SECTOR: CAPITAL GOODS
Triveni Turbine
STOCK INFO.
BLOOMBERG
BSE Sensex:27,961
S&P CNX:8,460
TRIV:IN
REUTERS CODE
14 July 2015
Initiating Coverage
(INR CRORES)
Buy
INR120
TRVT.BO
Y/E MARCH
Revenue
EBITDA
EBITDA Margin
NP (Adj.)
EPS (Adj.)
EPS Growth
BV/share
ROE (%)
ROCE (%)
P/E (x)
P/BV (x)
FY15E
651
123
18.8%
75
2.3
11%
7
33
47
52.5
17.3
FY16E
836
155
18.5%
98
3.0
30%
9
34
50
40.6
13.8
FY17E
1117
217
19.5%
139
4.2
42%
12
37
55
28.5
10.4
We recommend a BUY on Triveni Turbine with a target of INR
150 - valuing the company on DCF basis.
Triveni Turbines, a company with a strong moat, is currently at an
inflection point wherein its exports, aftermarket and JV with GE together
have increased their contribution to 60% of revenues and are expected
to decouple Triveni from the vagaries of the domestic product market.
Widening its moat:
Triveni enjoys a strong moat in the 0-30MW
turbine industry both domestically as well as in export markets. The
domestic market is a duopoly wherein Triveni enjoys a 60% market
share with Siemens having the balance. Complex technology, high level
of customization, pan India servicing footprint and a small market size
that discourages entry of larger players; are the key reasons that have
enabled Triveni in maintaining its leadership over the last 4 decades.
On the exports front, Triveni competes against a couple of large EU
and Japanese companies along with smaller local players. Triveni offers
products which are at par in terms of quality at a lower price than its
competitors as the company possesses a lower cost structure owing
to its manufacturing presence in India along with significant economies
of scale compared to smaller local players globally.
Exports to drive growth:
Although international markets have much
higher number of competitors than the domestic market, Triveni offers
strong value proposition to its international clients who are mainly based
in EU, S.E.Asia, MENA and LatAm. Triveni has been seeding these
markets by opening sales offices and service centers in an attempt to
service the customers from close proximity and gain their confidence.
Triveni's exports have risen from INR 84cr in FY12 (13% of sales) to
INR 264cr in FY15 (42% of sales) growing at a CAGR of 47%. We
expect exports to grow at a CAGR of 40% over FY15-17E and
constitute 53% of sales in FY17E.
Valuations & View:
A sustainable moat combined with profitable
growth opportunities in exports and aftermarket should drive 31%/
36% CAGR in topline/bottomline over FY15-17E. Triveni's business
generated best in class ROCE/ROE of 47%/33% in FY15 which are
likely to improve going forward with an increase in capacity utilisation.
This is supported by low asset intensity (asset turnover of 2.6x) with
negative working capital and a high degree of bought outs/outsourcing
(60%) combined with EBITDA margins of 19%. Debt free balance
sheet, robust free cash generation and low capex intensity results in a
dividend payout ratio of 40% which is likely to rise in future. We value
the company at INR 150 on DCF basis (implied P/E of 35x based on
FY17E EPS).
KEY FINANCIALS
Diluted Shares (cr)
Market Cap. (Rs cr)
Market Cap. (US$ m)
33.0
3960
619
STOCK DATA
52-W High/Low Range (INR)
Major Shareholders (as of March 2015)
Promoter
Non Promoter Corp Holding
Public & Others
Average Daily Turnover(6 months)
Volume
Value (Rs cr)
1/6/12 Month Rel. Performance (%)
1/6/12 Month Abs. Performance (%)
152/81
70.0
23.1
6.9
108806
1.3
11/6/18.
14/7/27.
Maximum Buy Price :INR130
Jehan Bhadha (jehan.bhadha@MotilalOswal.com); Tel: +91 22 33124915

Triveni Turbine
Aftermarket to drive profitability:
The aftermarket business is characterized by (i) Sticky annuity revenues
(ii) Dearth of players who could quickly address servicing requirements in the event of a breakdown (iii)
Customers preference for refurbishing old turbines over buying new ones especially during a slowdown. Owing
to the functional criticality of the aftermarket requirements and limited competition, Triveni is able to command
margins as high as 40% and at the same time offer value to its clients which is unmatched by any other
company. Over the past few years, Triveni has started addressing aftermarket requirements for turbines up to
300MW irrespective of the manufacturer. This has resulted in a multifold expansion of the addressable market
for Triveni. With increasing focus on servicing and refurbishment, the share of aftermarket in total sales has
improved from 16% in FY11 to 23% in FY15.
GE-Triveni JV - "a huge opportunity" - long term value driver:
Formed in 2010, with both partners
having an equal stake, the JV intends to tap the global turbine market in the range of 30-100MW. The JV enjoys
synergies such as (i) Triveni gaining an immediate entry in the 30-100MW market without any gestation period
or risk in terms of product development with the help of GE's technology (ii) Low cost manufacturing capabilities
of Triveni (iii) Global sales network of GE along with its recognized brand name and domestic sales network of
Triveni. The JV is likely to propel the company into a higher orbit and is expected to exceed the standalone
company's export revenues in the long run as the global addressable opportunity for 30-100MW turbines is
much larger than 0-30MW turbines.
Domestic products - recovery not in sight - diminishing significance:
Although Triveni has maintained
its leadership with a 60% market share over the years; the domestic 0-30MW turbine market has been
consolidating at 700MW over the last three consecutive years from an average range of 1700MW during
FY07-10. Although the significance of domestic product revenues i.e. excluding the high growth, high margin
aftermarket business; is diminishing considerably. Its share has reduced from 71% of revenues in FY12 to 40%
in FY15 and is likely to further decline to 27% in FY17E.
CONCERN: Depreciating currencies of competing nations:
The company's export revenues are
denominated mostly in USD (70%) and the balance in EUR while the main competitors are based out of EU
and Japan. Thus any significant depreciation in the currencies of these nations vis-à-vis INR would make
Triveni less competitive in the global markets in the long run in spite of Triveni hedging its entire forex exposure.
0-30MW TURBINE INDUSTRY ANALYSIS
Threat of New Entrants LOW (Domestic) to
MODERATE (Exports)
(1) Access to complex technology
(2) Small market size of 700MW annually in India restricts
entry of larger domestic as well as Chinese players.
(3) Chinese players have not been able to achieve any success
as the products require high level of customization whereas the
Chinese specialize in standardized mass scale manufacturing.
Further aftermarket services are extremely critical from the
client's perspective where the Chinese have no footprint.
Threat of Substitutes LOW
There are no viable substitutes which can replace steam turbines
as industries using them either have freely available fuel source
in the form of bagasse/agri-waste/waste heat (in case of sugar,
steel & cement) or require steam as an input in the manufacturing
process (in case of textile, paper, pharma, chemicals) through
which power can be generated at negligible cost and hence the
demand for steam turbines would be unaffected even if we assume
that India becomes a power surplus nation in coming years.
Industry Rivalry LOW (Domestic) to MODERATE (Exports)
Intensity of rivalry is low, as the market is a duopoly with Triveni having 60% market share and
Siemens having the balance. As Siemens is facing a severe downturn in the larger turbines, it has lately
increased its focus on the smaller turbine market which has been stable since the last three years.
Bargaining power of buyers : LOW (Domestic) to
MODERATE (Exports)
There are numerous small buyers requiring high level of
customization, whereas the number of turbine suppliers is
restricted to two domestically. However export markets have
multiple suppliers.
Bargaining Power of Suppliers : LOW
Small turbine manufacturers source bulk of their requirements
like alternators, electrical metering, forgings and castings from
multiple small vendors who lack pricing power.
14 July 2015
2

Triveni Turbine
IVRCL: Financials and Valuation
Triveni Turbine Financials & Valuation
INCOME STATEMENT (Consolidated)
Y/E MARCH
FY13
FY14
(INRCR)
FY15 FY16E FY17E
RATIOS (Consolidated)
Y/E MARCH
FY13
FY14
FY15 FY16E FY17E
Revenues
Growth
COGS
Gross Profit
GP Margin
Employee Cost
Other Expenses
EBITDA
EBITDA Margin
Depreciation
Other Income
PBIT
E/O. Inc/(Loss)
Interest Cost
PBT
Tax
Rate
PAT
Minority Interest
Reported PAT
Adjusted PAT*
Growth
PAT Margin
665
515
651 836 1117
6% -23% 26% 28% 34%
389
284
383 494
657
277
232
268 342
460
41.6% 44.9% 41.2% 40.9% 41.2%
55
58
62
69
80
61
70
83 118
163
161
104
123 155
217
24.2% 20.1% 18.8% 18.5% 19.5%
13
14
16
22
24
8
11
9
13
21
156
101
116 146
214
4
0
22
0
0
3
1
2
1
0
157
100
136 145
214
50
33
43
48
71
32% 33% 32% 33% 33%
107
67
93
97
144
-1
-1
3
-1
5
108
68
91
98
139
106
68
75
98
139
25% -36% 11% 30% 42%
15.9% 13.2% 11.6% 11.7% 12.5%
(INRCR)
FY14
FY15 FY16E FY17E
Adjusted EPS (INR)
Book Value
Div Per Share
Dividend Payout
Net Debt / Equity
Valuation
P/E
P/BV
EV/EBITDA
EV/Sales
Dividend Yield
Return Ratios
ROCE
PBIT Margin
Asset Turnover
ROE
W.Cap. Ratios
Debtor days
Inventory days
Creditor days
Advances days
W.Cap cycle
3.2
4.1
0.5
16%
-0.2
-
-
-
-
0.4%
108%
23%
4.6
78%
76
46
108
37
-23
2.1
5.3
0.8
43%
0.1
-
-
-
-
0.6%
51%
20%
2.6
39%
120
103
175
71
-21
2.3
6.9
0.9
36%
-0.1
53
17
32
6.1
0.7%
47%
18%
2.6
33%
100
96
126
72
-2
3.0
8.7
1.0
40%
-0.2
41
14
26
4.8
0.8%
50%
17%
2.9
34%
100
96
126
72
-2
4.2
11.5
1.3
35%
-0.4
28
10
18
3.6
1.1%
55%
19%
2.9
37%
100
96
126
72
-2
* PAT adjusted for forex gain/loss
BALANCE SHEET (Consolidated)
Y/E MARCH
FY13
CASH FLOW
(Consolidated)
(INRCR)
FY13
FY14
FY15 FY16E FY17E
Y/E MARCH
Share Capital
33
Reserves
102
Networth
135
Loans
1
Minority Interest
8
SOURCES OF FUNDS
144
Gross Fixed Assets
165
Less: Depreciation
53
Net Fixed Assets
111
Capital WIP
0
Intangibles
8
Inventories
67
Debtors
138
Cash & Investments
37
Loans & Advances
39
Curr. Assets
280
Creditors and Prov.
247
Net Current Assets
33
Less Net Def. Tax Liab
8
APPLICATION OF FUNDS136
14 July 2015
33
142
175
19
4
194
165
63
102
19
9
112
170
9
75
365
288
77
10
188
33
196
229
13
7
242
219
79
140
10
11
135
179
34
67
414
316
98
10
238
33
254
287
0
6
287
303
101
202
0
12
174
230
64
34
501
414
88
9
281
33
347
380
0
11
380
331
124
206
0
14
232
307
149
41
729
546
183
12
377
EBITDA
Adjustments
(Inc)/Dec in W.Cap
Pre Tax OCF
Tax Paid
CF from Operations
(Inc)/Dec in FA
Profit on sale of FA
Int & Div Received
CF from Investing act.
Inc/(Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
CF from Financing act.
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
161
(7)
(35)
119
(49)
70
(1)
(3)
8
3
(36)
(3)
(17)
(56)
17
15
32
104
0
(72)
32
(31)
1
(20)
(2)
11
(11)
18
(1)
(29)
(12)
(23)
32
9
123
0
4
126
(43)
83
(45)
18
9
(18)
(6)
(2)
(33)
(40)
25
9
34
155
0
40
195
(49)
146
(73)
(3)
13
(63)
(13)
(1)
(39)
(52)
30
34
64
217
0
(10)
208
(72)
135
(28)
8
21
0
0
0
(50)
(50)
85
64
149
3

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