Buy Voltamp Transformers; target of Rs 14,326 Prabhudas Lilladher

Prabhudas Lilladher's research report on Voltamp Transformers

Voltamp Transformers (VAMP) reported decent quarterly performance with 4.3% YoY revenue growth and EBITDA margin expansion of 82bps YoY to 18.9%. Domestic demand landscape remains supportive of growth led by strong public and private capex across industries. Continued emphasis on energy security and energy transition is expected to drive demand for higher capacity power transformers. The company’s capacity expansion plan for power transformers up to 250 MVA is on track and anticipated to be operational by Q1FY27. Opportunity pipeline remains robust with traction across data centers, commercial real estate, oil & gas, and green energy. However, increasing capacity addition is putting pressure on pricing, which will lead to margin normalization going forward. Additionally, supply chain constraints in CRGO steel and a few other critical components along with geopolitical uncertainties, remain critical risks to execution. We remain positive on VAMP considering its 1) strong market position in industrial transformers, 2) healthy demand momentum, 3) debt-free balance sheet, 4) consistent free cash flow generation, and 5) growing high-margin services business. The stock is trading at a P/E of 34.0x/29.4x FY25/26E. We value the stock at a PE of 40x FY26E (same as earlier). Upgrade to ‘Buy’.

Outlook

We revise our FY25/26E EPS estimates by -2.4%/-4.0% factoring in weaker realization, but upgrade the rating to ‘Buy’ due to the recent sharp correction in stock price with a revised TP of Rs14,325 (Rs14,922 earlier).

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