>VOLTAMP TRANSFORMERS LIMITED (INDIA CAPITAL MARKETS)

Voltamp Transformers Limited is among the top 3 players in building application transformers in the organised market and commands 20% market share in the industrial application transformers, with large installation base of more than 37000 transformers. We expect volumes to grow at a CAGR of ~14.5% over FY09-11 and expect revenues to grow at a CAGR of ~8.5% over the same period. Despite likely moderation in its FY10 earnings, any revival in order inflow in the current financial year on account of amplified focus on infrastructure development from the newly formed government will provide earnings upside in FY11.

Investment Rationale Highlights

De-Risked Business Model
The Company has a unique business model where unlike others, it generates 92% of its revenue from the industrial clients and only about 8% from the SEB’s. Market Leader in Dry Type of Transformers The Company is a market leader in the Dry type distribution segment with 40% market share.

Strong Order Book
The Company has a strong order backlog of Rs 4.75 bn (representing 8806 mva) as on June 2009 which VTL expects to execute in current financial year.

Ramp up in capacity to meet additional demand
The Company plans to increase the installed capacity by 4000 MVA to 13000 MVA. The new facility is expected to commission by August 2009.

Valuation
At the current market price, the stock trades at 8.05x its FY 10E earnings of Rs 94.60 and 6.75x its FY 11E earnings of Rs 112.84. We recommend BUY with a target price of Rs 1015 based on the P/E Multiple method (9x its FY11E earnings), i.e. a potential upside of 33% from its current levels. We believe the company offers decent opportunity to play on the India T&D sector story.

To see full report: VOLTAMP TRANSFORMERS LTD