ICICI Securities starts coverage on Voltamp Transformers, sees 35% upside

Voltamp is a significant player in the transformer manufacturing industry, with a 15% domestic market share as stated by management. They serve diverse sectors, and private customers make up 85% of their revenue

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Brokerage firm ICICI Securities has initiated coverage on Voltamp Transformers Ltd with a ‘buy’ rating and a target price of Rs 3,610 a share, 35 percent above the  current market price.

Voltamp is a significant player in the transformer manufacturing industry, with a 15 percent share in the domestic market.

According to ICICI Securities, Voltamp is poised to benefit significantly from the energy transition, the revival of private capital expenditure, and the government’s production linked incentive (PLI) initiatives in the manufacturing sector. With a strong order book, a robust balance sheet, and a positive outlook for profitability, the company is expected to experience strong earnings growth over the next three years.

“We have modelled a revenue/earnings CAGR of 11 percent/16 percent over FY22-FY25. Further, a pick-up in power distribution capex and investments in the manufacturing sector could lead to growth in Voltamp’s orderbook,” ICICI Securities said in its recent report.

During the first nine months of the fiscal year 2023, Voltamp’s order inflow increased 18 percent on-year to Rs 1,170 crore. This growth contributed to the company’s record-high order backlog of Rs 900 crore for transformers, totaling around 8,160 MVA.

More than 85 percent of the backlog is from private operators, with the remainder coming from SEBs and utilities. Going forward, there are strong opportunities for Voltamp in manufacturing, industrial capital expenditure for capacity expansion, and energy transition, indicating a favourable momentum for the company, according to ICICI Securities.

“We believe the orderbook would improve with capex revival and greater distribution capex. More sales would ensure better profitability on the back of improving utilisation of the industry’s installed capacity. We believe any new capacity addition plans by the company could be a positive trigger going ahead,” ICICI Securities report said.

Voltamp’s clients have consistently preferred the company due to its responsible execution track record and effective management of working capital, even with the cyclical nature of the business.

Compared to peers, Voltamp has been able to manage its cash flows more effectively, resulting in robust return ratios, the report added. As of the end of December 2022, the Company had net cash of Rs640 crore, equivalent to 23 percent of the current market capitalisation.