Buy Voltamp Transformers Ltd For Target Rs.1,194 - HDFC Securities
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Our Take:
Voltamp Transformers Ltd (VTL) is a leading manufacturer of oil filled power and distribution transformers, with an aggregate installed capacity of 13,000 MVA (Megavolt amperes) per annum. It has a strong track record in the transformer industry with a diversified clientele and experienced management.
Due to increasing number of small power-rating substation projects across the country, the small capacity transformer segment is expected to be the fastest-growing segment in India. According to a research firm, India’s distribution transformer market is expected to rise at a CAGR of more than 4% by 2020-2025. Factors such as increasing energy demands from the industries and expansion of transmission and distribution systems are likely going to drive India’s distribution transformer market.
Valuations & Recommendation:
Rapid urbanization will result in rising demand of power, which will pave the way for high demand of transformers. As the company exclusively serves the power sector of the country, with state DISCOMS forming a major part of its clientele, government efforts to push reforms in this sector augurs well for the company. The company’s diversified product portfolio gives it a comparative edge over its peers. It enjoys a debt-free status, which raises its creditworthiness among financial institutions and would help with future borrowings.
However, delay in delivery acceptance and disrupted supply chain amidst the COVID pandemic still continues to cause pain. The company has sold 756 units in Q3FY21 as compared to 905 units in Q3FY20.
We believe investors can buy at Rs. 989.0 (7.3x FY23E P/E) and add at Rs. 887.0 (6.5x FY23E P/E) with a base case target of Rs. 1057.0 (7.8x FY23E P/E) and bull case target of Rs. 1194.0 (8.8x FY23E P/E) over the next two quarters.
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