Over 1400% returns in a decade! This small-cap stock delivered gains in 7 out of last 10 years

Shares of Transformer and Rectifiers India, which were trading at ₹28.20 a year ago, have zoomed 266% to hit an all-time high of ₹103.40 during Monday's trade. The company's shares in the last three years have rewarded their shareholders impressively by producing a return of 735%.

Investors who held the stock for the long term saw significant gains, as it generated a return of almost 1419% over the last decade, rallying from ₹6.35 apiece to the current market position of ₹96.50. During this period, an investment of one lakh would have turned into over ₹15.2 lakh currently.

It is noteworthy that the stock concluded 7 out of the last 10 years on a positive note, with the current year showcasing the highest gain of 74% so far.

The company is engaged in the business of manufacturing and selling various kinds of transformers, such as power and distribution transformers, furnace transformers, rectifier transformers, and specialised transformers. Currently, TRIL has two manufacturing facilities at Changodar and Odhav in Ahmedabad.

ICICI Direct research has pointed out that a revival in the capex cycle bodes well for product-based capital goods players and transformer players. The brokerage expects the central government allocation to capex to grow 18% YoY in CY23, led by sectors like Railways, defence, housing, and roads, thereby exhibiting a 23.5% CAGR in capex allocation over FY19–24E.

System-wide indicators like projects under planning and tendering/awarding activity are at all-time highs, indicating a multi-fold resurgence in the capex cycle, it said.

Additionally, areas like power transmission and distribution, renewables, data centres, and process industries are expected to witness robust capex driven by government schemes, state governments, private players, and public sector units, the brokerage added.

Transformer and Rectifier India is poised to benefit from this favourable outlook. The company's revenues and order inflows have historically been variable, but with the revival in the capex cycle and government initiatives, order inflows have increased significantly, the brokerage highlighted.

The current backlog as of H1FY23E was at ₹1,395 crore (an all-time high order backlog). Given the shorter execution cycle (six to eight months), the brokerage believes H2FY23 will see strong revenue booking.

The brokerage believes that with strong order accretion and pick-up in execution, the company's revenues to be at ₹1,320 crore and ₹1,650 crore for FY23E and FY24E, respectively, implying a revenue CAGR of 19.5% in FY22–24E.

Going ahead, in FY24E, the company is likely to expand its capacity for hydrogen-powered transformers in its existing manufacturing unit. The total outlay for the capex is pegged at ₹60 crore.

The company will primarily fund this through debt, with ₹50 crore already tied up with banks. TRIL aims to collaborate with major players like Reliance and Adani, who are establishing green hydrogen production facilities.

The financial impact of this expansion is expected to be seen in FY25E. Additionally, TRIL aims to boost exports, targeting markets in the Middle East, Russia, Africa, and the US. Export orders offer higher gross margins, which are expected to positively impact overall margins in FY24E and FY25E, estimated at 9.8% and 10.8%, respectively, according to the brokerage.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.