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Buy Voltamp Transformers; target of Rs 1610: Prabhudas Lilladher

November 13
20:24 2019

Prabhudas Lilladher’s research report on Voltamp Transformers

Voltamp Transformers (reported good set of number for 2QFY20 given challenging environment. Revenue for the quarter was up moderate 3% YoY led by 9% YoY dip in volumes and ~13% YoY increase in realization due to change in mix. PBT for the quarter grew 22.8% YoY due to (1) 70bps YoY expansion in EBITDA margin at 10.8%, and (2) 62% YoY rise in other income. The 2QFY20 order inflow stood at Rs2.7 bn (+~7% YoY), taking current order backlog to Rs4.9 bn (executable over next three quarters). We expect Voltamp to report ~8% volume CAGR over next two years (FY19-21E). Voltamp continues to receive recurring orders from several industries mainly Infrastructure, Steel, Cement, Oil & Gas, and Chemicals etc. Renewables (especially Solar) offers large opportunity from medium to longterm perspective. However, management is cautious and will be bidding selectively due to tariff uncertainty. Overall pricing environment has been challenging for sector which may improve with pickup in demand.

Outlook

We remain long-term positive on the company due to industrial focused business model, debt free balance sheet and consistent free cash flow generation (current cash + Investments of Rs4.3 bn which is 40% of the current market cap). We have modelled revenue/PAT to grow at CAGR of 12.3/17% over next two years. The stock is currently trading at attractive valuations of 10/9x FY20/21E. We maintain BUY rating on the stock with TP of Rs1610 (14x FY21E).

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