Nuvama initiates coverage on Transformers & Rectifiers India with ‘buy’ call; sees 68% upside

Transformers and Rectifiers India’s strategic initiatives shall power its profitability and growth, noted Nuvama.

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India’s growing power demand, rapid electrification and green transition have fueled the need for transformers, leading domestic brokerage Nuvama Institutional Equities to initiate coverage on Transformers & Rectifiers India with a buy rating.

Numava initiated coverage on the company with a buy rating and a target price of Rs 575 per share. This implies an upside of 68.1 percent.

Meanwhile, in trade today, shares of the company tanked 5 percent to hit their lower-circuit at Rs 321 apiece on the NSE.

Transformers & Rectifiers India is one of the few suppliers of high-voltage (HV)  transformers in India and poised to clock an 85 percent-plus EPS CAGR over FY24–27E, per Nuvama.

The Central government’s ongoing thrust to expand the manufacturing sector to around 25 percent of the GDP, along with the green transition necessitates large power capacity addition. This will further lead to a mega transmission capex over FY24–30E.

Additionally, the new leg of transmission capex will be for >220kv long-distance RE connectivity. This implies increased demand for HV transformers, with only 6-7 players operating.

Transformers and Rectifiers India is one of the few transformer manufacturers with offerings across the spectrum (<220kV to 1200kv), with HV forming around 70 percent of sales coupled with rectifiers, reactors, specialty transformers, etc.

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Transformers and Rectifiers India strategic initiatives shall power its profitability and growth. Its frugal capacity expansion, backward integration to eliminate potential components shortage and strengthen
supply chain resilience and selective order picking for better cash conversion will further boost its bottom-line.

Some risks could be the competitive intensity, raw material supply constrains and working capital management, added the report.

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