Hold Voltamp Transformers; target of Rs 3150: Prabhudas Lilladher

Prabhudas Lilladher's research report on Voltamp Transformers

We cut our FY23/24 EPS estimates by 6.8%/6.3% given ongoing labor strike at Savli factory, Gujarat (currently running at ~50% capacity), wherein production stands massively affected (since Oct’22). Voltamp Transformers (VAMP) reported a healthy quarterly performance with revenue growth of 20.7% and EBITDA margin expansion of 272bps YoY. Execution of newer orders and cost control measures have aided margin expansion to some extent. Going forward, focus will be on improving profitability over revenue and order inflows growth. However, ongoing labor strike at Savli factory is likely to impact overall revenue and profitability growth for FY23. Enquiry pipeline remains strong from sectors such as data center, solar, chemical, water, sugar (Ethanol blending), commercial real estate, textile etc. and likely drive ordering activities in future. Current installed capacity (~14,000MVA/annum) will be sufficient to meet medium term demand, in our view. We remain positive on the company considering 1) its strong business model, 2) debt free balance sheet, 3) consistent free cash flow generation, 4) reviving margins profile and 5) healthy enquiry pipeline.

Outlook

The stock is currently trading at PE of 23.2x/18.7x/15.3x FY23/24/25E. We roll forward our estimates to FY25E with revised TP of Rs3,150 (Rs2,748 earlier) valuing it at PE of 16x FY25E and maintain ‘Hold’ rating on stock.