Buy Voltamp Transformers; target of Rs 1282: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Voltamp Transformers

Voltamp Transformers reported healthy performance in challenging environment; cost rationalization measures and higher other income induce rise in profitability. During 2Q, sales were muted due to delay in acceptance of delivery given non-operational customer’s site and disruption in supply chain. However, operation have started resuming gradually with limited availability of work force. Order inflows were flat YoY to Rs2.7bn largely affected due to deferment of orders. Order backlog stood healthy at Rs5.2bn, up 7% YoY provision revenue visibility for two-three quarters. Management indicated that enquiry levels continue to remain decent however conversions are taking time due to delayed decision making. Going ahead, company expects sectors like infra, water, power, mining, Oil & Gas, ports, pharma, data centers etc, to be major growth drivers.

Outlook

We remain positive on the company due to strong business model, debt free balance sheet and consistent free cash flow generation (current cash + Investments of ~Rs6.5bn). We expect revenue/PAT to grow at CAGR of 6%/10% over next two years. Based on decent 1HFY21, we have increased our earnings estimates by 3% each for FY22E/23E. The stock is currently trading at attractive valuations of 10x/9.6x FY21E/22E. We maintain BUY rating on the stock with TP of Rs1283 (earlier Rs1244).

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