The global transformer market is expected to grow to USD 38.91 billion by 2030, driven by rising electricity demand and the growth of renewable energy like solar and wind power.
The Indian transformer industry is well-positioned to capitalize on the surge in domestic and international demand, driven by factors like renewable energy growth, grid upgrades, and global infrastructure spending.
Listed is one such smallcap company with strong guidance for the next 2-3 years:
Shilchar Technologies Ltd
With a market capitalization of Rs. 4,675 crores, the shares of the transformers manufacturing company started Tuesday’s trading session on a flatter note at Rs. 6,135 compared to its previous close of Rs. 6,134.80. During the trading session, the shares hit a low of Rs. 6,011, losing around 1 percent and are currently trading at Rs. 6,130 apiece.
Looking at the company’s financial performance, the revenue decreased by 11 percent from Rs. 118 crores during the December quarter to Rs. 105 crores in the March quarter. On the other hand, the net profits declined by 4 percent from Rs. 26 crores to Rs. 25 crores during the same period.
Comparing the same metrics on a YoY basis, the revenue zoomed by 11 percent from Rs. 95 crores during Q4FY23 to Rs. 105 crores in Q4FY24. In addition, the net profits surged by 26 percent from Rs. 16 crores to Rs. 25 crores during the same timeframe.
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The company’s EBITDA margin was 28.5 per cent in FY24 (18.9 percent in FY23), mainly due to cooling prices of commodities, which for transformer manufacturers are mainly copper and CRGO steel. Moreover, the export market brings 50 percent to its revenue, helping to higher realisation of Rs1m/MVA.
According to a report published by Anand Rathi, Shilchar is expanding its capacity by 3,500MVA, from 4,000MVA now, to meet more demand from domestic and international renewable energy markets.
The expansion, costing Rs. 30 crores (excluding land cost), will be complete by the end of July 24 and is being funded by internal accruals.
According to reports, the company owns 17 acres of land, with eight acres already utilized, including for the new corporate office. The remaining land can accommodate an additional capacity of 22,500 megavolt-amperes (MVA), bringing the total to 25,000 MVA.
With full utilization of the land and upgrades to a higher-voltage sub-segment, the company could potentially generate revenue of Rs. 3,000 crores.
Furthermore, the government plans to raise renewable generation capacity to 500GW by 2030, incl. additional solar and wind generation capacity of 260GW. This aligns with the company’s target markets.
Another potential growth factor for the company is the robust replacement demand in the export market, where ageing power infrastructure from the 1950s and ’60s is being retired. Further, the report also stated that the higher capex in data centres is also seen as a growth driver for the company.
The current order book is Rs. 500 crores, with exports and domestic split equally. The US and the Middle East are major markets.
During FY21-24, the company recorded a 50 percent revenue CAGR, with the EBITDA margin expanding from 8.1 percent to 28.5 percent and an adj. PAT CAGR at 155 percent.
Additionally, the company anticipates generating Rs. 800 crores to Rs. 900 crores in revenue by FY26, with an EBITDA margin expected to remain in a comparable range. Over the next 2-3 years, the company anticipates a seller market due to projected demand surpassing supply.
However, the reports also stated that there is a risk of heightened competition from peers who can quickly shift towards manufacturing IDT transformers. This increased competition in exports could potentially squeeze the margins of Shilchar Technologies.
In summary, Shilchar Technologies is well-positioned to benefit from the ongoing capex push in renewables, both in India and globally, due to its niche operations and strong margins.
Written By Vaibhav Patil
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