Motilal Oswal has issued a Buy recommendation on Triveni Turbine (TRIV), citing its impressive growth in export orders and robust financial performance in the second quarter of FY25. The research house has set a target price (TP) of Rs 830, suggesting a potential upside of 28% from the current market price of Rs 648. The report underscores Triveni's strong position in the capital goods sector, particularly within the steam turbine industry, and highlights the company’s competitive edge due to its expanding export base and significant margin potential.

Strong Quarterly Performance

Triveni Turbine reported revenue growth of 29% year-on-year (YoY) in Q2 FY25, driven by an exceptional execution of its order book, which stood at Rs 17.2 billion at the start of the quarter. The company’s domestic revenue grew by 32% YoY, while export revenue increased by 26% YoY. The EBITDA saw a 50% increase YoY, attributed to operating leverage and stable gross margins, reaching Rs 1.1 billion, which exceeded analysts’ estimates by 11%. Additionally, the Profit After Tax (PAT) grew by 41% YoY to Rs 910 million, despite a higher effective tax rate.

Growth in Export Orders and Mixed Domestic Demand

While domestic order inflows rose modestly by 4% YoY due to delays from election-related uncertainties, the export order inflows surged by 50% YoY. As a result, exports now constitute a significant 61% of Triveni’s order book. Key growth segments included municipal solid waste, chemicals, steel, and petrochemicals. Triveni’s expansion efforts are seeing traction in regions like Europe, the Americas, and the Middle East. In Southeast Asia, demand was comparatively subdued, but overall, the robust export pipeline points to sustained growth.

Margins Expected to Hold Strong

With a high proportion of exports in the order mix, Triveni is benefiting from higher-margin profiles, supporting improved profitability. Management has expressed confidence in maintaining strong margins over the short term, although medium-term gains will depend on initiatives such as vendor diversification, sourcing from low-cost regions, and cost optimization. Triveni aims to sustain its topline growth while exploring incremental margin improvements.

Foray into the US Market Expected to Bear Fruit

Triveni’s entry into the US market represents a substantial growth opportunity, particularly in the refurbishment market for turbines. While initial investments in FY25 are expected to cost around Rs 250 million, the business is projected to turn profitable by FY26. This expansion aligns with Triveni’s strategic ambition to tap into the world’s largest market for rotating equipment and turbine installations.

Long-Term Focus Areas and Strategic Expansion

Triveni has strategically expanded into higher-capacity turbines (above 30 MW) and API turbines, positioning itself favorably within high-demand sectors such as hydrocarbons and refineries. The company secured a 95 MW turbine order in Q2 FY25, underscoring its progress in capturing a larger share of the market for large-scale turbines. Management has set an ambitious growth path, leveraging strong relationships in international markets.

Future Outlook and Financial Projections

Motilal Oswal forecasts a Compounded Annual Growth Rate (CAGR) in PAT of 32% from FY24 to FY27. This robust outlook is underpinned by a solid working capital position, resilient margins, and limited capital expenditure (capex) needs, with expectations of strong cash flows going forward. Specifically, operating cash flow (OCF) and free cash flow (FCF) are estimated to grow at CAGRs of 39% and 43%, respectively, over the same period.

Valuation and Key Risks

Triveni’s stock trades at 45x FY26 earnings and 33x FY27 earnings. With a projected price-to-earnings ratio (P/E) of 48x based on forward earnings, the report maintains the TP of Rs 830, reinforcing the Buy recommendation. However, potential risks include a slowdown in order inflow, margin contraction, or reduced global demand.

Key Financial Metrics

Revenue Estimates: FY25 - Rs 20.3 billion, FY26 - Rs 26.5 billion, FY27 - Rs 35.6 billion.
Earnings Per Share (EPS): FY25 - Rs 11.6, FY26 - Rs 14.3, FY27 - Rs 19.5.
Return on Equity (ROE): FY25 - 33.6%, FY26 - 32.9%, FY27 - 34.9%.
Dividend Yield: FY25 - 0.5%, FY26 - 0.6%, FY27 - 0.8%.

Conclusion and Recommendation

Motilal Oswal’s report reaffirms Triveni’s solid growth trajectory and favorable market position in both domestic and international markets, particularly with its export-led growth strategy. The Buy rating is based on the company’s steady revenue, margin expansion, and robust order pipeline, driven by its strong foothold in the steam turbine industry.