Voltamp Transformers is a focussed Transformer manufacturer. The Company has installed facility to manufacture Oil filled Power and Distribution Transformers up to 160MVA, 220kV Class, Resin Impregnated Dry type Transformers up to 5 MVA, 11KV Class (in Technical collaboration with MORA, GERMANY) and Cast Resin Dry type Transformers up to 12.5 MVA, 33 KV Class (in Technical collaboration with HTT, GERMANY). It has two plants, both located in Vadodara, Gujarat.
Unlike a good number of transformer companies, Voltamp has traditionally received a big chunk of it’s revenues from industries such as pharmaceuticals, power, automobiles and metals. Industrial sales entail higher margins than those to state utilities, apart from providing a more diversified industrial base.
The Company (along with the rest of the industry) has been operating at sub-optimum levels over the past few years due to overall capex and power sector slowdown. However, the Company seems to have managed slowdown better that most other companies in this industry. It did not have even a single year of negative profit and generated hefty cash flows throughout the slowdown period. In fact, it has maintained it’s dividend at Rs 10 for the past several years, even if it had to pay 40% - 50% of net profits as dividend to maintain the dividend.
Over the past 10 years, the Company has generated a hefty Rs 430 cr in operating cash flows and has given out about Rs 120 cr as dividends. It is debt-free and has cash & liquid investments of about Rs 245 cr that can be utilized to quickly expand business once the capex revival gains momentum.
The annual growth of both the topline and the bottomline has turned positive in FY15 after being in the negative for several years (Revenues grew 16%, Operating Profit grew 60% and sales volume grew 27% indicating that the country’s capex cycle probably bottomed out in FY14 and revival started in FY15).
The Company’s RoE and margins are expected to expand significantly once the capex cycle takes hold. The RoE, currently at 6%, ranged from 35% to 60% during the previous capex up cycle period of 2004-09.
As the market currently is not excited about this Company, it is available at P/B of only 1.7 (as opposed to the range of 5-15 it traded in the pre-2009 boom years). The P/E, at 26, is also fairly low when you consider the fact that we might be very near to the bottom of the capex cycle. As the capex cycle revives and the Company’s RoE moves from 6% to say, 25-30% over the next few years, the EPS will eplode. Another important point to note is that as a significant chunk of the Company’s sales come from private and public sector customers across a varied industrial base, it is not dependent merely on revival of power sector capex. An overall industrial capex revival will also benefit the Company.