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Triveni Turbines – Leading Small Turbine Player in the world


Company Name – Triveni Turbines Limited (TTL)


Current Share Price – INR 279 (February 7, 2023)


Market Cap – INR 9,002 cr


 

1. What is interesting about the stock?


A lot of chemical processes used industrially generate heat that just goes waste. At the same time, a lot of the industrial units faced a constant shortage of power. Enter co-generation. The process deploys the waste heat generated by the plant to generate electricity. One of the largest suppliers of equipment for this is Triveni Turbines.


Triveni Turbine Limited (TTL or Company) is one of the largest manufacturers of industrial steam turbines in the 5 to 30 MW range globally. The Company designs and manufactures steam turbines up to 100 MW and delivers end-to-end solutions.


The Company provides renewable power solutions specifically for biomass, independent power producers, sugar &process co-generation, waste-to-energy, and district heating. Its steam turbines are used in diverse industries, ranging from sugar, steel, textiles, chemical, pulp & paper, petrochemicals, fertilizers, solvent extraction, metals, palm oil food processing, and more. It was a division of Triveni Engineering & Industries Ltd since the 1970s and was demerged with effect from Oct 2010 into a separate entity.


Sector outlook


According to the 19th Electric Power Survey conducted by CEA, the all-India installed power generation capacity is projected to grow to 619 GW by the end of FY27. The International Energy Agency (IEA) estimates also indicate that India will add between 600 GW to 1,200 GW of power generation capacity before 2050.


The largest market for captive power generation globally is the Industrial sector. The future growth of the global steam turbines market (5-100 MW power range) is mainly attributed to the increase in investment to promote energy efficiency in process industries, namely sugar, distilleries, pulp & paper, cement, steel, chemical, etc.


Strong market position


TTL has a Leading position in the domestic market for steam turbines, where TTL has more than 50% market share. The fundamental advantages of small-sized steam turbines (less than 30 MW) remain intact, and Company is expected to maintain its leadership position. TTL has an export presence in over 75 countries around the world, while it has inquiries from over 130 countries. Its presence in South Asia, the Middle East, and some African markets have been relatively longer. In the last few years, it has expanded its presence across markets like Europe and South America. The Company currently has an order book of INR 1,232 cr as of January 1st, ’23 comprising 44% export orders giving good visibility of revenues in the coming year.


Strong financial position


The high value-additive nature of operations has been resulting in healthy profitability over the years. The Company has been reducing debt and strong accruals ensure that it will have a conservative capital structure. Working capital requirements are partly funded by advances from customers, leading to a healthy liquidity profile for the company over the years. An increased net worth base also affords financial flexibility to it.


2. Key Historical Financials

  • Company revenue and profit have been growing by 3% and 0% on a CAGR basis respectively in the last 5 years. After a long time, Company delivered 45% growth in Q3FY23 on a YoY basis

  • TTL had a tough year in FY21 with revenue falling 14% on a YoY basis due to COVID

  • EBITDA margin is stable at around 19-21%

  • Working capital days decreased in FY22 leading to a high cash flow conversion (CFO/EBITDA)

  • ROE improved in FY22 due to exceptional item of INR 203 cr

3. What is my view on company valuation?


The Company is trading at a P/E of ~52x as against the median P/E of 35x. In the wake of Triveni Engineering and Industries reducing its holding by ~12% in September 2022 and poor sales growth over the last 5 years, the current price seems quite steep. It would be prudent to wait for the price significantly before entering the stock as management expects a growth of 15-20% for the next couple of years.


4. What are the risks to the investment analysis?


Risks to the analysis are:

  • Economic Slowdowns in key geographic locations or cyclical downturns in key segments could materially affect the revenues and profitability of the company

  • The company is vulnerable to counterparty credit risk due to exposure to capital intensive sectors like sugar, cement, and textiles that have moderate credit profiles

 

About the Author


I have over 18 years of experience in private equity and public markets. I am an engineer by background and MBA from a premier institute in India.


Disclosure


I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.


I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.


I have used publicly available information while writing this article.

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