Hold Voltamp Transformers; target of Rs 7619: Prabhudas Lilladher

Prabhudas Lilladher's research report on Voltamp Transformers

We revise our FY24/25/26E EPS estimates by 26.6%/16.6%/17.6% factoring in robust demand outlook, likely capacity expansion by next year, and continued benefits of softening raw material prices. Voltamp Transformers (VAMP) reported strong quarterly performance with revenue growth of 14.3% YoY and EBITDA margin expansion of 1,019bps YoY to 25.7%. Although a slowdown in government orders is anticipated during the run up to general elections in H1FY25, demand pipeline remains strong across sectors such as Steel, Cement, Sugar, Data Centers, E-Commerce, etc. There may be some pricing pressure on the back of rising competitive intensity from capacity expansion of MNCs and large domestic players as well as aggressive bidding from smaller regional players. Meanwhile, the company’s large installed base of over ~70,000 transformers across sectors & geographies augurs well for the growing opportunity in its high-margin service business.

Outlook

We remain positive on VAMP considering its 1) strong market position in industrial transformers, 2) healthy enquiry pipeline, 3) debt-free balance sheet, 4) consistent free cash flow generation, and 5) growing service business. The stock is currently trading at a P/E of 28.3x/25.1x FY25/26E. We roll forward to Dec-25 and maintain a ‘HOLD’ rating with a TP of Rs7,619 (Rs5,079 earlier), valuing it at a P/E of 25x Dec-25E (20x Sep-25E earlier) given the strong business outlook.