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Delivery remains the key
Triveni Turbine Ltd (TRIV)’s Q4/FY19 EBITDA margin was impacted due to cost overrun (Rs220 mn) while introducing new products in overseas market which management has fully provided and expects margin to bounce back to 20-21% in FY20 (18% in FY19). Domestically enquiry book grew 8% YoY at around 1 GW, mainly from sectors like molasses based distilleries, ethanol, sugar, pulp paper and steel and cement. In the overseas markets, enquiry pipeline stands at 2.5GW, skewed towards renewable sector. The company is expanding its presence in new geographies like Middle East, Africa and some parts of South East Asia. GE Triveni JV continues to witness muted performance due to delay in shipment of dispatches and lack of any large order (<30-100 MW). Management has guided for double digit revenue growth and expansion in margin in FY20 (1QFY120 could be weaker due to elections). We expect TRIV to deliver revenue/PAT CAGR of 12/19% over next two years (FY19-21E). The stock is currently trading at 29.4/24.9x FY20/FY21E. We downgrade stock from Buy to Accumulate with revised TP of Rs124 (28x FY21E) due to a) weak pricing in domestic market due to intense competition b) Slower pick up in margins due to new product launches in new geographies c) weak outlook for GE Triveni JV.
Weak 4QFY19 numbers:
Consolidated sales were down 2% YoY at Rs2.4 bn (PLe Rs2.5 bn) for Q4FY19. While domestic sales (63%) was up 14% YoY, exports fell 21% YoY. On the basis of segment, Product sales was up 1.3% YoY, After-market sales fell 13% YoY. EBITDA margin contracted to 16.7% (PLe 20.5%) in Q4FY19 from 24.3% in Q4FY18 due to the impact of higher than budgeted cost incurred for new product introduction mainly in the overseas markets. Absolute EBITDA fell 33% YoY at Rs400 mn. Other income was up 58% YoY at Rs55mn. Tax rate was higher at 34.3% compared to 32.9% in 4QFY18. Hence, PAT for the quarter came in at Rs283 mn (PLe Rs348 mn), down by 20% YoY.
FY19 order backlog ended flat YoY at Rs7.2 bn:
Order inflow (OI) during 4QFY19 fell 18.5% YoY to Rs2.1 bn with Domestic/Overseas OI down 26%/9% YoY. FY19 order inflow stood at Rs8.5 bn, up 3.2% YoY (51%/49%, Domestic/Exports). Order backlog stands at Rs7.2 bn, up 2% YoY. As per management, the overall domestic market for under 30 MW showed growth and approx. 740 MW of orders got finalized during FY19. Domestic enquiry book (1GW) showed an increase of 8% YoY mainly from sectors such as molasses-based distilleries, process co-generation mainly Sugar and Pulp & Paper and cement.
Renewable remains key focus are in exports:
Exports revenue grew 17% YoY to Rs3.9 bn in FY19. The company has been targeting new geographies like Middle East, Africa and some parts of South East Asia and also launching new products in existing and new markets. Sectors like biomass, waste-to-energy, sugar cogeneration are key drivers of turbine orders. The current enquiry pipeline stands at 2.5GW and ~90% of the orders from renewable sector (mainly from Biomass energy).
GE-TL JV update:
GE-TTL JV performance was mixed FY19 with revenue down 18% YoY at Rs777 mn and PAT of Rs90 mn against net loss in FY18. Weak revenue growth was owing to deferment of dispatch of a large turbine because of delay from the customer’s end and the same will be dispatched in H1FY20. OI/OB for FY19 stands at Rs479mn/Rs1272 mn. The company has guided for weak outlook on the back of absence of any large order.
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