High voltage

PENNY WISE

Voltamp Transformers has been a stunning gainer, but will it charge ahead further?

The Voltamp Transformers stock has enjoyed a great run on the bourses since its IPO in September 06, and trades at 67 per cent premium to its issue price. Even last week, it has gained 6.2 per cent to Rs 575.

At its current price, Voltamp trades at 24.8 times its FY06 earnings. The forward valuations for FY07 and FY08 stand at 16.6 times and 12.4 times estimated earnings.

On the other hand, the forward valuation of its peers stands much lower--Bharat Bijlee (19.4x), Indo Tech Transformers (18.4x) and Emco (28.9x).

Voltamp makes power and distribution transformers for industries like oil refining, cement, steel, power plants, metro rails and buildings. Voltamp makes both oil filled and dry type transformers, in its Makarpura plant at Vadodara. With manufacturing capacity of 5400MVA, the company manufactures transformers up to 50MVA, 132KV.

The excitement in the stock stems from the fact that business is booming.

"Instead of two shifts we are now working three shifts a day, which takes our capacities to 7200MVA. Our plant enjoys a high capacity utilisation rate, and at present we do not have any expansion plans. However, we may look at expansion after six months," says K S Patel, joint managing director and CEO, Voltamp Transformers.

Voltamp derives 60 per cent of its revenues from distribution transformers, while the rest is chipped in by power segment. The company is the market leader in dry type transformers, which are 70 per cent costlier and are installed in basements of hotels, skyscrapers, hospitals, entertainment malls and factories.

Also, in business, it has gone for quality. It focuses on engineering, EPC and industrial segment players as most of them require customised products and offer better margins.

There is a huge demand for transformers from state electricity boards, Voltamp has reduced exposure (less than 5 per cent of sales) to reduce risks of delayed payments.

Top clients like Reliance, Jindal Steel, L&T, Siemens, ABB and Suzlon contributed about 31 per cent of FY06 revenues. At present Voltamp holds orders worth around Rs 300 crore. 
 

FINANCIALS
	Voltamp	Indo Tech	Bharat Bijlee	Emco
Net sales	248.80	92.70	300.80	405.40
Operating profit	33.10	16.60	49.60	45.80
OPM	13.30	17.91	16.49	11.30
Net profit	23.40	11.10	33.70	19.10
NPM	9.41	11.97	11.20	4.71

Voltamp's revenues and net profit grew at a CAGR of 42 per cent and 53 per cent between FY02 and FY06. In H1 07, the company earned revenues of Rs 177 crore with an operating profit margin of 13.3 per cent.

No doubt that the prospects of this company are solid over the long term. "Voltamp is a diversified player, enjoys pricing power and good margins. Given the future business and revenue visibility, the scrip is a good bet for long term ," says Mukul Jain, analyst, Prabhudas Lilladher Securities.

But the stock seems expensive after the recent run-up. Jain adds, "At Rs 600 levels, the scrip looks fully priced at least in the short term."