PL Stock Report - Voltamp Transformers (VAMP IN) - Q2FY24 Result Update - Medium term outlook continues to remain strong - HOLD

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

Rating: HOLD | CMP: Rs4,989 | TP: Rs5,079

Q2FY24 Result Update – Medium term outlook continues to remain strong

Quick Pointers:

§ Enquiry pipeline remains strong across sectors.

§ Higher service revenue along with softening commodity prices resulted in EBITDA margin expansion of 343bps to 18%.

We revise our FY24/25E estimates by 16.5%/3.9% post factoring in healthy H1FY24 performance, continued healthy demand outlook, normalizing supply chain, softening commodity prices and increasing utilization of Savli plant. Voltamp Transformers (VAMP) reported strong quarterly performance with revenue growth of 20.1% YoY, volume growth of ~10% YoY and EBITDA margin expansion of 343bps YoY to 14.9%. Enquiry pipeline continues to remain strong for next couple of years from sectors such as Data centers, Steel & Metals, Commercial real, Green energy, Sugar, Cement, refinery etc. thereupon driving order inflows. However, competition intensity has increased with revival of old players and rising Chinese/Unorganized players thereby impacting pricing power.

We remain positive on VAMP considering 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. The stock is currently trading at PE of 21.5x/20.8x/18.6x FY24/25/26E. We roll forward to Sep’25 and maintain ‘Hold’ rating with TP of Rs5,079 (Rs4,611 earlier), valuing at PE of 20x Sep’25E.

Higher service revenue drives margins in Q2FY24: Sales grew 20.1% YoY to Rs3.8bn (PLe of ~Rs3.7bn), driven by strong execution of opening order book. Gross margin expanded to 29.3% in Q2FY24 vs 23.8% in Q2FY23, due to softening of commodity prices and strong service revenue growth. EBITDA grew 48.3% YoY to Rs688mn (PLe Rs549mn) with EBITDA margins expanding 343bps YoY to 18% (PLe ~15%), mainly due to gross margin expansion and write back of provision for doubtful debts. PAT came in at Rs684mn (up 49% YoY) (PLe ~Rs465mn), driven by strong operating performance.

Current order book stands strong at ~Rs15bn: Order inflows in H1FY24 came in at ~Rs9bn (7037 MVA) comprising of sectors such as Steel, Metals & minerals accounting for ~22%, Green Energy ~9%, Infrastructure ~9%, Auto & Auto Ancillaries ~6% etc. Order book stands strong at ~Rs15bn/12,896MVA (1x TTM revenue), up ~63%/57% YoY. The enquiry pipeline remains robust from sectors such as Data Center Steel & Metals, Commercial real estate, Green energy, Sugar, Cement etc.

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