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Stellar performance

Our view

Voltamp Transformers (VAMP) reported an excellent set of numbers owing to ramp up in dispatches and execution along with healthy operating margins despite high RM inflation. Order book remains strong at ~Rs6bn (0.5x TTM revenue) as on 4QFY22, providing revenue visibility for next few quarters. Enquiry continues to remain buoyant given rise in spending in capex from both public and private across sectors such as infra, water, power, mining, oil & gas, ports, pharma, data centers, etc. However, given the steep rise input cost pressure and shortage of CRGO silicon steel a key RM, management has decided to focus on short cycle orders with assured payment terms.

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 ~Rs5.7bn). We expect earnings are likely to grow at CAGR of 13% over next two years and 26% PAT CAGR excluding other income. The stock is currently trading at attractive valuations of 15.1x/12.6x FY23E/24E and excl. other income it trades at P/E of 14.9x/11.5x FY23E/24E. We maintain our BUY rating with a TP of Rs2,540 valuing it 16x FY24 EPS.

Result Highlights

* Sales grew by 36.3% YoY to ~Rs3.9bn (YSLe: Rs1.9bn) driven by execution of healthy order inflows

* Despite input cost pressure, the company has expanded its gross margins at 25.1% (vs 21.3% in 3QFY22 and 21.8% in 4QFY21)

* EBITDA came in at Rs667mn (up ~102% YoY) with EBITDA margins coming in at 17.2%, a 561bps YoY expansion. The margins were higher mainly on account of fall in employee costs and healthy gross margin

* PBT grew by 74% YoY to Rs721mn despite lower other income (down 27% YoY) primarily on account of better operating performance

* PAT grew by 67% YoY to Rs519mn despite higher effective tax rate (28.0%)

* Order inflows declined by 4% YoY at Rs3.8bn while order book stands at Rs6bn, a 7% YoY de‐growth

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