Buy Voltamp Transformers Ltd For Target Rs. 4,779 - Yes Securities
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Record-breaking quarter; future looks promising
Our view
Voltamp Transformers (VAMP) reported a robust set of numbers with record high operational performance. Revenue growth was purely volume driven as realization degrew by 5% YoY. Gross margin expansion (~350bps YoY) and operating leverage benefits led to a ~450bps YoY operating margin expansion. Order book as of 31st March 2023 is at ~Rs6bn (0.4x TTM revenue) however as of 25th May the order book stands at Rs8.4bn providing revenue visibility for the next few quarters. Going forward, management remains optimistic on the business outlook aided by steady growth in domestic demand, deleveraged balance sheets and easing commodity pressures. Notably, government’s policies on renewable energy, PLI schemes, infra spending are expected to provide a fillip to ordering activity.
We believe the company is one of the best plays for future 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 ~Rs7.2bn). The stock is currently trading at valuations of 16.3x/13.0x FY24E/25E and excl. other income it trades at P/E of 15.8x/11.7x FY24E/25E EPS. We maintain our BUY rating with a revised TP of Rs4,779 valuing the company at 16x FY25E EPS.
Result Highlights
* Sales grew by 14% YoY to ~Rs4.4bn (YSLe: Rs3.9bn) driven by healthy execution of order book
* With easing of input cost pressures, the company has expanded its gross margins by ~350bps YoY at 28.6%
* EBITDA came in at Rs928mn (up ~34% YoY) (YSLe: Rs645mn) with EBITDA margins coming in at 21.1%, a ~390bps/560bps YoY/QoQ expansion
* PBT grew by 40% YoY to Rs1bn driven by higher other income (up 39% YoY)
* PAT grew by 48% YoY to Rs766mn (YSLe: Rs564mn) on account of robust operational performance
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