Voltamp Transformers (VAMP IN) - Q4FY23 Result Update - Strong overall performance: beat on all fronts

We revise our FY24/25E EPS estimates by +9.1%/+8.0% to factor in the robust outperformance and strong expected volume growth. Voltamp Transformers (VAMP) reported healthy revenue growth of 13.6% YoY and EBITDA margin expansion of 388bps YoY. Normal manufacturing operations have resumed at the Savli plants. However, low order booking from Oct-22 to Jan-23 will partially impact revenue in Q1FY24. Moreover, inquiry pipeline remains strong, but VAMP is facing pricing pressure on new orders due to increased competition from i) unorganized players in the low voltage segment, ii) two Chinese players aggressively bidding for steel projects in East India, and iii) leading domestic players. Management will not enhance capacities in FY24, and will monitor long-term demand trends before incurring any capex.

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 estimate FY23-25E Revenue/EBITDA/PAT CAGR of 12.6%/5.8%/5.5%. The stock is currently trading at a PE of 20.1x/17.6x FY24/25E. Factoring in the recent run-up in the stock price, we maintain a ‘Hold’ rating with a TP of Rs3,961 (Rs3,055 earlier), valuing it at 18x on FY25E EPS (15x earlier).

• Healthy revenue growth and strong margin expansion positively surprise: Sales grew 13.6% YoY to Rs4.4bn (PL estimate of ~Rs3.5bn), driven by ~18% volume growth on the back of higher volume dispatches during the quarter. Gross margin expanded by 353bps YoY to 28.6% in Q4FY23, due to softening of commodity prices along with liquidation of excess inventory of imported critical raw material – CRGO lamination. EBITDA grew 39.2% YoY to Rs928mn (PL estimate of Rs490mn), with EBITDA margin increasing by 388bps YoY to 21.1%, mainly due to gross margin expansion and some operating leverage. PAT rose 47.6% YoY to Rs766mn, (PL estimate ~Rs439mn), aided by higher other income (up 38.6% YoY to Rs108mn) and a lower effective tax rate (24.1% in Q4FY23 vs 28.0% in Q4FY22).
• Current order book stands at Rs8.4bn: Cautious order booking by management from Oct-22 to Jan-23 due to labor issues and low capacity utilization at the Savli plant resulted in a weaker order book value/volume of Rs6.0bn/5,859MVA at the end of FY23 (down 33.4%/28.3% from Rs9.1bn/8,167MVA as of Dec 31, 2022). However, order booking has returned to full swing with Rs2.4bn/1,908MVA of new inflows to date in Q1FY24. The current backlog stands at Rs8.4bn/7,767MVA, up 39.3/32.6% from Mar 31, 2023. The enquiry pipeline is robust from sectors such as data centers, green energy, chemicals, sugar distilleries, textiles, oil refining, metals & minerals, and steel.