PL Stock Report: Voltamp Transformers (VAMP IN) - Q1FY24 Result Update - Business outlook stands strong - HOLD

Voltamp Transformers (VAMP IN) - Amit Anwani - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: HOLD | CMP: Rs4,802 | TP: Rs4,611

Q1FY24 Result Update - Business outlook stands strong

Quick Pointers:

§ Enquiry pipeline remains strong across sectors.

§ Liquidation of excess inventory of critical imported raw material (CRGO Laminate) aided 264bps YoY expansion in gross margin.

Voltamp Transformers (VAMP) reported strong quarterly performance with revenue growth of 19.3% YoY, volume growth of ~15% YoY and EBITDA margin expansion of 147bps YoY to 14.9%. Focus on cost optimization, order selection (better margins and receivables visibility) and supply chain management is likely to aid profitability and working capital cycle going forward. Enquiry pipeline continues to remain strong for next couple of years from sectors such as Steel & Metals, Commercial real, Green energy, Sugar, Cement etc. driving order inflows. Also, started focusing on exports markets again (avoided exports for last 2 years due to logistic issues) and targeting market like Africa and Asia.

We remain positive on VAMP considering its 1) strong market position in industrial transformers, 2) robust business model, 3) debt free balance sheet, 4) consistent free cash flow generation, and 5) healthy enquiry pipeline. We revise our estimate by 3.7%/4.8% for FY24/25, factoring in continued healthy demand outlook, normalizing supply chain (CRGO lamination) and increasing utilization of Savli plant. The stock is currently trading at PE of 24.1x/20.8x FY24/25E. We maintain Hold rating on stock with TP of Rs4,611 (Rs 3961 earlier), valuing it at PE of 20x FY25E (18x earlier), owing to improved business outlook.

Volume growth of ~15% YoY drives revenue: Sales grew 19.3% YoY to Rs3.2bn (PLe of ~Rs3bn). Revenue growth was mainly due to ~15% volume growths (2,751 MVA). Gross margin expanded 264bps YoY to 26.9% in Q1FY24, due to softening of commodity prices and liquidation of remaining imported raw material inventory -CRGO lamination. EBITDA grew 32.3% YoY to Rs480mn (PLe Rs400mn), with EBITDA margins expanding 147bps YoY to 14.9% (PLe ~13%), mainly due to gross margin expansion. PAT came in at Rs508mn (up 90% YoY) (PLe ~Rs358mn), aided by higher other income. Q1FY23 other income was negative (-Rs4mn) due to MTM losses in debt funds.

Current order book stands strong at Rs11.9bn: Order inflows during the quarter came in at ~Rs9.1bn (up ~125% YoY), driven by order booking resuming in Savli factory from Mar’23. Capacity utilization of Savli plant is likely to increase from Q2FY24 onwards, with new orders getting executed. Order book stands strong at Rs11.9bn/10,202MVA (0.8x TTM revenue), up ~61%/45% YoY. The enquiry pipeline remains robust from sectors such as Steel & Metals, Commercial real, Green energy, Sugar, Cement etc.

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