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You are here : IndiaNotes >> Research & Analysis >> Companies >> Voltamp Transformers Ltd. >> Research

Pick of the Week: Buy Voltamp Transformers at CMP & add on declines

HDFC Sec | 23 Jan, 2017  | Follow Author | Add to my Favourites 
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Established in 1967, located in Vadodara, Voltamp Transformers Ltd. (VTL) is leading manufacturer of oil filled power and distribution transformers. Initially incorporated as a Private Limited Company, it was converted to a public limited company in 2006 by passing a special resolution and listed on the exchanges in Sep 2006. Its product portfolio comprises oil-filled power and distribution transformers upto 160 MVA, 220 KV class and dry type transformers upto 12.50 MVA, 33 KV class. The products find application in varied industries including power, refineries, real estate, automobile, infrastructure and steel. VTL has a diversified clientele, including private players and government entities, with private players contributing large part of its revenue. The company’s production facilities are located at Makarpura and Savli in Vadodara, Gujarat with an aggregate installed capacity of 13,000 MVA per annum.

Investment Rationale

- Pick-up in T&D activity in India – Capacity utilization to increase

- Government initiatives to improve T&D scenario

- Higher execution of orders

- Debt free company with robust free cash flows

- Solar parks to create demand


- Severe competition

- Overcapacity in industry

- Payment delays

- Raw material price and Currency fluctuations

View and Valuation

VTL has a strong track record in the transformer industry with a diversified clientele and experienced management. It is a debt free company with liquid investments to fall back on in times of any fund requirements. It follows a conservative policy on use of debt with comfortable capital structure and debt coverage indicators. The slowdown in the transformer industry, severe competition and aggressive pricing due to overcapacity impacted the growth of the company during FY10-FY14. Government initiative and revival in industrial capex should result in demand pick-up in the transformer industry and result in higher utilisation, revenues and profitability.

With higher volume growth and increased capacity utilisation (65% now), pricing discipline is returning in the sector, which is expected to drive operating margins going forward. Implementation of standardised norms (by MoP) and GST are bound to reduce competition and benefit players with higher capacity and strong financials.

We feel investors could buy the stock at the CMP and add on declines to Rs 890-908 band (~13.5x FY18E P/E) for sequential targets of Rs 1098 (16.5x FY18E EPS) and Rs 1197 (18x FY18E EPS) in 2-3 quarters.

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1,131.35 +10.25
1,148.40 +13.55
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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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