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Business News/ Markets / Stock Markets/  TRIL: Over 4500% return in less than 4 years! Nuvama sees more upside in this small-cap stock
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TRIL: Over 4500% return in less than 4 years! Nuvama sees more upside in this small-cap stock

In its latest note, Nuvama Institutional Equities has initiated coverage on the stock with a 'buy' rating and set a target price of ₹575 apiece, which reflects an upside of 74% from the stock's latest closing price.

The brokerage's optimistic outlook on the company is fueled by the increasing demand for transformers, driven by the expansion of renewable and thermal power capacity to meet the growing energy needs of the country. (Pixabay)Premium
The brokerage's optimistic outlook on the company is fueled by the increasing demand for transformers, driven by the expansion of renewable and thermal power capacity to meet the growing energy needs of the country. (Pixabay)

Shares of Transformers & Rectifiers India have been a goldmine for investors, as they have been delivering consistent returns with each passing year. The shares, which were trading at a value of 6.95 apiece in April 2020, have zoomed 4633% to trade at the current value of 330 apiece.

Each year since CY20, the stock has yielded returns of over 50%, with CY23 seeing the highest yearly gain at 314%. As of CY24, it's already up by 43%. Notably, on January 25, it reached a new all-time high of 397.30 apiece.

Looking ahead, the stock is anticipated to continue its winning streak, with projections from brokerage firm Nuvama Institutional Equities suggesting it could surpass the 550 mark.

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In its latest note, the brokerage has initiated coverage on the stock with a 'buy' rating and set a target price of 575 apiece, which reflects an upside of 74% from the stock's latest closing price.

Growing demand for transformers

The brokerage's optimistic outlook on the company is fueled by the increasing demand for transformers, driven by the expansion of renewable and thermal power capacity to meet the growing energy needs of the country. 

"As India continues to grow its manufacturing base from 17% of GDP to 25% targeted by FY25/26E, the focus on urbanisation, electrification, and digital automation, would all result in power demand growing by 6–7% over this decade, not to forget optionality from railways, industrial corridors, mining, and green hydrogen, among others. All of the above adds to the need for more power generation plus transmission, thereby driving transformer demand," said Nuvama. 

Also Read: Multibagger: Up 10000%, this small-cap stock turned 1 lakh into 1 crore in just 4 years

India’s power demand-supply dynamics clearly augur aggressive RE addition of 30–40 GW/year and thermal addition of 10 GW+/year to avoid base power deficits over FY28–30. Hence, RE + thermal additions are more of ‘a need’ than a choice’, it said. 

A natural deduction of such a large-scale RE addition is the essential step-up in transmission connectivity to a similar scale of 2.4 trillion, the brokerage pointed out, quoting the CEA estimates. 

Transformers are critical infrastructure equipment that connects every power source throughout the grid. With multiple major economies pushing for renewables (which adds more fluctuating voltages to the grid), power grids are becoming more complex. 

This, as per the brokerage, implies an urgent need for upgrading the transmission infrastructure not only for grid expansion but also for stability (entailing replacement/upgrades of older transformers, and other equipment).

Also Read: 11 power stocks gained between 20% and 110% in 3 months; check full list

Strong positioning

According to the brokerage, the company is charged up to outgrow the transformer industry CAGR of 24%+ over FY23–27E on the back of its current order book of 25 billion+ (1.9x FY23 sales), ongoing capacity expansion plans, and backward integration. 

"Macro tailwinds suggest accelerating order inflow growth and operating leverage might well lift TRIL’s EBITDA margins to 13–15% by FY26E/27E from 8–10% currently (peak of 18–20% in the last cycle). This translates to an EPS CAGR of 85%+ over FY23–27E," said Nuvama. 

Transformers & Rectifiers India is the only Indian company with the capability to manufacture all types of transformers, such as distribution transformers, high-voltage transformers, special-duty transformers, furnace transformers, reactors, and renewable and green energy transformers.

 

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.

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Published: 14 Mar 2024, 02:26 PM IST
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