TARIL Navigates Q2 FY26 Challenges with Strategic Vision and Backward Integration

Transformers and Rectifiers (India) Limited (TARIL) recently announced its financial results for the second quarter of Fiscal Year 2026, revealing a period marked by operational challenges but underpinned by a robust strategic outlook. The company, a prominent player in transformer manufacturing, reported a consolidated revenue from operations of INR460.03 crores, a slight dip from INR461.54 crores in Q2 FY25. Consolidated EBITDA stood at INR65.44 crores with a margin of 13.81%, while Profit After Tax (PAT) was INR37.45 crores, reflecting a PAT margin of 7.90%. Despite the quarter's headwinds, management expressed confidence in a strong second half, driven by ongoing capacity expansions and strategic backward integration initiatives.

The moderation in Q2 FY26 revenue was primarily attributed to temporary operational challenges. A shortage of key raw materials, particularly CTC (Continuous Transposed Conductor), led to clearance delays and impacted production schedules. Additionally, heavy rainfalls across several regions affected manufacturing sites and project readiness, resulting in deferred deliveries of high-value projects. This confluence of factors also led to elevated levels of finished goods and work-in-progress. Margins were further impacted by the execution of the last batch of lower-margin orders and the effect of fixed costs on reduced revenue due to lower capacity utilization. The company acknowledged these issues transparently, emphasizing that these are short-term hurdles.

Strategic Initiatives and Future Outlook

Looking ahead, TARIL is aggressively pursuing several strategic initiatives to bolster its manufacturing capabilities and improve cost efficiencies. The Moraiya plant is undergoing a significant 22,000 MVA capacity expansion, expected to be completed by Q4 FY26, with revenue contributions commencing from Q1 FY27. The Changodar plant expansion, though slightly delayed, is anticipated to be fully operational in Q3 FY26. These expansions are crucial for meeting the growing demand and leveraging the company's strong order book.

A cornerstone of TARIL's strategy is backward integration. The company is setting up its own CTC plant, projected to be operational by December 2026 or September 2027, with a capacity of 1,500 tons per month. Additionally, a RIP bushing plant is expected to start production by June 2026, and a tank manufacturing unit by August 2026. These initiatives are designed to reduce reliance on external suppliers, enhance supply chain resilience, and are expected to improve overall business margins by 200 to 250 basis points, with the effects becoming visible from the next fiscal year. The increasing profitability of subsidiaries, driven by these backward integration efforts, further validates this strategic direction.

Order Book and Market Positioning

Despite the Q2 challenges, TARIL's fundamentals remain robust. The company's unexecuted order book stood at INR5,472 crores as of June 30, with inquiries under negotiation exceeding INR18,700 crores. Management expects a strong order inflow in H2 FY26, with a robust pipeline of opportunities, particularly from national and state utilities like GETCO, PGCIL, and NTPC. The company has also made a conscious decision to moderate fresh order intake to align with extended deliveries and capacity planning, focusing on executable orders with better margins.

TARIL is also recalibrating its export strategy, choosing to focus primarily on the India growth story. The company has decided not to pursue World Bank-funded projects or certain export orders (CIF or FOR delivery) beyond 15% of its business, prioritizing payment cycles and profitability over sheer volume. This move aims to mitigate risks associated with international projects and align with the company's commitment to sustainable growth.

Addressing the World Bank Debarment

During the earnings call, management addressed the World Bank debarment issue, clarifying that it pertains to a project from four years ago involving supplies to TCN Nigeria, which was successfully completed. They stated that no communication from the World Bank was received post-2023 and that none of their current or under-discussion orders are funded by the World Bank. TARIL emphasized its strong corporate governance and processes, indicating that they are actively engaging with the World Bank to resolve the matter and ensure it does not impact future business.

Confident Outlook and Disciplined Execution

TARIL's management remains confident in its full-year guidance for FY26, targeting at least 25% revenue growth over FY25, aiming for approximately INR2,600 crores, with an EBITDA margin of around 16%. The company is committed to becoming net debt-free within the next 18 to 24 months, supported by its healthy liquidity (current ratio of 3.45) and conservative leverage. The focus on cash flow generation, working capital optimization, and cost control underscores a disciplined approach to capital allocation and financial sustainability. With strategic expansions, backward integration, and a clear market focus, TARIL is positioning itself for sustained growth and enhanced profitability in the evolving transformer industry.