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TRF: Growth marred by delays - Views on News from Equitymaster
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TRF: Growth marred by delays
Aug 8, 2008

Performance summary
  • Revenues drop by 10% YoY in 1QFY09, largely due to supply and designing delays.
  • Operating margins contract by 0.6% YoY on account of higher raw material costs (as percentage of sales).
  • Net profits decline 17% YoY on the back of a weak operating performance coupled with higher interest costs.


Standalone financial snapshot
(Rs m) 1QFY08 1QFY09 Change
Net Sales 664 597 -10.1%
Expenditure 588 532 -9.5%
Operating profit (EBITDA) 76 65 -14.5%
Operating profit margin (%) 11.4% 10.8%  
Other income 4 8 86.9%
Depreciation 4 4 7.5%
Interest 1 8 1576.0%
Profit before tax 76 60 -20.2%
Extraordinary income/(expenses) (0) -  
Tax 29 22 -24.9%
Profit after tax/(loss) 47 39 -17.0%
Net profit margin (%) 7.0% 6.5%  
No. of shares (m)   5.5  
Earnings per share (Rs)*#   56.8  
P/E ratio (x)#   13.2  
* Adjusted for extraordinary items
# On a trailing 12-month basis

What is the company’s business?
TRF is primarily engaged in the business of providing bulk mineral handling products and services. The company caters to customers from the steel, power and port sectors. It provides services such as designing, engineering, fabrication, erection and testing of bulk material handling equipment and systems. TRF is also involved in providing equipment and services to the port and yard segment and EPC (engineering, procurement and construction) services to power companies for setting up medium-sized plants. In FY08, the company acquired 51% stake in York Transport Equipment, a Singapore-based company engaged in manufacturing trailer axels, assembling suspension kits and distributing a full range of truck/trailer components.

What has driven performance in 1QFY09?
  • TRF’s revenues dropped by 10% YoY during 1QFY09. The company’s management attributed this decline to various factors such as delays in supplies and changes in design and engineering aspects of certain projects. Also the fact that the company recognises revenue once it completes 40% of the project has led to a slow growth of the topline. While TRF faced delays in the projects segment, its product segment achieved a good growth during the quarter.

  • A spike in the raw material prices took a toll on TRF’s operating performance. Raw material costs increased from 36% of sales in 1QFY08 to 59% in 1QFY09. The employee costs also increased by 14% YoY in absolute terms, mainly because of two reasons – addition of employees and a 20% salary hike during the quarter.

  • TRF’s bottomline decreased by 17% YoY during the quarter. This was mainly due to an unstable performance at the operating level along with higher interest charges. However, lower tax and higher other income aided the company’s profitability to a certain extent.

  • Recently, TRF won its largest-ever order worth Rs 4.1 bn from Damodar Valley Corporation. The order is for design, engineering, manufacture, supply, erection, testing and commissioning of Coal Handling Plant on a turnkey basis for 2 X 600 MW Raghunathpur Power Project (Phase-1), West Bengal. This project is likely to be commissioned within a period 30 months.

What to expect?
At the current price of Rs 750, the stock is trading at a multiple of 13.2 times its trailing twelve month earnings. The company’s business is broadly divided into two segments – projects and products. In the past, it has mainly focused towards the projects division. However in a move to de-risk its business, the company has plans to bank on its products business going forward. As majority of the projects are fixed price contracts, this move by the company has been mainly towards balancing the rising input costs. On the other hand, TRF’s management has mentioned that the product division will be able to pass on the cost escalation to its customers. Currently, TRF has an order backlog of Rs 11 bn plus (approximately 3 times its FY08 standalone sales).

TRF has planned a capex of nearly Rs 300 m for FY09, mainly towards expanding its auto ancillary business. The company plans to setup facility with an installed annual capacity of manufacturing 25,000 axles to cater to the trailer market in India, while its Singapore facility will cater to the global markets.

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