COMPANY UPDATE 10 MAR 2017

Triveni Turbine
BUY
INDUSTRY CAPITAL GOODS On track
CMP (As on 9 Mar 2017) Rs 124 We arranged an investor meet with Nikhil a very limited impact on the profitability of the
Target Price Rs 148 Sawhney, VC & MD of Triveni Turbine Limited company. TRIV plans to add 2 service centres
Nifty 8,927 (TRIV). He reiterated the companys growth annually in the coming years.
Sensex 28,929 strategy for the international markets, which is GETL JV, slow but steady: Traction in the GETL JV is
being reflected in the companys growing enquiry below the management expectations. This can be
KEY STOCK DATA
base. More importantly, he highlighted the fact attributed partly to volatile currencies in the
Bloomberg TRIV IN that the quality of enquiries has improved emerging markets and the weak global capex cycle.
No. of Shares (mn) 330 significantly, implying greater chances of order However, over the last year or two, not only has the
MCap (Rs bn) / ($ mn) 41/608 conversion in future. The company continues to number of enquiries increased, but the quality is also
6m avg traded value (Rs mn) 12
focus on expanding its service network outside substantially better.
India, not only to support its existing installations,
STOCK PERFORMANCE (%) UK, Turkey, South-East Asia and Central America have
but also to attract more product business.
52 Week high / low Rs 136/92 been the key international markets for TRIV in the
Management is confident of multiplying its export
last 2-3 years. Historically, Latin America has also
3M 6M 12M revenues over the longer term, though not in a
been one of the key markets. It (along with the GETL
Absolute (%) 2.9 (1.4) 24.6 linear manner. Below are the key takeaways from
JV) has a presence across all major geographies,
our interaction.
Relative (%) (5.3) (1.9) 7.9 except North America and China.
SHAREHOLDING PATTERN (%) Key takeaways
Renewables have been the key demand drivers in
Promoters 67.73 Need to expand service network: TRIV has set up 5 international markets, especially EU. However, TRIV
FIs & Local MFs 6.16
services centres in international markets (viz. United has also witnessed demand coming in from combined
Kingdom, Dubai, Indonesia, Vietnam and cycle plants. Renewable orders are smaller in size
FPIs 20.69
Johannesburg). The setting up of these is extremely (sub-30 MW), while combined cycle orders are larger.
Public & Others 5.42 critical for winning the customers confidence by Under these, there exist opportunities for TRIV to
Source : BSE providing after-sales service. As per management, its supply steam turbines to the same projects to which
repeat order base is ~95%, primarily on account of its GE supplies its gas turbines.
Pawan Parakh, CFA
pawan.parakh@hdfcsec.com
efficient after-market services.
References (in terms of the existing installed turbine
+91-22-6171-7314 Apart from servicing, these centres also act as base) in the international market are extremely
marketing hubs for new turbines and refurbishment critical for procuring new orders. Importantly, in the
Ashutosh Mehta, ACA
ashutosh.mehta@hdfcsec.com
of third-party turbines. These service centres are current year, TRIV would be commissioning 3
+91-22-3078-8241 manned by only 3-4 marketing staff, and hence have turbines in the plus-30MW segment outside India
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>
 TRIVENI TURBINE: COMPANY UPDATE

(Indonesia, Philippines and Vietnam), which should substantially, and is likely to continue in FY18E as
help it build its references for future orders. well. This should lead to a pickup in sugar cogen
orders, although the timing is uncertain.
Setting up of service centres in Continued focus on R&D: TRIV has an internal target
international geographies has to improve efficiency by 1% and reduce costs by 5%
been very critical in winning annually. It continues to focus on developing new
Growth certain but lumpy: With a large and better
enquiry pipeline (7GW in exports), TRIV is confident
global customers confidence. products/designs which would enable it to offer
of multiplying its revenues over the next 3-4 years.
TRIV also plans to add 2 service better value propositions to clients. The quality
However, as these enquires are spread over multiple
centres annually in the coming (efficiency and life span) of turbines is key in
geographies, each driven by different dynamics,
years. international markets, where orders are not
order finalisation is likely to be lumpy.
competed solely on the price variable.
Continued focus on R&D also enables TRIV in We continue to be constructive on TRIV's exports
preventive maintenance and reduction in warranty growth, both in the sub-30MW segment and the
costs. GETL JV. Premium valuations are justified, given the
Selective opportunities in domestic market: Demand growth potential coupled with TRIV's high
Renewables have led enquiries in India is driven by sectors like agri and food profitability (RoIC of over 40% and consistently
from international markets, processing, paper, tyres, cement, chemicals and generating positive FCF). Reiterate BUY with TP of Rs
followed by combined cycle pharma. Sugar companies profitability has improved 148/sh (30x Dec-18 EPS).
plants
Financial Summary - Consolidated
(Rs mn) FY15 FY16 FY17E FY18E FY19E
Revenues 6,508 7,963 8,010 9,059 10,303
EBITDA 1,226 1,698 1,785 2,027 2,319
TRIV has an internal target to APAT 952 1,076 1,307 1,474 1,677
improve efficiency by 1% and Diluted EPS (Rs) 2.9 3.3 4.0 4.5 5.1
reduce costs by 5% annually P/E (x) 42.8 37.9 31.2 27.6 24.3
EV / EBITDA (x) 33.1 23.6 22.1 19.1 16.4
RoE (%) 47.2 41.3 39.0 34.5 31.1
Source: Company, HDFC sec Inst Research

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 TRIVENI TURBINE: COMPANY UPDATE

Revenue & EBITDA Margin - Standalone Revenue & EBITDA Margin - GETL JV
Domestic revenues Export revenues GETL revenues EBITDA margin - RHS
EBITDA margin - RHS
Margins would get an
Rs mn 2,000 Rs mn 30%
additional fillip, as after- 12,000 23%
market sales from exports 23% 25%
10,000
also start contributing 22% 1,500
8,000 22% 20%
21%
6,000 1,000 15%
21%
4,000 20% 10%
20% 500
2,000 5%
19%
0 19% 0 0%
FY15 FY16 FY17E FY18E FY19E FY15 FY16 FY17E FY18E FY19E

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Exports Outpace Domestic Sales (9mFY17) Order Book Mix (As At Dec-16)

For the 9mFY17, revenue

contribution from exports
Domestic Export
stood at 56% (vs 44% in FY16) 44% 43%

Export Domestic
56% 57%

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

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 TRIVENI TURBINE: COMPANY UPDATE

Key Assumptions & Estimates - Consolidated

Rs mn FY15 FY16 FY17E FY18E FY19E
We expect order inflows to Domestic order inflows 3,530 3,260 3,749 3,936 4,330
grow at 16% over FY17E-19E, YoY (%) -15% -8% 15% 5% 10%
led largely by growth in Exports order inflows 2,930 4,461 4,684 5,855 7,027
export orders YoY (%) 98% 52% 5% 25% 20%
Total Order inflows 6,460 7,721 8,433 9,792 11,357
YoY (%) 15% 20% 9% 16% 16%
Order book (Rs mn) 6,000 6,640 7,063 7,796 8,850

Domestic Revenue 3,615 3,611 3,365 3,662 4,010

Export Revenue 2,640 3,470 4,645 5,397 6,293
Revenue 6,508 7,963 8,010 9,059 10,303
EBITDA margins (%) 18.8% 21.3% 22.3% 22.4% 22.5%
Net margins (%) 13.9% 13.5% 16.3% 16.3% 16.3%
Source: Company, HDFC sec Inst Research

Peer Valuations
MCap CMP TP EPS (Rs/sh) P/E (x) EV/EBITDA (x) ROE (%)
Company Rating
(Rs bn) (Rs) (Rs) FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E
Larsen & Toubro ^ 1,376 1477 BUY 1,625 64.8 69.2 69.8 17.6 16.5 16.4 17.0 15.5 13.8 13.1 12.8 11.9
Cummins India * 238 859 BUY 1005 27.3 30.6 34.4 31.4 28.1 25.0 28.5 25.1 22.0 22.8 23.3 23.6
Voltas 128 386 BUY 387 13.3 15.3 17.7 29.1 25.3 21.9 21.3 17.7 15.0 17.2 17.4 17.8
Suzlon 105 17 BUY 24 0.9 1.2 1.5 20.0 14.6 11.6 10.1 9.1 7.6 NA NA NA
Thermax 102 860 SELL 770 26.3 27.8 31.8 32.7 31.0 27.0 22.9 20.2 17.0 12.8 12.4 13.0
Engineers India * 98 145 BUY 178 5.9 6.2 8.0 24.8 23.4 18.2 20.0 17.6 12.4 14.4 14.5 18.0
Carborundum Universal 48 257 BUY 340 8.9 11.5 13.6 28.8 22.3 18.9 13.8 11.8 10.2 13.4 15.4 15.9
Crompton Greaves ^ 43 69 BUY 82 -1.2 1.6 1.6 NA 36.8 35.7 13.0 11.5 10.5 -1.7 2.2 2.3
Kalpataru Power * ^ 42 276 BUY 376 17.2 18.5 21.3 12.1 11.3 9.8 8.9 8.1 7.2 11.1 10.8 11.2
KEC International 42 162 BUY 179 10.2 11.1 12.7 15.9 14.6 12.7 8.5 7.9 7.1 16.1 15.2 15.3
Techno Electric ^ 41 358 NEU 388 18.2 21.1 23.9 16.0 13.8 12.2 12.4 11.3 9.9 19.5 19.7 19.3
Triveni Turbine 41 124 BUY 148 4.0 4.5 5.1 31.2 27.6 24.3 22.1 19.1 16.4 39.0 34.5 31.1
Inox Wind 40 179 BUY 298 21.4 24.9 25.8 8.4 7.2 6.9 5.5 4.6 4.3 22.8 22.0 19.8
Sanghvi Movers * 10 241 BUY 325 21.8 25.7 27.6 11.0 9.4 8.7 4.5 4.2 3.6 12.0 12.7 12.2
*Note - represent SA numbers ^ P/E adjusted for value of Subs /JV's / non-core businesses Source: HDFC sec Inst Research

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 TRIVENI TURBINE: COMPANY UPDATE

Income Statement - Consolidated Balance Sheet - Consolidated

(Rs mn) FY15 FY16 FY17E FY18E FY19E (Rs mn) FY15 FY16 FY17E FY18E FY19E
Net Revenues 6,508 7,963 8,010 9,059 10,303 SOURCES OF FUNDS
Growth (%) 26.3 22.4 0.6 13.1 13.7 Share Capital 330 330 330 330 330
Material Expenses 3,829 4,535 4,566 5,164 5,873 Reserves 1,956 2,596 3,440 4,451 5,665
Employee Expenses 622 705 705 788 886 Total Shareholders Funds 2,286 2,926 3,770 4,781 5,995
SG&A Expenses 832 1,025 954 1,080 1,225 Minority Interest 67 98 98 98 98
Total Expenses 5,282 6,265 6,225 7,032 7,983 Long Term Debt 129 4 - - -
EBITDA 1,226 1,698 1,785 2,027 2,319 Short Term Debt - - - - -
EBITDA Margin (%) 18.8 21.3 22.3 22.4 22.5 Total Debt 129 4 - - -
EBITDA Growth (%) 18.4 38.5 5.1 13.6 14.4 Net Deferred Taxes 77 97 97 97 97
Depreciation 158 161 151 175 205 Long Term Provisions & Others 45 47 49 55 62
EBIT 1,068 1,537 1,635 1,852 2,114 TOTAL SOURCES OF FUNDS 2,605 3,172 4,013 5,030 6,252
Other Income (Including EO Items) 341 127 205 230 257 APPLICATION OF FUNDS
Interest 18 14 15 20 20 Net Block 1,551 1,511 1,689 2,013 2,308
PBT 1,391 1,650 1,825 2,062 2,351 CWIP 61 329 500 500 500
Tax (Incl Deferred) 431 543 602 680 776 Investments - - - - -
RPAT 960 1,106 1,223 1,381 1,575 LT Loans & Advances 281 414 407 460 523
Minority Interest (27) (30) 84 93 102 Total Non-current Assets 1,892 2,253 2,596 2,973 3,331
EO (Loss) / Profit (Net Of Tax) (19) - - - - Inventories 1,349 1,880 1,756 1,986 2,258
APAT 952 1,076 1,307 1,474 1,677 Debtors 1,483 1,179 1,207 1,365 1,552
APAT Growth (%) 40.2 13.0 21.5 12.8 13.8 Other Current Assets 691 591 581 657 747
Adjusted EPS (Rs) 2.9 3.3 4.0 4.5 5.1 Cash & equivalents 337 705 1,336 1,966 2,817
EPS Growth (%) 40.2 13.0 21.5 12.8 13.8 Total Current Assets 3,860 4,355 4,880 5,973 7,375
Source: Company, HDFC sec Inst Research Creditors 2,740 3,271 3,292 3,723 4,234
Other Current Liabilities &
407 166 171 193 220
Provns
Total Current Liabilities 3,147 3,437 3,463 3,916 4,454
Net Current Assets 713 918 1,417 2,057 2,921
TOTAL APPLICATION OF FUNDS 2,605 3,172 4,013 5,030 6,252
Source: Company, HDFC Sec Inst Research

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 TRIVENI TURBINE: COMPANY UPDATE

Cash Flow Statement - Consolidated Key Ratios - Consolidated

(Rs mn) FY15 FY16 FY17E FY18E FY19E FY15 FY16 FY17E FY18E FY19E
Reported PBT 1,391 1,650 1,825 2,062 2,351 PROFITABILITY %
Non-operating & EO items (341) (127) (205) (230) (257) GPM 41.2 43.1 43.0 43.0 43.0
Interest Expenses 18 14 15 20 20 EBITDA margin 18.8 21.3 22.3 22.4 22.5
Depreciation 158 161 151 175 205 APAT margin 14.6 13.5 16.3 16.3 16.3
Working capital change 45 51 141 (57) (68) RoE 47.2 41.3 39.0 34.5 31.1
Tax Paid (431) (543) (602) (680) (776) Core RoCE (RoIC) 34.4 43.5 42.6 43.2 43.6
RoCE 40.9 37.6 36.7 32.9 30.0
Other operating items (499) (170) 58 93 102
EFFICIENCY
OPERATING CASH FLOW (a) 341 1,036 1,382 1,383 1,577
Tax Rate (%) 31.0 32.9 33.0 33.0 33.0
Capex (98) (351) (500) (500) (500)
Fixed Asset Turnover (x) 4.0 4.3 3.7 3.6 3.7
Free Cash Flow 243 685 882 883 1,077
Inventory (days) 75.7 86.2 80.0 80.0 80.0
Investments - - - - -
Debtors (days) 83.2 54.0 55.0 55.0 55.0
Non-operating Income 341 127 205 230 257
Other Current Assets (days) 38.8 27.1 26.5 26.5 26.5
INVESTING CASH FLOW (b) 243 (224) (295) (270) (243) Payables (days) 153.7 149.9 150.0 150.0 150.0
Debt Issuance/(Repaid) (59) (125) (4) - - Other Current Liab & Provns (days) 22.8 7.6 7.8 7.8 7.8
Interest (18) (14) (15) (20) (20) Cash Conversion Cycle (days) 21.1 9.8 3.7 3.7 3.7
FCFE 167 546 863 863 1,057 Debt/EBITDA (x) 0.1 0.0 - - -
Share Capital Issuance - - - - - Net D/E (x) (0.1) (0.2) (0.4) (0.4) (0.5)
Minority Interest 27 30 - - - Interest Coverage (x) 60.9 111.6 109.0 92.6 105.7
Dividend (290) (335) (437) (463) (463) PER SHARE DATA (Rs)
FINANCING CASH FLOW (c) (339) (443) (456) (483) (483) EPS 2.9 3.3 4.0 4.5 5.1
NET CASH FLOW (a+b+c) 245 368 631 629 851 CEPS 3.4 3.8 4.4 5.0 5.7
Closing Cash & Equivalents 337 705 1,337 1,966 2,817 Dividend 0.9 1.1 1.2 1.2 1.2
Source: Company, HDFC sec Inst Research Book Value 6.9 8.9 11.4 14.5 18.2
VALUATION
P/E (x) 42.8 37.9 31.2 27.6 24.3
P/BV (x) 17.8 13.9 10.8 8.5 6.8
EV/EBITDA (x) 33.1 23.6 22.1 19.1 16.4
EV/Revenues (x) 6.2 5.0 4.9 4.3 3.7
OCF/EV (%) 0.8 2.6 3.5 3.6 4.2
FCF/EV (%) 0.6 1.7 2.2 2.3 2.8
FCFE/Mkt Cap (%) 0.4 1.3 2.1 2.1 2.6
Dividend Yield (%) 0.7 0.9 1.0 1.0 1.0
Source: Company, HDFC sec Inst Research

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 TRIVENI TURBINE: COMPANY UPDATE

RECOMMENDATION HISTORY
Triveni Turbines TP
Date CMP Reco Target
150 22-Jun-16 112 BUY 128
140
6-Aug-16 123 BUY 128
16-Nov-16 122 BUY 146
130
11-Feb-17 125 BUY 148
120
10-Mar-17 124 BUY 148
110
100
90
Rating Definitions
80 BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
Sep-16

Feb-17
Nov-16
Jun-16
May-16

Dec-16
Mar-16

Mar-17
Oct-16
Aug-16
Apr-16

Jan-17
Jul-16

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

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 TRIVENI TURBINE: COMPANY UPDATE

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Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further
Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No

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