Rating – Accumulate                                 

Triveni Turbine Ltd (TTL) is the domestic market leader in steam turbines up to 30 MW and is one of the largest manufacturers of small team turbine – globally. The Company designs and manufactures steam turbines up to 100 MW, and delivers robust, reliable and efficient end-to-end solutions. The larger end of the range – 30 MW to 100 MW, is addressed through GE Triveni Ltd. (GETL). Triveni Turbines manufactures steam turbines at its world-class manufacturing facilities in Bengaluru, India and assists its customers with their aftermarket requirement through its six global servicing offices.

Despite a slowdown in domestic market due to delayed industrial capex cycle, TTL has managed to keep their market share of 60% for turbine up to 30MW. Strong presence in sugar and process co-generation segments helped to counter the domestic headwinds. The domestic market size of turbine industry up to 30MW declined from a peak of ~1,425MW in FY11 to ~560MW in FY16. The declining trend in industrial size put pressure on order inflows. However, in FY17 domestic turbine market has shown a growth of 7% to 599MW and thereby the order inflow has registered a healthy growth of 29% YoY to Rs411cr and constituting 59% in total order book as compared to 48% in FY16. This results in a pickup in the domestic market demand and we are expecting the same to continue for the year ahead. This will bode well for execution in FY18 and FY19.

During FY12 to FY17 TTLs export market showed a decent performance with an order inflow of 20% CAGR whereas domestic order inflow witnessed de-growth of -1%. Currently TTL is exporting to over 70 countries and the export mix in consolidated sales has changed from 14% in FY12 to 52% in FY17. We expect gaining strength in the global platform will help tap new opportunities going forward.

In 2010, TTL had entered into a joint venture (JV) with GE (General Electric) with generating capacity of 30 to 100MW. This has made the canvas broad and provided TTL with an edge to enter the global market. With the JV the order pipeline both in domestic as well as international has become strong. GETL recorded an order inflow of 39% CAGR over FY14-FY17 to Rs166cr with an outstanding order book of Rs208cr. Management guided that after dispatching the large size 60MW turbines to Argentina they have received an order for 83MW turbine from Bangladesh and also have two to three enquiries which is expected to materialise in H1FY18.

Rising export market penetration, scale up of JV GETL and healthy order enquiry pipeline provides better outlook. Further, leadership in domestic market, strong return ratios (ROE-35% FY17) with debt free status and better EBITDA margin of 22% in FY17 attracts premium valuation. We expect order inflow to grow at a CAGR of 22% over FY17-19E and stimulate revenue with a CAGR of 9%. We initiate coverage on TTL with Accumulate rating and our target price of Rs148 is based on a PE of 30x FY19E EPS.

Analyst: Antu Eapen Thomas, Geojit Financial Services Ltd. , INH200000345

General Disclosures and Disclaimers: Triveni Turbine Ltd


Rating – Buy

PI Industries (PI) manufactures plant protection and speciality plant nutrient products and solutions under its agri-inputs business. The company is also one of India’s leading custom synthesis (CSM) companies engaged in providing contract research and contract manufacturing services to global innovators. Has a broad-based product portfolio spread across herbicides, insecticides, fungicides and specialty chemicals.

PI Industries has a unique business model with its CSM segment (which contributes 60% of its revenues) focusing on research and commercialization of patented molecules through tie-ups with global innovators. This differentiates the company from its peers. Further its strong R&D capability and non-competing IP-based business model has helped the company in fostering long term relationship with global innovators making it a preferred partner for global innovators. Resultantly, this has also led the company to introduce innovative agrochemicals (which contribute 40% of the revenues) in the domestic market, which is largely based on in-licensing of molecules. Under in-licensing, the company acquires newly launched or patented molecules from global innovators and markets the formulated products in India. It enjoys exclusive marketing rights for these molecules and distributes it under its own brand in India. Some of the key brands include Nominee Gold, Osheen, Biovita, etc.

The management has planned Rs. 200 cr for capex in FY18 to expand capacity at Jambusar where the current capacity utilization is at ~70%. During FY17, PI has launched 4 new molecules. PI intends to launch two to three new high potential molecules every year to further strengthen its product portfolio and help in gaining market share.

PI revenue witnessed a robust sales growth of 21% CAGR over FY12-17 largely led by growth in volumes (amid consistent new product launches). EBITDA margin has increased from 16.3% in FY12 to 24.3% in FY17 given the company’s strong product portfolio and superior pricing power. Supported by robust EBITDA margins PAT grew by 45% CAGR over FY12-17. Going ahead we expect revenue to grow at 12% CAGR over FY17-19E on the back of its expanding product portfolio. PI’s growing ties with global innovators will not only enable the company to further boost its product portfolio but will also lead to robust order book accretion. Further improving product mix (in favour of the relatively high margin CSM business) coupled with the benefit of operating leverage due to scale up will support its margin profile. Additionally, continuous focus on introducing niche molecules will further aid in sustaining margins going ahead. We expect the EBITDA margin to hover around 23.5% primarily driven by better product mix.

Currently, PI Industries is trading at a P/E multiple of 23x & 20x for FY18E and FY19E earnings respectively. We value PI at 24x on FY19E, which is at premium to last 5yr Avg. 1year fwd. P/E, owing to several factors viz. (a) continued traction in commercialisation of niche molecules (b) robust order book position, (c) focus on in-licensed products and (d) healthy balance sheet with strong operating cash flow, debt free status and superior return ratios with average ROE/ROCE levels of 29%/33% over FY12-17. We have BUY rating with a target price of Rs857.

Analyst: Abhijit Kumar Das, Dion Global Solutions Ltd., INH100002771

General Disclosures and Disclaimers: PI Industries

Rating – Accumulate

AARTI Industries Ltd (ARTO) is a global leader in Benzene based products, with diversified end-users and customer profile. Its major business segment includes Specialty chemicals, Pharma and Home & personal care chemicals. Currently it is diversifying into Toluene and Ethylene based products, with firm off-take commitments from global chemical majors. It has a process-driven manufacturing capacity, which provides flexibility in manufacturing products as per the market dynamics. Hence, ARTO is strategic supplier for various domestic and global MNCs.

Historically, global chemical companies sourced their raw-material requirements largely from China due to lower cost and favorable currency. Currently, global chemical giants are de-risking their raw-material sourcing destination from China, due to higher regulatory restriction and to diversify country risk and at present they are increasingly looking at India due to higher environmental compliance requirements in China. The de-risking of sourcing by these MNCs had led to improvement in outlook of Indian specialty chemicals and pharma intermediates. Higher regulatory restriction in China led to increased cost for setting up of ETP (Effluent treatment plant) thus losing out on the low cost advantage to Indian chemical industry, were tighter compliance norms were already followed and were also benefited from a favourable currency. ARTO’s forte in niche capabilities (complete integration into Benzene and expansion in Toluene derivatives) with focus on high margin products and export concentration will aid its future growth. Also Pharma segment has reached a threshold level and will start contributing towards its future earnings growth. ARTO’s operational performance is exceptional, with revenue growth of 13% CAGR, EBITDA and PAT growth of 20% and 29% CAGR over FY12-FY17. Better product mix and cost rationalisation has improved EBITDA margins to 20% from 15% during FY12-FY17.

Q1FY18 Revenue grew by 8% YoY, led by higher contribution from Speciality chemical business which grew by 6% YoY, home and personal care business 41% YoY and Pharma 4% YoY. Volume growth in Speciality chemical was subdued at 3% YoY. The volume growth was impacted due to periodical full scale shutdown in acid production facility during the quarter. Revenue from Pharma business was moderate due to delay in launch of products from customer end. Gross margins improved by 60bps YoY to 44.2% due to better product mix. While EBITDA margins declined by 360bps YoY to 17.5% due one-off expenses which include Rs8-10cr of cost incurred for acid plant shutdown and lower volume growth which impacted the EBITDA. PAT declined by 24% YoY. ARTO has entered into a multi-year contract with a global agriculture company to supply high value agro-chemical intermediary for use in herbicides of an agro grade value of approximately Rs4,000cr over a 10-year period. Going forward, we believe that with strong off-take Pharma segment and stable growth from Speciality chemicals segments, we factor revenue to grow 15% and earning to grow at 22% CAGR over FY17- FY19E.

At CMP, ARTO is trading at 20x and 15x FY18E and FY19E EPS of Rs43 and Rs57 respectively. Given healthy earnings outlook we value ARTO at 17x (16x earlier) on FY19E, with a target price of Rs970 and maintain Accumulate rating.

Analyst: Anil R, Geojit Financial Services Ltd., INH200000345

General Disclosures and Disclaimers: AARTI Industries Ltd

Rating – Accumulate

RBL Bank Ltd, was incorporated as a small regional bank in Maharashtra with two branches in 1943. The bank has successfully transformed itself from a traditional bank to a new age bank over the last six years. The bank has focused on building a comprehensive product suite, improving risk management, upgrading technology by implementing a new-age core banking system platform and expanding its distribution network to 239 branches and 375 ATMs. It provides a wide range of customized banking products and services to large corporations, SMEs, agricultural customers, retail customers and low income customers.

The transformational journey of RBL Bank started in 2010 by re-positioning itself from being a traditional bank to a new age bank competing with other private sector banks. The Bank has adopted both organic as well as inorganic strategy to sustain strong growth momentum over the last six years. Organically, the bank has been focusing on selective segments. RBL Bank adopted a differentiated approach of building a diversified loan book using a unique positioning strategy. The business segments were reorganized into two verticals viz. wholesale and retail. The wholesale business segment consists of Corporate and Institutional Banking and Commercial Banking whereas the retail business segment includes Branch and Business Banking, Agribusiness Banking, Development Banking, Financial Inclusion and Treasury and Financial Markets Operations. To push its retail business, it acquired the credit card and mortgage business of The Royal Bank of Scotland (RBS) and has been expanding the same along with other new retail products.

RBL Bank has been among the fastest growing private sector banks in the past six years. Advances and deposits grew at 58% CAGR and 60% CAGR respectively over FY11-FY17, while earnings have grown at a scorching 82% CAGR. RBL’s market share has increased to 0.3% from as low as 0.1% in FY12. RBL Bank continued to maintain high growth momentum without compromising on its asset quality through an efficient risk management system in place. Gross NPA remains at a comfortable 1.5% as of Q1FY18. Going forward, we expect the overall asset quality to remain broadly stable given the strong risk management practices and an improving macro environment.

RBL Bank will retain the tag of “one of the fastest growing banks” over FY17-19E given its strong footprint across all the business segments. The bank has invested significantly in technology, network, human capital and risk management over the past six years. Hence, we believe the bank has a promising future and is well positioned to tap the strong growth opportunities available in the banking space.

We expect the bank to continue to increase its market share with a robust CAGR of 36% in advances over FY17-19E. We factor earnings to grow at 44% CAGR over FY17-19E coupled with improving return ratios (RoE of 16.6% and RoA of 1.2% by FY19E). Higher earnings growth, steady asset quality, improving business mix and above industry average loan growth will help the bank to sustain premium valuations over new generation private sector banks.  We currently have an Accumulate rating with a TP of Rs591 (P/ABV of 3.5x for FY19E).

Analyst: Kaushal Patel, Dion Global Solutions Ltd., INH100002771

General Disclosures and Disclaimers: RBL Bank Ltd



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