Buy Voltamp Transformers; target of Rs 1591: Prabhudas Lilladher
Prabhudas Lilladher’s research report on Voltamp Transformers
Voltamp Transformers reported good set of numbers for 3QFY20 given challenging economic environment. Revenue for the quarter was up 17% YoY led strong execution and pickup in deliveries of transformers. PBT for the quarter grew 28% YoY due to (1) 90bps YoY expansion in EBITDA margins at 12%, and (2) 31% YoY rise in other income. Order inflow for 3QFY20 stood at ~Rs2.1bn (down ~14% YoY) translating into order backlog to Rs4.5bn (executable over next two-three quarters). We expect Voltamp to report ~7% 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 long-term 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. 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 ~Rs4.6bn which is ~33% of the current market cap). We have modelled revenue/PAT to grow at CAGR of 9.7%/16% over next two years.
The stock is currently trading at attractive valuations of 13.7/12.3x FY20/21E. We maintain BUY rating on the stock with TP of Rs1591 (14x FY21E).
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