Buy Voltamp Transformers Ltd For Target Rs. 3,656 - ICICI Securities
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Our view
Voltamp Transformers (VAMP)reported a strong set of numbers despite a month?long workers’ strike at its Savli facilities. Revenue growth was led by a mix of volume/realization growth of 10%/5% YoY respectively. Healthy operating margins aided by gross margin expansion and operating leverage benefits led to a ~450bps YoY operating margin expansion. Order book remains strong at ~Rs9bn (0.7x TTM revenue) as on 3QFY23, providing revenue visibility for the next few quarters. In the medium term, the company sees private investments taking place in sectors such as clean energy, cement, steel, chemicals, pharmaceuticals, auto, semiconductors, electronics, textile, healthcare, data centres, logistics, industrial parks and oil refining, etc.
We believe the company is one of the best plays forfuture upturn in industrial demand given its industrial focused business model. We remain positive on the company considering 1) its strong business model, 2) debt free balance sheet and 3) consistent free cash flow generation (current cash + investment ~Rs6.4bn). The stock is currently trading at valuations of 18.5x/15.3x/12.8x FY23E/24E/25E and excl. other income it trades at P/E of 19.5x/15.5x/12.4x FY23E/24E/25E EPS. We roll forward our target multiple to FY25E with a revised TP of Rs3,656 valuing the company at a PE of 16x on FY25E EPS. We believe the recent correction in the stock price is an attractive opportunity to enter. Accordingly, we upgrade it to BUY from NEUTRAL.
Result Highlights
* Sales grew by 13% YoY to ~Rs3.6bn (YSLe: Rs2.8bn) driven by healthy execution of order book
* With easing of input cost pressures, the company has expanded its gross margins by ~260bps YoY basis at 23.9%
* EBITDA came in at Rs554mn (up ~61% YoY) (YSLe: Rs150mn) with EBITDA margins coming in at 15.5%, a 450bps/90bps YoY/QoQ expansion
* PBT grew by 67% YoY to Rs664mn on the back of higher other income (up 79% YoY)
* PAT grew by 69% YoY to Rs508mn (YSLe: Rs191mn) on account of robust operational performance
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