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TD Power Systems (TDPS) - Visit Note - Dtd. - October 15, 2012




Axis Capital Limited


15 Oct 2012





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We met the management of TD Power Systems (TDPS) – a leading manufacturer of AC generators of up to 52 MW for prime movers (turbines) like steam/gas/hydro/wind and diesel/gas engines for captive power projects (CPPs). It has >70% share in the domestic steam and gas generator market. While short term pressures exist, there are multiple triggers for growth going forward (1) CPP market showing signs of revival (2) commissioning of deliveries to new customers and (3) Enhancing capability to 200 MW. Hydro generators to cushion the short-term slowdown in steam: Management indicated steam generator (84% of manufacturing revenue) market continues to be sluggish but enquiries are high; the segment is expected to de-grow in FY13. Robust demand for hydro generators (domestically and from Voith Hydro) and diesel engines would cushion the short term revenue loss from steam. Enhancing manufacturing capability to 200 MW: TDPS can currently sell 400 generators/annum (potential peak revenue at Rs 7.5 bn). It is enhancing capability to manufacture generators up to 200 MW with technology from Siemens. The total capex of Rs 1.8 bn (funded from IPO proceeds and internal accruals) would be carried out in 2 phases. Work is expected to start from Q3FY13 with commissioning (of both phases) likely by FY16. Post expansion, at 3x asset turns, TDPS can generate a peak turnover of Rs 12 bn (3x FY12 manufacturing revenue) with sustainable EBITDA margin of 18-19%. EPC – a free cash business: TDPS also carries out (1) turbine generator projects up to 52 MW using Japanese turbines and TDPS generators and (2) EPC for BTG islands and balance of plant (ex. civil work) for power projects (52 MW – 150 MW) through its subsidiary DF Power systems. The vertical has positive cash flows despite 5-6% margin due to negative working capital. Order book inflow has declined 45% in FY12, which would drag FY13E revenue lower by 20-25%. Recovery in CPP market and deliveries to new customers to drive growth FY14E onwards: FY13E earnings would decline due to capex slowdown. However, channel checks suggest CPP market is showing signs of revival (1.2-1.3 GW of orders in H1FY13 vs. 0.5 GW in FY12). This along with commissioning of deliveries to new customers (Wind generators to Vestas, GE) would drive earnings FY14E onwards. At CMP of Rs 262, TD Power Systems trades at 13x its FY12 EPS of Rs 20.The stock is not under our coverage. Regards, Kashyap Pujara (Executive Director - Midcaps) Institutional Equity Research ENAM Securities Pvt. Ltd. Tel.: + 91 22 4325 1146 Punit Chokhani (Asst. VP – Midcaps) Institutional Equity Research ENAM Securities Pvt. Ltd. Tel.: + 91 22 4325 1130

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