Broker’s Call: Voltamp Transformers (Buy)

Goal: $4,779

CMP: 4,210 rupees

We interacted with Voltamp Transformers senior management and plant administrators at the Vadodara facility to gain insights into the company’s prospects and broader industry trends in the ongoing capex cycle.

Business prospects look strong with a good pipeline of orders. Unlike the last capital expenditure cycle, which was largely driven by investments in cement, steel and thermal power, the current capex cycle is broader in scope across 30-40 sectors.

Despite the positive outlook, competitive intensity is a major concern driving pricing pressures. In light of this, the company has no immediate plans to boost its installed capacity of 14,000 MVA and will take a call after the 2024 general election.

Due to the highly cyclical nature of the business, management’s primary focus is on maintaining balance sheet integrity rather than growing the top line.

In FY24, management expects it to be 12,500-12,800 MVA, while in FY25 it will be closer to 13,500 MVA.

In a highly competitive industry, Voltamp has reliably maintained its 15 percent market share in industrial application transformers. It has a marquee client base of profitable private companies and primary support units; It refrains from dealing with SEBs due to the length of the payment cycle. This strategy has helped the company keep its balance sheet strong even in times of trouble when quite a few players went bankrupt.