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Voltamp Transformers

Voltamp Transforms - Results update.

Unlike most other transformer makers, Voltamp is mainly focused on the industrial transformers including power and distribution and dry-type transformers. It was expected that the company's dependence on industrial customers would severely impact company's volumes in FY09 given that industrial capex was badly hit in FY09 due to high interest rates and liquidity crunch. Despite this, VTL managed to report 29% rise in transformer sales in volume terms.

VTL's margins have been on an uptrend in the past few years from 13.6% in FY06 to 23.3% in FY09. Consistent uptrend in operating margins was on account of favourable product mix and attractive pricing of product. VTL's cash and equivalent has increased from Rs 628 mn in FY08 to Rs 1.4 bn in FY09. The company is debt-free.

Free cash flow per share is forecast at Rs 43 per share. Considering better than expected working capital cycle resulting in robust cash generation earnings upgrade on better than expected order backlog reduction in cost of capital and general improvement in economic and market outlook, the stock is well priced now. Long term investors can buy Voltamp on declines with a price target of 850.