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Decadal high gross margin adds glamour to strong revenue growth; Maintain Buy

Our view

Voltamp Transformers (VAMP) reported another strong print during Q2FY24 driven equally by both volume and realization (+20% y/y). The company reported a decadal high Q2 gross margin aided by easing of commodity cost pressures amidst a strong demand environment. Order Inflow of~Rs9bn and revenue visibility of Rs14.9bn (up 25% QoQ) augurs well for strong performance for the next few quarters.

Looking forward

Management remains optimistic on the business outlook aided by steady growth in domestic demand from metals, data centres, green energy, pharma, automobiles, etc. Though order booking momentum is expected to sustain, competitive intensity especially in lower voltage class transformers has increased which leaves little room for margin expansion. We are building in a 22% EPS CAGR over FY23-25E mainly driven by revenue growth while margin is expected to remain flat in the near term. The stock is currently trading at valuations of 20.3x/16.1x FY24E/25E and excl. other income it trades at P/E of 27.1x/21.1x FY24E/25E EPS. We maintain our BUY rating with a revised TP of Rs5,836 based on 20x FY25E earnings

Result Highlights

* Revenue grew by 20% YoY to ~Rs3.8bn (YSLe: Rs4.05bn).H1FY24 revenue growth also stands at ~20% YoY.

* Gross margin of 29.3% (+550bps YoY, 240bps QoQ) was at a decadal high.

* Given a low fixed cost structure, gross margin expansion helped EBITDA margin expand 340bps YoY to 18%. EBITDA grew 48% YoY to Rs688mn (YSLe: Rs646mn).

* PBT grew 40% YoY to Rs836mn driven by higher other income which came in at Rs179mn.

* As a consequence, PAT grew by 49% YoY to Rs684mn (YSLe: Rs594mn) partly helped by lower tax rate (at 18.2% due to deferred tax benefit)

* At CMP, the stock is trading at 20.2x/16x FY24E/25E. We shall release a detailed note post interaction with management.

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