Domestic brokerage and research firm ICICI Securities has initiated coverage on the stock of heavy electrical equipment manufacturer Voltamp Transformers, which has given multibagger returns to investors in five years.
The multibagger smallcap stock is up 144.18 per cent in the last five years. However, it is currently down 26 per cent from its 52-week high of ₹3686, hit on 4 August, 2022.
Prudent execution track-record and focus on balance sheet have consistently been the key success factors behind Voltamp’s growth story, the brokerage said, initiating a ‘buy’ rating and a target price of ₹3,610 per share, implying a 35 per cent upside.
“Company is a key player in the transformer manufacturing space with a domestic market share of 15 per cent (as per management), catering to diversified sectors (85 per cent of revenue comes from private customers),” the note said.
The stock trades at 11.8 times FY24 and 10 times FY25 EV/EBITDA. RoIC stands at 34 per cent/36 per cent for FY24/FY25.
The brokerage believes the orderbook would improve with capex revival and greater distribution capex. More sales would ensure better profitability on the back of improving utilisation of the industry’s installed capacity.
“We believe any new capacity addition plans by the company could be a positive trigger going ahead,” it said, highlighting intense competition, higher raw material prices and slow-down in industrial capex as key risks areas.
ICICI Securities expects the company to be a strong beneficiary of India’s increasing power requirements due to increasing urbanisation, improving capacity utilisations and thereby higher industrial capex across sectors.
The government’s emphasis on infrastructure development is likely to further push growth for last-mile connectivity in the country. The energy transition initiative of the government would further result in strong demand for the company’s products.
Voltamp’s diversified product portfolio gives it a competitive edge over its peers, the brokerage said. The company has consistently enjoyed debt-free status, which indicates its strong focus on better working-capital management. It has a diversified clientele, including private players and select PSUs, with private players accounting for a majority of its revenue.
Cash and cash equivalents as on December 2022-end stood at ₹6.4 billion (24% of the market cap).
“We model earnings CAGR of 16 per cent over FY22-FY25E. The stock trades at 11.8 times FY24 and 10 times FY25 EV/EBITDA. The company has healthy ratios with post-tax RoIC at 34 per cent/36 per cent FY24/FY25,” it noted.
According to a MintGenie poll, three analysts on an average have a ‘buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of the broking firm. These do not represent the views of Mint.
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