Buy Voltamp Transformers Ltd For Target Rs.10,318 by Prabhudas Liladhar Capital Ltd
Strong Q2; domestic demand remains intact
Quick Pointers:
* Order intake increased by ~70% YoY to Rs6.3bn (4739 MVA) while order book (cal.) stood at ~Rs14bn. Additionally, Rs920mn (1,488 MVA) awaiting for formal purchase orders release
* Rs101mn (55 MVA) revenue was not recognized as heavy rain which made certain delivery site inaccessible
Voltamp Transformers (VAMP) reported a strong quarterly performance with revenue rising 21.3% YoY, while EBITDA margin remained largely stable YoY at 19.4%. Domestic demand environment continued to remain robust, supported by strong private and public capex, with healthy traction from sectors such as steel, auto & auto ancillary, data centers, chemicals, oil refineries, and state utilities like GETCO. VAMP showcased strong execution capabilities by manufacturing and delivering its highest-rated 160MVA/220kV transformer ahead of schedule. The ongoing 6,000 MVA capacity expansion is progressing as planned and is expected to be fully operational by Q1FY27, catering to growing demand from utilities, renewables, and data centers. However, rising private-sector capacity additions and intensify competition could exert pricing pressure leading to likely margin normalization. Additionally, supply chain constraints in CRGO steel and a few other critical components along with geopolitical uncertainties remain key risk factors for execution going forward. The stock is trading at a P/E of 20.9x/18.7x FY27/28E. We roll forward to Sep’27E and maintain ‘Buy’ rating valuing the stock at a PE of 26x Sep’27E (28x Mar’27E earlier) with a TP of Rs10,318 (Rs10,285 earlier).
We remain positive on VAMP considering its 1) strong market position in industrial transformers, 2) healthy demand momentum, 3) debt-free balance sheet, 4) consistent free cash flow generation, and 5) growing high-margin services business.
Robust execution supports margins: Revenue increased by 21.3% YoY to Rs4.8bn (PLe: Rs4.2bn) likely aided by deferred revenue from Q1. Gross margins remain flattish YoY to 29.3% (PLe: 28.2%). EBITDA increased by 24.8% YoY to Rs936mn (PLe: Rs757mn) with EBITDA margin expanded by 54bps YoY to 19.4% (PLe: 17.9%) despite flat gross margin being led by better operating leverage. PBT remain flattish YoY to Rs1.0bn (Ple: Rs969mn) due to lower other income (-53.9% YoY to Rs148mn). Adj.PAT increased by 4.1% YoY to Rs789mn (PLe: Rs726mn) driven by lower effective tax rate of 24.3% (-251bps YoY).
Order Book (cal.) stood at Rs14.1bn (12,296 MVA) (0.7x of TTM Revenue): Order intake rose ~70% YoY to Rs6.3bn (4,739 MVA), with the company maintaining a selective approach focused on executable projects. A strong inquiry pipeline supports management’s confidence in achieving revenue targets.
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