We believe Voltamp Transformers Ltd (Voltamp) is a strong player in the transformer industry. Voltamp has grown significantly on the back of huge investments in power sector. Voltamp enjoys one of the best balance sheets within the domestic transformer segment. This is amply reflected by healthy ROCE and ROE of 95% and 61% respectively. More noteworthy is that Voltamp is totally debt free and has funded its entire expansion through internal accruals. This makes it stronger enough to withstanding market competition in future as compared to other peers within the sector. Voltamp manufactures transformers up to 250 MVA and is currently sitting on an order of Rs.4.6bn which will be executable in current financial year. The expanded capacity will help Voltamp to satisfy rising demand for transformers from the power sector. We recommend a BUY with a price target of Rs.1050.
Voltamp was established in 1963 by Mr.Lalitkumar H. Patel. The Company has installed facility to manufacture oil filled power and distribution transformers up to 50 MVA, 132 KV class, resin impregnated dry type transformers up to 5 MVA, 11 KV class (In Technical collaboration with MORA, GERMANY) and cast Resin dry type transformers up to 7.5 MVA, 33 KV class (In Technical collaboration with HTT, GERMANY). The company has four independent units each for oil filled power transformer, oil filled distribution transformer, resin impregnated dry type transformer and cast resin type transformer. The total installed capacity is around 9,000 MVA per annum.
We believe Voltamp is a very good value play within its industry space. The continuation of demand from power industry for transformer industry is likely to drive the earnings of the company in near future. At current market price of Rs.833 the stock trades at attractive valuation of 9x and 8x earnings and 6x and 5x on EV/EBITDA of FY09E and FY10E respectively. We estimate the company to generate strong free cash flow of Rs.1305mn over a period of FY08A-10E and the cash balance per share by end of FY09E would be Rs.94. We recommend a BUY with a price target of Rs.1050.
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