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We interacted with Voltamp Transformers’ senior management and plant officials at their Vadodara facility to gain insights on the company’s prospects and broader industry trends in the ongoing capex cycle. The company has two plants; oil-filled power transformers at Makarpura (capacity: 8,000 MVA) and oil-filled distribution transformers and dry-type transformers at Savli (capacity: 6,000 MVA).

Key takeaways:

Business prospects are looking robust with a healthy order pipeline. Unlike the last capex cycle, which was largely driven by investments in cement, steel, and thermal power, the present capex cycle is more broad based across ~30-40 sectors. Given improving corporate and bank balance sheets, coupled with reforms like IBC, the ensuing discipline has reduced the possibility of a repeat of the NPA crisis

* Despite the positive outlook, competitive intensity is a key concern leading to pricing pressure. In light of this, the company has no immediate plans to enhance its installed capacity of 14,000MVA and would take a call post the 2024 general elections

* Notably, competition is further slated to rise as the defunct units of players like Kirloskar, Indo-Tech, EMCO and IMP are likely to be revived (under new ownership); besides, Chinese players are setting up capacities in India

* Given the highly cyclical nature of the business, management’s primary focus is on maintaining balance sheet health rather than growing the topline. It has underlined its policy of not going for debt-fueled expansion and that any future expansion would be entirely funded by internal accruals. It is pertinent to note that setting up an additional 6,000 MVA capacity would cost ~Rs1bn at current prices

* Despite the robust business environment, Voltamp continues to be selective in choosing customers and refrains from dealing with highly leveraged entities and SEBs (barring a few like GETCO). Notably, ~950 out of the top 1,000 listed companies are Voltamp customers. Primary determinants of customer choice are assured payment terms and lifting of product within the stipulated time as inventory carrying costs are substantial

* In FY23, the company lost out on ~Rs1bn of sales and ~Rs150mn of profit from a contract workers’ stir at the Savli facility. Consequently, it did not book orders between Oct’22 and Feb’23. However, the company has now resolved the issues on its terms and the facility is operating at full capacity, the order booking run rate is ~Rs1bn/month

* Notwithstanding strong traction in solar rooftop installations, the space is crowded and margins have shrunk. Accordingly, the company has made a conscious decision to focus on B2B clients and is already in discussions with Aditya Birla Solar and other large corporates

* In Fy24, management expects to clock in volumes of 12,500-12,800 MVA while FY25 would be closer to 13,500 MVA

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