RTS Power Corporation Ltd: Powering ahead
(BSE Code: 531215) (CMP: Rs.31.40) (FV: Rs.10)
Incorporated in December 1947 as Bhanwarlal Bhutoria Pvt Ltd, Kolkata based RTS Power Corporation (RTS) was promoted by Sumermal Bhutoria. The Bhutoria group is a well-diversified multi-location group engaged in cold storage, transformers, cables and conductors, real estate and warehousing.
RTS is a leading manufacturer of Power, Distribution, Extra High Voltage (EHV) and Dry-type Transformers. It launched its IPO in August 1995 to part-finance its diversification into power transformers and a simultaneous modernisation-cum-backward integration programme. It is an ISO 9001 certified company. It supplies its products to all State Electricity Boards (SEBs)/ DISCOMS, most EPC contractors, Defence (MES and Air force), Indian Railways, public sector units, private companies and private utility companies. Its end-user industries include construction, steel, agroprocessing, tea, sugar, mining, infrastructure, power, etc.
RTS has manufacturing units in West Bengal,
Agra and Haryana. It has extensive and modern capabilities in repair and reengineering of damaged transformers of all makes across the range - 10 kVA, 11/.433 kV to 55 MVA 132/33 kV. It can manufacture transformers up to 50,000 kVA.
For FY18, RTS reported 180% higher PAT of
Rs.4.18 crore on 76% higher sales of Rs.213.18 crore and an EPS of Rs.5.12.
During Q1FY19, it reported 23% higher PAT of Rs.1.35 crore on 10% higher sales of Rs.47.33 crore and an EPS of Rs.1.65.
With an equity capital of Rs.8.17 crore and reserves of Rs.95.99 crore, RTS’ share book value works out to Rs.127.51. The value of its gross block is Rs.92 crore. Net debt of Rs.17.4 crore gives it net DER of 0.2:1. The promoters hold 67.3% of the equity capital and PCBs hold 3.2%, which leaves 29.5% stake with the investing public.
RTS can reverse engineer and improve/ modify designs of existing transformers and ensure longevity of the repaired/reengineered transformer most cost-effectively and strengthen it with high quality replacements. Quick turnaround time, proximity to power utilities and logistics capabilities to transfer damaged equipment from site and re-install the same are some of the benefits its customers enjoy. In order to
ensure prompt aftersales services, it has set up dedicated servicing teams at its facilities in Jaipur, Agra and Kolkata. Electricity production in India has grown at 6% CAGR over FY10–FY18. In FY18, it grew 56% YoY to 1,201.543 BU. In March 2017, the Ministry of Power had launched an application ‘GARV-II’ to provide real-time data related to rural electrification of all un-electrified villages in India. Around 17,164 villages out of 18,452 have been electrified up to March 2018.
Between April 2000 and June 2018, the industry attracted $14.18 billion in Foreign Direct Investment (FDI), accounting for 4% of the total FDI inflows in India. A draft amendment to Electricity Act, 2003, was introduced in September 2018 to discuss separation of content and carriage, direct benefit transfer of subsidy, 24x7 power supply as an obligation, penalisation on violation of PPA (power purchase agreements), setting up Smart and Prepaid Meters, etc. India has one National Grid for the utility electricity sector with an installed capacity of 344.69 GW as at 31 August 2018. The Government of India launched Ujwal Discoms Assurance Yojana (UDAY) to encourage operational and financial turnaround of state-owned power distribution companies (DISCOMS), with an aim to reduce Aggregate Technical & Commercial (AT&C) losses to 15% by FY19.
For every 1 MW of new capacity that comes up, 7-MVA transformers are used across generation, transmission and distribution segments. This implies a demand of 7,00,000 MVA of transformers going forward, which will result in an annual demand of about 1,40,000 MVA. Transformers usually have a life of 20-30 years. Hence, transformers installed in the 1990s and 2000s are likely to be replaced in the next few years. In addition, 20% of the demand for transformers will come from replacement demand, which will enhance the total demand to 8,40,000 MVA. The on-going reforms in the power and industrial sector coupled with increasing thrust and massive investments lined up in the power sector and timely expansion by IMP gives strong revenue visibility in the coming years. RTS is expected to notch an EPS of Rs.6.5 in FY19. Traditionally, the second half of a fiscal year has always been better for RTS as major public sector orders are received in the last quarter. At the CMP of Rs.31.40, the stock trades at a forward P/E of just 4.8x. A reasonable P/E of 7.5x will take its share price to Rs.49 in the medium-term. The stock’s 52week high/low is Rs.66.40/23.85.