds based on what you are telling...

I'm optimistic on that. I just know that MD sir has said that when we come up in the next quarter with you, we will give you the firm numbers of the next financial year.

The next question comes from the line of Mayank Chaturvedi from HSBC.

Sir, on the revenue guidance cut, may I ask, due to this dispatches getting delayed, what are the liquidated damages that we might be looking at from the customer due to these delays?

Mayank, my apologies, I missed you in the morning. First of all, I was in a flight actually. My outlook to what has happened that, this delay is -- are not because of the other issues, particularly delays are there because of the site readiness and all other issues, right? And the liquidity damages, wherever the delay is there, particularly with the Power Grid, as we are basically under -- we are already accounting for them. And we are also in touch with them to basically come out with a solution, where if there is a product delayed from our side, there is a product, which is getting delayed from their side also once the site, which is there. [Foreign Language] And the liquidity damage is not that much. We are already providing them for, right? So it won't have any impact on our profitability side. That much I can assure you.

By when you say you're providing for them, you mean you've taken provisions for it in this first...

Yes. We always -- as per the internal guidelines, our auditor insist us on for the -- any delay supplies provisions and all. So our company have a practice to take care of those provisions. And also when we quote to the pricing and when we quote to the customers, we already take the risk alignment in discussion, and that is already in build with the price that we give it to the customers.

Okay. And sir, on ESOP stock, can you tell me how much effort was recognized for this quarter?

INR 3.76 crores.

Okay. And sir, I see in the balance sheet, there is a reclassification between noncurrent trade receivables and current trade receivables was about INR 340 crores in non-current margin. Can you elaborate on that?

Mayank, all these noncurrent trade receivables are basically the retention money, which is line with the customers, which we -- which they give us in project completion. And whatever retention money is beyond 6 months, it has been taken into the noncurrent trades.

Okay. But I see that it has been reclassified for the margin also, that's why I ask.