Buy Voltamp Transformers; target of Rs 3656: YES Securities

YES Securities' research report on Voltamp Transformers

Voltamp Transformers (VAMP)reported a strong set of numbers despite a month‐long workers’ strike at its Savli facilities. Revenue growth was led by a mix of volume/realization growth of 10%/5% YoY respectively. Healthy operating margins aided by gross margin expansion and operating leverage benefits led to a ~450bps YoY operating margin expansion. Order book remains strong at ~Rs9bn (0.7x TTM revenue) as on 3QFY23, providing revenue visibility for the next few quarters. In the medium term, the company sees private investments taking place in sectors such as clean energy, cement, steel, chemicals, pharmaceuticals, auto, semiconductors, electronics, textile, healthcare, data centres, logistics, industrial parks and oil refining, etc. We believe the company is one of the best plays forfuture upturn in industrial demand given its industrial focused business model. We remain positive on the company considering 1) its strong business model, 2) debt free balance sheet and 3) consistent free cash flow generation (current cash + investment ~Rs6.4bn).

Outlook

The stock is currently trading at valuations of 18.5x/15.3x/12.8x FY23E/24E/25E and excl. other income it trades at P/E of 19.5x/15.5x/12.4x FY23E/24E/25E EPS. We roll forward our target multiple to FY25E with a revised TP of Rs3,656 valuing the company at a PE of 16x on FY25E EPS. We believe the recent correction in the stock price is an attractive opportunity to enter. Accordingly, we upgrade it to BUY from NEUTRAL.

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