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Analyst Research Report Snapshot


TD Power Systems (TDPS) - Co. Report - Dated - March 13, 2013




Axis Capital Limited


14 Mar 2013





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TD Power Systems (TDPS) is a leading manufacturer of AC generators of up to 200 MW for prime movers (turbines) like steam/gas/hydro/wind and diesel/gas engines for captive power projects. It has >70% share in domestic steam and gas generator market (up to 52 MW) with increasing traction in hydro and exports. Leveraging on its customer base and expertize, TDPS also carries out its negative working capital projects business (up to 150 MW). We believe earnings have bottomed out and recovery over FY13-15E will be led by favorable tailwinds (domestic capex cycle turning) coupled with increasing capability (up to 200 MW) and scale (rising exports). We expect 42% revenue and 32% earnings CAGR over FY13-15 with improving return ratio profile. Initiate coverage on TD Power Systems with HOLD rating and TP of Rs 244. Multiple drivers in place  Domestic capex cycle showing some signs of revival. Our channel checks suggest cash-rich companies in Oil and Gas, cement, sugar and food processing sectors have started placing orders (orders worth Rs 30 bn, i.e. 10-12 projects, are expected to be finalized in March-April 2013). Given TDPS’ dominance in 1-52 MW category, we expect domestic order inflows to improve from FY14.  Enhancement of manufacturing capability to 200 MW to double domestic pie for TDPS (to 6 GW per annum). Post expansion of its factory (FY15), at historic asset turns (3x), TDPS can generate a peak turnover of Rs 12 bn (3x FY12 manufacturing revenue) with sustainable EBITDA margin of 16-18%.  Exports – next growth driver: Management has indicated exports as a focus area and is in the process of setting up offices in USA and Germany to increase its customer base. This along with ramp up in existing clientele (GE, Siemens, Voith Hydro) has the potential to make exports the key growth driver going forward. We expect exports to contribute 45% of revenue in FY15 vs. 35% in FY13.  Valuation: We assign 12x FY15E EPS – discount of 25% and 20% to Thermax and BHEL respectively – to arrive at our TP of Rs 244. Initiate coverage on TD Power Systems with HOLD rating as CMP of Rs 248 implies there is limited room for upside (-2%). The stock trades at 16x FY14E EPS of Rs 15 and 12x FY15E EPS of Rs 20. Regards, Punit Chokhani (Asst VP – Midcaps) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1130 Kashyap Pujara (ED – Midcaps) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1146

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