Hold Voltamp Transformers; target of Rs 3961: Prabhudas Lilladher

Prabhudas Lilladher's research report on Voltamp Transformers

We revise our FY24/25E EPS estimates by +9.1%/+8.0% to factor in the robust outperformance and strong expected volume growth. Voltamp Transformers (VAMP) reported healthy revenue growth of 13.6% YoY and EBITDA margin expansion of 388bps YoY. Normal manufacturing operations have resumed at the Savli plants. However, low order booking from Oct-22 to Jan-23 will partially impact revenue in Q1FY24. Moreover, inquiry pipeline remains strong, but VAMP is facing pricing pressure on new orders due to increased competition from i) unorganized players in the low voltage segment, ii) two Chinese players aggressively bidding for steel projects in East India, and iii) leading domestic players. Management will not enhance capacities in FY24, and will monitor long-term demand trends before incurring any capex. We remain positive on VAMP considering its 1) strong market position in industrial transformers, 2) robust business model, 3) debt free balance sheet, 4) consistent free cash flow generation, and 5) healthy enquiry pipeline. We estimate FY23-25E Revenue/EBITDA/PAT CAGR of 12.6%/5.8%/5.5%.

Outlook

The stock is currently trading at a PE of 20.1x/17.6x FY24/25E. Factoring in the recent run-up in the stock price, we maintain a ‘Hold’ rating with a TP of Rs3,961 (Rs3,055 earlier), valuing it at 18x on FY25E EPS (15x earlier).

For all recommendations report, click here