TARIL leads the power play. Are other transformer stocks ready to rise?

Mint

21-04-2025

The thing about market booms is — by the time you spot one, the smart money has often already left the room.
But every now and then,
a sector stirs
just in time to offer a lucrative second act. That's exactly what's happening in India's transformer industry.
Long overshadowed,
transformer manufacturers
have quietly emerged as critical players in the country's biggest infrastructure and energy upgrade in decades.
Leading the charge is Transformers and Rectifiers India Ltd (TARIL), whose stock has surged over 18x in just two years — not on hype, but on solid volume growth, rising margins, and consistent order wins.
And this isn't a one-stock wonder. The entire transformer ecosystem is powering up for a long-term play, and the market is beginning to take notice.
India's renewable energy ambition — 500 GW of non-fossil capacity by 2030 — is well known. But the hardware that connects power generation to consumption, especially transformers, has long struggled to keep pace.
The Central Electricity Authority (CEA) expects the country to add 12,192 new power substations by 2030, pushing total substation capacity up by 29% — from 482,810 mega volt ampere (MVA) in 2022 to around 624,332 MVA.
Over the same period, installed power generation capacity is projected to touch 786 GW, with nearly two-thirds of it coming from renewable sources. This transition is putting unprecedented pressure on India's transformer and reactor supply chain — not just in terms of scale, but also delivery timelines.
Globally, too, the environment is shifting. Developed economies are grappling with ageing grids, energy transitions, and decarbonization targets. While the US struggles with outdated infrastructure, Europe is deep into a green overhaul.
A cooling Chinese economy has briefly reduced global competition — and export opportunities are beginning to open up. With lead times for power transformers stretching, Indian manufacturers are now receiving more overseas inquiries than ever before.
For the first time in decades, Indian transformer companies are riding a sustained upcycle — driven by both domestic demand and global tailwinds.
Railway electrification is ongoing, while metro projects are expanding beyond tier-1 cities to places like Indore, Lucknow, and Nagpur — each requiring transformers for traction substations, power supply, and signalling systems.
The green hydrogen push adds another high-margin growth lever.
Electrolyzers need rectifier transformers — custom-built, high-capacity units — opening up new business lines for technically advanced players. Private EPC players are also ramping up investments in commercial infrastructure, rail, and data centres, expanding the demand base beyond just state utilities.
Indian firms are also stepping onto the global stage. Public sector giants like REC and PowerGrid are executing transmission projects in Africa and Southeast Asia. Alongside conductors and cables, transformers are increasingly part of turnkey exports.
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Meanwhile, India's grid upgrade is shifting gears. The rollout of 765 kV corridors and high-voltage direct current (HVDC) infrastructure is accelerating. Only a few companies — including Transformers and Rectifiers India (TARIL), Voltamp, and CG Power — have the scale, technology, and execution depth to operate in this niche.
Profitability is also improving across the board. Raw material prices have stabilised, execution cycles are shortening, and automation is starting to deliver productivity gains.
The industry is crowded — but one company is starting to pull ahead.
Until recently, TARIL was a relatively low-profile player in the power equipment space. But that's quickly changing.
The company manufactures a wide portfolio — from power and distribution transformers to specialised units like furnace, rectifier, and mobile substations. Its products serve industrial, transmission, and renewable energy applications.
In FY25, TARIL delivered a breakout year. Revenue jumped 53% year-on-year to
₹
1,950 crore, while Ebitda surged 149% to
₹
320 crore. Margins expanded sharply from 10% to 16.1%, and profit after tax soared over fourfold to
₹
187 crore.
Capital efficiency improved as well — return on capital employed crossed 20%, and the company's debt-to-equity ratio dropped to a comfortable 0.21.
The improved performance was driven in part by a shift in strategy.
TARIL has begun processing its own cold rolled grain oriented (CRGO) steel — one of the most critical and expensive raw materials in transformer manufacturing — marking a major step towards backward integration.
At the same time, the company is doubling down on capacity. It plans to expand production from 40,000 MVA to 75,000 MVA over the next 12–18 months. The first 15,000 MVA phase is slated to go live by May 2025, with the remaining 22,000 MVA coming online by February 2026.
Order momentum is strong. TARIL closed FY25 with an unexecuted order book of
₹
5,100 crore and secured fresh orders worth
₹
4,500 crore during the year, including a
₹
740 crore deal from Gujarat's GETCO. In March, it also raised
₹
500 crore via a qualified institutional placement to fund capacity expansion and integration.
Currently, the company is negotiating enquiries worth over
₹
22,000 crore. Management is aiming high — targeting $1 billion in revenue by FY28, up from $235 million today. To support this growth, TARIL will invest
₹
550 crore over the next 15 months and aims to be fully backward integrated by Q1 FY27.
While the trajectory looks promising, sustaining this growth will depend on how well the company executes its plans, holds margins, and converts its robust pipeline into actual orders.
TARIL is racing ahead — but its peers are charting their own paths.
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Known for its steady, no-debt strategy, Voltamp has long focused on capital discipline over aggressive expansion. The company operates with zero leverage, enjoys Ebitda margins north of 20%, and maintains a lean, efficient balance sheet.
As of FY24, its order book stood at
₹
1,850 crore, with
₹
840 crore in fresh orders booked at the start of FY25. With a production capacity of 16,000 MVA, Voltamp primarily caters to industrial clients and private EPC contractors.
Despite its conservative stance, Voltamp's numbers speak volumes — a 5-year PAT CAGR of 29% and a robust FY24 ROCE of 25%.
Shilchar is carving a niche outside the high-voltage space. It focuses on transformers for renewable energy applications and exports, with over half of its revenue coming from clients in the US and Europe.
With an FY25 order pipeline of
₹
550 crore, the company has positioned itself as a specialist in a high-margin, low-capex segment. Strong return ratios and a focused portfolio give it a clear edge in operational efficiency.
Backed by the Murugappa Group, CG Power is in the middle of a dramatic turnaround. Following a restructuring, the company delivered a record performance in FY24.
As of December 2024, its order book was
₹
5,900 crore. Investments are also ramping up —
₹
125 crore allocated to transformers and
₹
280 crore to the motor division. The financials are striking: ROCE at 48.8%, and RoE at 36.4%.
APAR offers a bundled infrastructure play. While transformers form part of its portfolio, it is better known as a market leader in conductors, cables, and specialty oils.
Its conductor order book was
₹
7,600 crore as of December 2024, and FY25 revenues are tracking above
₹
13,000 crore. APAR benefits from its exposure to both public grid buildouts and rising private-sector demand — particularly from data centres and urban infrastructure projects.
TARIL now trades at a hefty 46x its FY25 Ebitda — a steep climb from just 4x two years ago. CG Power too commands a valuation premium. These multiples reflect strong growth expectations, but also raise the stakes.
A slowdown in government orders, delays in utility payments, or tightening credit conditions could quickly stretch working capital cycles. Execution remains key — these stocks are priced for performance, and any slip could trigger a de-rating.
Input costs are another watchpoint. Transformer margins are especially sensitive to raw materials like CRGO steel and copper. While prices have moderated since the post-pandemic surge, any sharp spike — particularly in copper — could pressure margins, especially for players without backward integration or cost pass-through flexibility.
TARIL may have lit the spark, but this isn't just a one-stock story anymore. The rally in transformer makers reflects more than cyclical capex — it signals a structural shift.
India's power grid upgrade, paired with global interest in competitively priced equipment, is creating a multi-year demand runway. With only a handful of credible, listed players in the fray, companies that execute well are likely to dominate.
Indian manufacturers, though smaller than global peers like Siemens Energy or Hitachi Energy, are now competing not just on cost — but also on delivery timelines and quality, especially in standardised 220–400 kV segments. Bundled EPC exports and joint international bids are giving them access to new markets.
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However, technology remains the next frontier. Smart transformers, IoT-based monitoring, and predictive maintenance are gaining traction. Indian firms are catching up — but staying competitive will require deeper R&D, skilled talent, and global collaborations.
Possibly — but not all are built for it.
TARIL's success wasn't just about demand; it was about scaling fast, integrating backward, and going after large, long-cycle orders.
Voltamp continues to prioritise capital discipline over size, while Shilchar is doubling down on export-led, high-ROE niches with limited grid exposure. CG Power and APAR are scaling too — but from different starting points, with broader portfolios.
In short: the transformer boom may have multiple winners — but the paths and strategies are diverging fast. Not everyone is chasing TARIL's growth model, and that's by design.
For investors, the focus now shifts to execution: order flows, capacity expansion, margin discipline, and working capital management.
Happy investing!
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from
Equitymaster.com