Consolidating to emerge stronger! December 11, 2015 Kunal Sheth kunalsheth@plindia.com +91 22 66322257 Samir Bendre samirbendre@plindia.com +91 22 66322256 Rating Not Rated Price Rs272 Target Price NA Implied Upside NA Sensex 25,044 Nifty 7,610 (Prices as on December 11, 2015) Trading data Market Cap. (Rs bn) 9.0 Shares o/s (m) 33.2 3M Avg. Daily value (Rs m) 15.9 Major shareholders Promoters 54.05% Foreign 11.43% Domestic Inst. 21.07% Public & Other 13.45% Stock Performance (%) 1M 6M 12M Absolute 1.9 (1.4) (35.6) Relative 3.7 2.2 (28.2) How we differ from Consensus EPS (Rs) PL Cons. % Diff. 2016 NA 6.7 NA 2017 NA 16.9 NA Price Performance (RIC: TDPS.BO, BB: TDPS IN) (Rs) 500 400 300 200 100 0 Dec 14 Feb 15 Source: Bloomberg Apr 15 Jun 15 Aug 15 Oct 15 Dec 15 TDPS is one of the leading manufacturers of AC Generators in the world with products in the range of 1 MW to 200 MW for prime movers such as steam turbines, gas turbines, hydro turbines, diesel engines, gas and wind turbines. TDPS is a key supplier of generators to renowned global OEMs like GE, Siemens and Voith Hydro. Globally, the generator industry is ~US$5 6bn and TDSP currently has 1% market share which they aspire to take it to 3% in the next 3 5 years. Apart from adding new OEM, it is mainly focusing on increasing penetration with current OEMs. Railways/Locomotives could be big opportunity for TDPS over the next few years both in domestic and export market. They are winding up their loss making EPC business in FY16. The current utilization levels are at 55% and the company does not need any major capex to reach sales of ~Rs8bn sales from FY15 sales of Rs4.5bn Sales (Ex EPC). Deprecation of Euro and Yen eroding the pricing advantage is the key near term concern. Focus on Export and increasing penetration with current OEM base: In order to tide the slowdown in domestic generator market, TDPS is focussing on export for growth (domestic market for generator up to 52MW declined to 3.2GW in FY15 from 7GW, TDPS has 70% market share in this segment). In export market, TDPS is a key supplier of generators to renowned global OEMs like GE, Siemens and Voith Hydro and works with almost 25/30 OEM across Europe/Japan and USA. Globally, the generator industry is ~US$5 6bn and TDSP currently has 1% market share which they aspire to take it to 3% in the next 3 5 years. TDPS has recently got order from SIEMENS for supply of components in export markets, which will open up new avenues for TDPS. Apart from adding new OEMs, it is mainly focusing increasing penetration with current OEMs. Contd...2 Key financials (Y/e March) 2012 2013 2014 2015 Revenues (Rs m) 10,427 5,871 4,802 5,974 Growth (%) 20.7 (43.7) (18.2) 24.4 EBITDA (Rs m) 954 528 224 165 PAT (Rs m) 659 417 227 (8) EPS (Rs) 19.8 12.6 6.8 (0.2) Growth (%) 16.4 (36.7) (45.6) NA Net DPS (Rs) 2.6 2.3 2.0 2.0 Profitability & Valuation 2012 2013 2014 2015 EBITDA margin (%) 9.1 9.0 4.7 2.8 RoE (%) 20.4 8.8 4.5 (0.2) RoCE (%) 19.2 9.1 4.9 (0.3) EV / sales (x) 0.6 1.1 1.5 1.2 EV / EBITDA (x) 6.7 12.2 32.5 41.9 PE (x) 13.7 21.7 39.9 NA P / BV (x) 2.0 1.8 1.8 1.8 Net dividend yield (%) 0.9 0.0 0.0 0.0 Source: Company Data; PL Research Visit Update Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report
Locomotive and gas segments new growth drivers: Railways/Locomotives could be a big opportunity for TDPS over the next few years both in domestic and export market. In domestic market, TDPS has recently won a trial order to supply 10 generators to Indian railways and once approved, it will become the third qualified bidder in 300 400 units per annum market currently catered to by Bharat Heavy Electricals (BHEL) and EMD. Recent diesel factory bid won by GE in Bihar could also provide opportunity for TDPS, given TDPS global association with GE. In the export market, the replacement market in the US could provide huge opportunity following the change in emission norms. TDPS has got five trail orders from big international players, once approved could provide recurring opportunity for TDPS. Further, in the gas generator segment, TDPS has got order for 200MW (20x10MW) from GE Jenbacher for catering to international markets. EPC business to wind up in FY16: The EPC business (25% of total revenue in each of the past three years) has pending order backlog worth only Rs30m, which will be executed in FY16. This business has been a drag on overall profitability as it posted operating loss of Rs119m/Rs240m in FY14/FY15, respectively. TDPS expects further hit of ~Rs100m from EPC business in FY16. Order book/financials /Outlook. The current order book stands at Rs3.6bn. Out of the total order book, Rs3bn is from manufacturing (60% export) and Rs600m from projects businesses. While order inflow has been weak over the last few quarters due to weak export and domestic markets, they expect inflow to pick up mainly from Q4FY16 due to opportunities in locomotive, gas and steam verticals in international markets. Consolidated margins after adjusting for EPC business is ~9% which can scale to 14 15% once the top line improves and demand environment improves. The current utilization levels is 55%. It does not need any major capex and its sitting on decent capacity to take it to ~Rs8 bn sales from Rs4.5bn Sales ( Ex EPC) in FY15. December 11, 2015 2
About the Company: TDPS is one of the leading manufacturers of AC Generators in the world with products in the output range of 1MW to 200MW for prime movers, such as steam turbines, gas turbines, hydro turbines, diesel engines, gas and wind turbines. TDPS is a key supplier of generators to renowned global OEMs like GE, Siemens and Voith Hydro. The company has three manufacturing facilities in Bengaluru, backed by captive power/water supplies and a well developed ancillary vendor network. It also has projects business under which it takes orders for Turbine Generator Island projects of output capacity up to 52MW Steam turbine power plant projects combining TDPS generators with Japanese turbines. The company has executed projects in India, Uganda, Kenya, Zambia and the Philippines. They have supplied 2735 generators to 72 countries across the globe. They have service partners in 19 countries across continents. TDPS has its own technology for generators up to 55MW and is a licensee of Siemens AG for two pole generators from 55MW up to 200MW. TDPS wholly owned Subsidiary, DF Power Systems, is in the business of Engineering, Procurement and Construction ( EPC ), executing Boiler Turbine Generator ( BTG ) island projects and the balance of plant ( BOP ) portion for steam turbine power plants with output capacity from 20MW up to 150MW ( EPC Business ). The scope of work for the EPC Business comprises of design services, civil works, procurement and supply of equipments, assembly, installation and commissioning. December 11, 2015 3
Business Overview Manufacturer of AC Generators (Up to 200MW) TDPS has diversified portfolio customized for a wide range of turbines (steam, gas, hydro and wind) and engines (diesel and gas). Since inception, they have manufactured 2,735 generators, including generators exported to 61 countries, with aggregate output capacity of 21,004MW. They also have two manufacturing facilities in Bengaluru, backed by captive power/water supplies and a well developed ancillary vendor network. TDPS is a key supplier of generators to renowned global OEMs like GE, Siemens and Voith. TDPS has strong engineering consultant relationships which allow deep involvement in project tendering. Exhibit 1: AC Generators for various applications Turbines Steam Gas Hydro Wind Up to 200 MW Up to 20 MW Horizontal Up to 15 MW Vertical Up to 35 MW 3 MW Diesel Up to 15 MW Engines Gas Up to 12 MW Special Application For Motor / transformer testing Customised Other Generators Geo Thermal / Solar application December 11, 2015 4
Exhibit 2: Product wise Sales (%) 100% 80% 60% Steam Hydro Diesel Gas Others 3.3 0.8 2.6 0.5 6.9 5.4 0 4.3 2.8 0.4 5.3 8.1 10.2 7.1 10.6 5.9 23.1 8.9 38.8 28.7 40% 20% 81.3 83.7 68.6 44 49 0% FY11 FY12 FY13 FY14 FY15 Exhibit 3: Order Book Breakup (H1FY16) Exhibit 4: Revenue Breakup (H1FY16) (Rs m) 1600 1400 1200 1000 800 600 400 200 0 Domestic Export Deemed Export (Rs m) 1200 1000 800 600 400 200 0 Domestic Export Deemed Export Projects business TDPS executes projects for steam turbine power plants with output capacity of up to 52MW executed under TD Power Systems. DF Power Systems, a wholly owned subsidiary, executes EPC projects for steam turbine power plants with output capacity up to 150MW. It has executed 118 projects aggregating to 3,105MW in India and abroad (107 TG island projects and 11 BTG island projects). Power Projects order book as on June 30th, 2015 stands at Rs 1,431m (95% in TDPS, 10% in DFPS). December 11, 2015 5
Exhibit 5: Order Book Breakup (H1FY16) (Rs m) 890 880 870 860 850 840 830 820 810 800 790 Order Book Revenue December 11, 2015 6
Manufacturing Facilities Unit I 157,624 sq ft Core building, Coil making, Winding & Machining Impregnation and curing Balancing Final assembly and testing Material Handling & General Facilities Power House R&D Centre Quality lab and instruments Unit II 219,756 sq ft Core building, Coil making, Winding & Machining Impregnation and curing Balancing Final assembly and testing Material Handling & General Facilities Power House R&D Centre Quality lab and instruments Unit II 219,756 sq ft 2 Pole Factories 78,449 sq ft Core building, Coil making, & Winding Impregnation and curing Final assembly and testing Material Handling & General Facilities Power House (Common with Unit 2) R&D Centre (Common with Unit 2) Quality lab (Common with Unit 2) and instruments December 11, 2015 7
Financial Background Exhibit 6: Consolidated Segmental Revenues Loss in EPC business impacted consolidated profitability 12,000 10,000 8,000 4,115 EPC Project Business Manufacturing Ex EPC EBITDA margins stood at ~9% in FY15 (Rs m) 6,000 4,000 2,000 0 2,621 2,940 3,768 3,259 4,166 1,682 991 1872 613 1,633 1,218 1,577 885 138 FY12 FY13 FY14 FY15 H1FY16 Exhibit 7: Consolidated segmental EBITDA Margins can go up to 14 15 once sales improve and demand environment improves (Rs m) 1400 1200 1000 800 600 400 200 0 200 400 EPC Project Business Manufacturing 734 155 447 482 482 168 261 159 64 61 50 100 119 240 115 FY12 FY13 FY14 FY15 H1FY16 December 11, 2015 8
Income Statement (Rs m) Y/e March 2012 2013 2014 2015 Net Revenue 10,427 5,871 4,802 5,974 Raw Material Expenses 8,188 4,407 3,560 4,556 Gross Profit 2,239 1,463 1,243 1,418 Employee Cost 486 478 562 620 Other Expenses 799 457 457 634 EBITDA 954 528 224 165 Depr. & Amortization 91 124 150 288 Net Interest 100 67 62 62 Other Income 224 308 341 245 Profit before Tax 986 644 354 60 Total Tax 326 227 126 68 Profit after Tax 659 417 227 (8) Ex Od items / Min. Int. Adj. PAT 659 417 227 (8) Avg. Shares O/S (m) 33.2 33.2 33.2 33.2 EPS (Rs.) 19.9 12.6 6.8 (0.2) Cash Flow Abstract (Rs m) Y/e March 2012 2013 2014 2015 C/F from Operations (372) 650 (246) 465 C/F from Investing (171) (579) (504) (26) C/F from Financing 1,487 (188) 249 (122) Inc. / Dec. in Cash 944 (118) (501) 317 Opening Cash 2,078 3,022 2,905 2,404 Closing Cash 3,022 2,905 2,404 2,721 FCFF (579) 870 (725) 417 FCFE (1,009) 797 (365) 361 Key Financial Metrics Y/e March 2012 2013 2014 2015 Growth Revenue (%) 20.7 (43.7) (18.2) 24.4 EBITDA (%) 1.3 (44.7) (57.6) (26.4) PAT (%) 16.4 (36.7) (45.6) NA EPS (%) 16.4 (36.7) (45.6) NA Profitability EBITDA Margin (%) 9.1 9.0 4.7 2.8 PAT Margin (%) 6.3 7.1 4.7 (0.1) RoCE (%) 19.2 9.1 4.9 (0.3) RoE (%) 20.4 8.8 4.5 (0.2) Balance Sheet Net Debt : Equity 0.1 0.1 0.1 0.1 Net Working Cap. (days) (11.9) (39.5) (63.4) (65.5) Valuation PER (x) 13.7 21.7 39.9 NA P / B (x) 2.0 1.8 1.8 1.8 EV / EBITDA (x) 6.7 12.2 32.5 41.9 EV / Sales (x) 0.6 1.1 1.5 1.2 Earnings Quality Eff. Tax Rate 33.1 35.2 35.8 113.9 Other Inc / PBT 0.2 0.5 1.0 4.1 Eff. Depr. Rate (%) 5.6 5.1 5.4 8.0 FCFE / PAT (1.5) 1.9 (1.6) (43.6). Balance Sheet Abstract (Rs m) Y/e March 2012 2013 2014 2015 Shareholder's Funds 4,598 4,941 5,076 4,940 Total Debt 342.83 269.93 629.88 573.51 Other Liabilities 85 137 146 177 Total Liabilities 5,026 5,348 5,851 5,691 Net Fixed Assets 1,441 2,160 2,734 2,716 Goodwill Investments 0.05 0.05 0.05 0.05 Net Current Assets 3,585 3,188 3,117 2,975 Cash & Equivalents 3,022 2,905 2,404 2,721 Other Current Assets 4,391 3,355 4,542 3,524 Current Liabilities 3,828 3,072 3,829 3,270 Other Assets Total Assets 5,026 5,348 5,851 5,691 Quarterly Financials (Rs m) Y/e March Q3FY15 Q4FY15 Q1FY16 Q2FY16 Net Revenue 1,506 1,871 994 1,759 EBITDA 86 17 (0) 74 % of revenue 5.7 0.9 (0.0) 4.2 Depr. & Amortization 70 71 72 72 Net Interest 9 12 11 13 Other Income 12 94 45 51 Profit before Tax 19 28 (38) 40 Total Tax 21 21 8 28 Profit after Tax (2) 7 (47) 11 Adj. PAT (2) 7 (47) 11. December 11, 2015 9
Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai 400 018, India Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209 Rating Distribution of Research Coverage PL s Recommendation Nomenclature % of Total Coverage 50% 40% 30% 20% 10% 0% 45.2% 42.3% 12.5% 0.0% BUY Accumulate Reduce Sell BUY : Over 15% Outperformance to Sensex over 12 months Accumulate : Outperformance to Sensex over 12 months Reduce : Underperformance to Sensex over 12 months Sell : Over 15% underperformance to Sensex over 12 months Trading Buy : Over 10% absolute upside in 1 month Trading Sell : Over 10% absolute decline in 1 month Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly DISCLAIMER/DISCLOSURES ANALYST CERTIFICATION We/I, Mr. Kunal Sheth (MBA), Mr. Samir Bendre (BE,MBA), Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & conditions and other disclosures: Prabhudas Lilladher Pvt. Ltd, Mumbai, India (hereinafter referred to as PL ) is engaged in the business of Stock Broking, Portfolio Manager, Depository Participant and distribution for third party financial products. PL is a subsidiary of Prabhudas Lilladher Advisory Services Pvt Ltd. which has its various subsidiaries engaged in business of commodity broking, investment banking, financial services (margin funding) and distribution of third party financial/other products, details in respect of which are available at www.plindia.com This document has been prepared by the Research Division of PL and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. PL may from time to time solicit or perform investment banking or other services for any company mentioned in this document. PL is in the process of applying for certificate of registration as Research Analyst under Securities and Exchange Board of India (Research Analysts) Regulations, 2014 PL submits that no material disciplinary action has been taken on us by any Regulatory Authority impacting Equity Research Analysis activities. PL or its research analysts or its associates or his relatives do not have any financial interest in the subject company. PL or its research analysts or its associates or his relatives do not have actual/beneficial ownership of one per cent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report. PL or its research analysts or its associates or his relatives do not have any material conflict of interest at the time of publication of the research report. PL or its associates might have received compensation from the subject company in the past twelve months. PL or its associates might have managed or co managed public offering of securities for the subject company in the past twelve months or mandated by the subject company for any other assignment in the past twelve months. PL or its associates might have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months. PL or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months PL or its associates might have received any compensation or other benefits from the subject company or third party in connection with the research report. PL encourages independence in research report preparation and strives to minimize conflict in preparation of research report. PL or its analysts did not receive any compensation or other benefits from the subject Company or third party in connection with the preparation of the research report. PL or its Research Analysts do not have any material conflict of interest at the time of publication of this report. It is confirmed that Mr. Kunal Sheth (MBA), Mr. Samir Bendre (BE,MBA), Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. The Research analysts for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. The research analysts for this report has not served as an officer, director or employee of the subject company PL or its research analysts have not engaged in market making activity for the subject company Our sales people, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all o the foregoing, among other things, may give rise to real or potential conflicts of interest. PL and its associates, their directors and employees may (a) from time to time, have a long or short position in, and buy or sell the securities of the subject company or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company or act as an advisor or lender/borrower to the subject company or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. DISCLAIMER/DISCLOSURES (FOR US CLIENTS) ANALYST CERTIFICATION The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific recommendation or views expressed in this research report Terms & conditions and other disclosures: This research report is a product of Prabhudas Lilladher Pvt. Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution by Prabhudas Lilladher Pvt. Ltd. only to "Major Institutional Investors" as defined by Rule 15a 6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a 6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Prabhudas Lilladher Pvt. Ltd. has entered into an agreement with a U.S. registered broker dealer, Marco Polo Securities Inc. ("Marco Polo"). Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer. December 11, 2015 10