TRF declared disappointing set of numbers. Net Sales on a consolidated basis declined by 12% to Rs2,484mn as major orders didn’t cross the threshold limit in the project division. OPM declined by 358bps to 10.6% mainly on account of lower sales in the project division and pricing pressure due to increased competition. Resultantly the PAT declined by 29% to Rs171mn. However, the product division and subsidiaries continue to perform well.

Project division drags margin, Product segment a saviour TRF’s revenue declined by 12% on a consolidated basis to Rs2,484mn mainly led by a decline of 42% in the sales of project division to Rs1,093mn and a 740bps fall in PBIT margins. Some big ticket orders from NTPC are expected to reach the threshold limit only in Q4FY11. However, the product division witnessed a healthy revenue growth of 52% (SA basis) to Rs731mn with 390bps improvement in PBIT margins.

Healthy performance by subsidiaries The performance of subsidiaries (mainly York and DLT) were impressive in this quarter. They witnessed a cumulative revenue growth of 50% on a YoY basis in Q3FY11. In a short span of time York had captured a market share of ~30% in India. With expected improvement in margins, we believe the automotive segment would be the key growth driver for the company going forward.

Concerns on order inflows TRF bagged virtually no orders in Q3FY11 owing to delay in finalisation of orders from the customer end. The order book for the company on a consolidated basis stood at Rs18bn (2.1x FY10 consolidated revenue) which was down by 5% on a QoQ basis. Management has guided for a 25% growth in order inflows in FY12.

VALUATIONS AND RECOMMENDATION TRF currently trades at a PER of 8.7x FY12E. The key triggers for the company remains accelerated pace in order inflow, specially in the BoP segment and margin improvement in the Automotive segment. Since the stock has corrected substantially, we upgrade our recommendation to ‘HOLD’ with the target price of Rs575/share (10xFY12E).