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VOLTAMP TRANSFORMERS
Disappointment continues
Subdued quarter; margins nosedive
Voltamp Transformers’ (VAMP) Q3FY11 revenues were in line with our estimates.
At INR 1,336 mn, revenues declined 7.5% Y-o-Y as volumes dropped 22% Y-o-Y
and 6% Q-o-Q. Realisation, however, improved 19% Y-o-Y and 15% Q-o-Q as
the company passes on higher input costs. During the quarter, EBITDA declined
55.8% Y-o-Y, to INR 145 mn. Rising commodity prices has hit the company’s
input costs, resulting in a sharp fall in EBITDA margins to 10.8% (down
1,185bps Y-o-Y). The raw material cost increased 6.7% Y-o-Y (up 1,128bps Y-o-
Y, to 84.8% of sales). In terms of PAT, the company reported de-growth of
46.9% Y-o-Y to INR 128 mn, in line with estimates. The company’s current order
backlog declined 11.4% Y-o-Y to INR 3,720 mn (6,472 mva), 0.7x FY10
revenues, thus indicating lower order inflows of INR 676 mn during the quarter.
Volume hit; realisation improves
Realisation during the quarter, at INR 604K/MVA, has improved 19% Y-o-Y and
15% Q-o-Q. Volume for the quarter, at 2,213 MVA, dropped both Y-o-Y as well
Q-o-Q, by 22% and 6%, respectively. This indicates that capacity utilisation
continues to remain under pressure with 50% during 9mFY11.
Revising down estimates
With continued increase in commodities prices, VAMP’s margins continued to fall
during 9mFY11. We believe margins are unlikely to improve in a hurry for the
company, given that the small transformer industry continues to reel under
overcapacity, making margins sensitive to raw material costs. We expect the
capacity utilisation levels to remain low for the next few quarters given the
deferrals from customers. We believe the company will be able to reach better
capacity utilisation during H2FY12 with likelihood of improvement in T&D
spending and industrial capex during the same time. Given the pressure on
margins and lower utilisation levels, we have cut our EBITDA margin estimate by
400bps and 520bps for FY11 and FY12, respectively. Accordingly, the earnings
are revised down by 30% and 36% for FY11E and FY12E, respectively.
Outlook and valuations: Weak; maintain ‘HOLD’
Rising commodity prices continued to impact VAMP’s margins. Also, we expect
the company’s capacity utilisation to remain under pressure on the back of
increased capacity in the industry. On our revised estimates of INR 46.2 and INR
48.0, the stock is trading at P/E of 13.7x and 13.2x FY11E and FY12E,
respectively. We maintain ‘HOLD/Sector Underperformer’ on the stock.
Company Description
VAMP is a leading transformer manufacturer in India with 13,000 MVA capacity, located
at Vadodara. It is present in the 50MVA/132 KV class of transformers and caters to end
user industry segments like paper and pulp, pharmaceuticals, automobiles, steel, power
plant, building, metro rail applications, and mining and minerals. The company’s client
base is impressive and its top customers include Reliance Industries, Jindal Steel,
Siemens, ABB, Larsen & Toubro, Torrent Power, and Suzlon.
Investment Theme
In the Eleventh Plan, India is expected to add ~50-55 GW of generation capacity, which
is more than what was added in the past fifteen years. The ~3x jump in capacity
addition is likely to boost demand for transformers and leading transformer companies
like VAMP are likely to benefit from the same. Lower contribution of revenues from SEBs
results in lower working capital requirement for VAMP, which enables it to improve its
return ratios substantially. Consequently, the company has superior return ratios than its
peers in the power transmission and distribution space. It has a diverse product profile
manufacturing oil and dry type transformers and is the leader in dry type transformers
with a ~40% market share.
Key Risks
Transformer demand is driven by addition in power generation capacity. Any delay in
power generation capacity addition could severely impact demand for transformers, thus
negatively impacting margins and growth profile. Volatility in raw material prices can
impact its margins negatively.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
VOLTAMP TRANSFORMERS
Disappointment continues
Subdued quarter; margins nosedive
Voltamp Transformers’ (VAMP) Q3FY11 revenues were in line with our estimates.
At INR 1,336 mn, revenues declined 7.5% Y-o-Y as volumes dropped 22% Y-o-Y
and 6% Q-o-Q. Realisation, however, improved 19% Y-o-Y and 15% Q-o-Q as
the company passes on higher input costs. During the quarter, EBITDA declined
55.8% Y-o-Y, to INR 145 mn. Rising commodity prices has hit the company’s
input costs, resulting in a sharp fall in EBITDA margins to 10.8% (down
1,185bps Y-o-Y). The raw material cost increased 6.7% Y-o-Y (up 1,128bps Y-o-
Y, to 84.8% of sales). In terms of PAT, the company reported de-growth of
46.9% Y-o-Y to INR 128 mn, in line with estimates. The company’s current order
backlog declined 11.4% Y-o-Y to INR 3,720 mn (6,472 mva), 0.7x FY10
revenues, thus indicating lower order inflows of INR 676 mn during the quarter.
Volume hit; realisation improves
Realisation during the quarter, at INR 604K/MVA, has improved 19% Y-o-Y and
15% Q-o-Q. Volume for the quarter, at 2,213 MVA, dropped both Y-o-Y as well
Q-o-Q, by 22% and 6%, respectively. This indicates that capacity utilisation
continues to remain under pressure with 50% during 9mFY11.
Revising down estimates
With continued increase in commodities prices, VAMP’s margins continued to fall
during 9mFY11. We believe margins are unlikely to improve in a hurry for the
company, given that the small transformer industry continues to reel under
overcapacity, making margins sensitive to raw material costs. We expect the
capacity utilisation levels to remain low for the next few quarters given the
deferrals from customers. We believe the company will be able to reach better
capacity utilisation during H2FY12 with likelihood of improvement in T&D
spending and industrial capex during the same time. Given the pressure on
margins and lower utilisation levels, we have cut our EBITDA margin estimate by
400bps and 520bps for FY11 and FY12, respectively. Accordingly, the earnings
are revised down by 30% and 36% for FY11E and FY12E, respectively.
Outlook and valuations: Weak; maintain ‘HOLD’
Rising commodity prices continued to impact VAMP’s margins. Also, we expect
the company’s capacity utilisation to remain under pressure on the back of
increased capacity in the industry. On our revised estimates of INR 46.2 and INR
48.0, the stock is trading at P/E of 13.7x and 13.2x FY11E and FY12E,
respectively. We maintain ‘HOLD/Sector Underperformer’ on the stock.
Company Description
VAMP is a leading transformer manufacturer in India with 13,000 MVA capacity, located
at Vadodara. It is present in the 50MVA/132 KV class of transformers and caters to end
user industry segments like paper and pulp, pharmaceuticals, automobiles, steel, power
plant, building, metro rail applications, and mining and minerals. The company’s client
base is impressive and its top customers include Reliance Industries, Jindal Steel,
Siemens, ABB, Larsen & Toubro, Torrent Power, and Suzlon.
Investment Theme
In the Eleventh Plan, India is expected to add ~50-55 GW of generation capacity, which
is more than what was added in the past fifteen years. The ~3x jump in capacity
addition is likely to boost demand for transformers and leading transformer companies
like VAMP are likely to benefit from the same. Lower contribution of revenues from SEBs
results in lower working capital requirement for VAMP, which enables it to improve its
return ratios substantially. Consequently, the company has superior return ratios than its
peers in the power transmission and distribution space. It has a diverse product profile
manufacturing oil and dry type transformers and is the leader in dry type transformers
with a ~40% market share.
Key Risks
Transformer demand is driven by addition in power generation capacity. Any delay in
power generation capacity addition could severely impact demand for transformers, thus
negatively impacting margins and growth profile. Volatility in raw material prices can
impact its margins negatively.
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