Shares of TD Power Systems have given multibagger returns in the last one year, rallying over 128 percent. Despite the exceptional returns, brokerage house Anand Rathi has chosen it as a 'value pick' with a target price of ₹312, implying another 22 percent upside from its current market price of ₹255, as on July 25.
In 2023 YTD as well, the stock has more than doubled investor wealth, surging 119 percent in this time. It has given positive returns in all 7 months of the calendar year so far. While it has jumped over 5 percent in July, it has performed the best in June, up 19.4 percent.
Incorporated in 1999, TDPS is one of the leading manufacturers of AC generators for a diverse range of prime movers such as steam, gas, hydro and wind turbines as well as diesel and gas engines. The company also executes turbine-generator islands for steam turbine power plants of up to 52 MW. TDPS has three manufacturing units in Bengaluru, with one being a dedicated large generator manufacturing unit. The company also has a facility in Turkey and operates through its wholly-owned subsidiary. Since its incorporation, the company has manufactured 5,406 generators, including generators exported to 100 countries with a capacity of 39,209 MW.
The brokerage noted that TD Power System’s Revenue and EBITDA increased by 17 percent and 44 percent CAGR, respectively, from FY19 to FY23 on account of healthy product mix, operational efficiency, and brand visibility. Over the years, the company delivered healthy volume growth, and margin expansion with a gradual reduction in debt. Therefore, this enabled them to be a debt-free entity and lower its working capital requirements in FY23, said Anand Rathi.
The brokerage further pointed out that the group has been able to partially offset the slowdown in domestic demand, by expanding into the overseas market and building relationships with key multinational original equipment manufacturers (OEMs). The company's clients are significantly concentrated with the top 10 customers contributing to a major portion of revenues. Its top customers include various OEMs of turbines such as Siemens Ltd, Voith Hydro, General Electric and Triveni Turbine Ltd, informed the brokerage.
It further stated that despite the Covid-19 pandemic and overseas headwinds, the company has shown improvement in performance. EBITDA margin has increased from 7 percent to 15 percent from FY20 to FY23 which shows its resilience and competitive edge over its peer group. In FY23, the company turned out to be a net cash company, said IDBI.
Going ahead, the company plans to make surplus investments towards automation, productivity improvements, and software for the design department. It is also planning to set up a new plant in the near future, added the brokerage.
It believes that TDPS’s Revenue, EBITDA and PAT are expected to grow at a CAGR of 20 percent, 28 percent, and 26 percent, respectively, over FY23-25E.
However, the brokerage has also listed some key risks to its upside.
- Captive and co-generation power producers in the industrial sector are key markets for generators. Any adverse government policy or economic climate which affects investment activity in the industrial sector can dampen growth prospects.
- TDPS primarily supplies generators to global OEMs. Therefore, any breakdown in relationship with key global OEMs can affect generator off-take which can result in lower revenue.
- Sharp rise in commodity prices i.e. steel and copper are major raw materials that will affect operating margins.
- Volatility in foreign exchange rates can affect revenue growth.