Transrail Lighting Ltd. (Subscribe)

Highlights

Transrail Lighting Limited (TLL) incorporated on 2008, it is an Indian engineering, procurement and construction (EPC) company which primarily focuses on power transmission and distribution business and integrated manufacturing facilities for lattice structures, conductors, and monopoles. Their business is divided into 4 verticals, namely (i) power transmission and distribution, (ii) civil construction, (iii) poles and lighting, and (iv) railways.

They have completed more than 200 projects in power transmission and distribution vertical since inception, along with comprehensive and extensive project execution capabilities in terms of manpower, supply of materials and availability of world class machinery, both in India and internationally.

They have a track record of 4 decades in providing comprehensive solutions in the power transmission and distribution sector, on a turnkey basis globally and have been a trusted and longstanding partner with footprint in 58 countries like Bangladesh, Kenya, Tanzania, Niger, Nigeria, Mali, Cameroon, Finland, Poland, Nicaragua etc. including turnkey EPCs or supply projects.

As of Q1FY25 they have undertaken EPC of 34,654 circuit kilometers (CKM) transmission lines and 30,000 CKM distribution lines, domestically and internationally. They provide EPC services in relation to substations up to 765 kilovolts (kV). TLL has presence in all the power transmission and distribution segments and majorly in high voltage (HV) and extra high voltage (EHV) segments.

Out of the total proceeds of Rs. 8,389 mn, Rs. 2,500 mn would go towards funding working capital requirement of the company, Rs. 907 mn would go towards capex of the company, Rs. 593 mn would go towards general corporate purpose and Rs. 4,389 mn would go towards existing selling shareholders of the company.

Key Highlights

• India has the second-largest road network in the world, spanning 6.30 mn KM. Large highways/expressways are the key demand drivers for the high mast lighting in India. With more than 20 expressways planned across the country and with award of approximately 5,000 KM of highways every year in the next 5 Financial Years, the demand for high masts is expected to be supported by road segment.
• TLL order book has a healthy balance of international and domestic clients and has consistently witnessed growth over the past few years. They primarily focus on the quality of the products and services provided by TLL which helps them in honing strong relationships with clients. Currently they have an orderbook of Rs. 102,131 mn, which is ~2.5x of FY24 sales.
• Over the next few years, TLL will continue to focus on existing projects while seeking opportunities to expand portfolio into other allied/ancillary infrastructure sectors. They are proposing to acquire BH business of Gammon Engineers and Contractors Private Limited, in order to expand their scope to hydro power projects.
• Additionally, the company is also planning to expand their footprint in the solar EPC industry by including turnkey projects in relation to installation of solar rooftops, solar streetlights, ground mounted solar projects etc. They intend to draw on their experience, asset base, market position and ability to execute and manage multiple projects across various geographies to further grow portfolio of EPC projects.
• TLL’s key growth strategies includes (i) Leverage their technical expertise, specialized domain knowledge and experience to expand their core competencies in power transmission and distribution segment, both domestic and international (ii) Expand their EPC portfolio into other allied/ancillary infrastructure sectors (iii) Focusing on expanding the market for conductors and to leverage new age HTLS conductors (iv) Expanding international business (v) Enhancing the company’s pole and lighting business in various product categories.
• Sales of the company has grown by 31.7 pct CAGR over FY22-24 while EBITDA and Profit grew 52.38 pct and 89.85 pct over same Year. In FY24 the company reported sales of Rs. 40,765 mn which grew 29.3 pct YoY. EBITDA grew 62.4 pct YoY with margin expansion of 239 bps. During FY24 profit of the company jumped 116 pct YoY to Rs. 2,332 mn.

Key Risk

• TLL operate in a labor-intensive industry and are subject to stringent labor laws and any strike, work stoppage or increased wage demand by employees can adversely affect their business and financial condition.
• TLL business is substantially dependent on tenders being floated by government authorities, public sector undertakings and utilities, from which they derive a significant portion of sales i.e. approximately 70 pct.

Financial Performance

Peer Comparison Based on FY24

Valuation

Transrail Lighting Limited (TLL) is one of the leading Indian EPC company providing integrated turnkey solutions across business verticals and have manufacturing facilities for lattice structures, conductors, and monopoles. They have a track record of more than 4 decades and have been a trusted and longstanding partner in the sector. At the upper end of the price of Rs. 432, the issue quotes at PE of 28x on FY25E annualized earnings. The issue looks fully priced. Only long-term investors can Subscribe this issue.

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