>VOLTAMP TRANSFORMERS (EDELWEISS)

■ Lower margin pulls down PAT; order book slows down
Voltamp Transformers’ (VAMP) Q4FY10 result was ahead of our expectation on the profitability front. Though the EBITDA margin declined Y-o-Y, the dip was lower than our expectation. Numbers were, however, in line with our estimate on the revenue front. The company reported muted revenue growth of 9.4% Y-o-Y to INR 1,821 mn, primarily due to lower realisations. Q-o-Q, the company reported strong 26.1% revenue growth due to execution of certain high-margin orders.

EBITDA margins dipped 144bps Y-o-Y to 20.3% during the quarter, leading to slower growth in EBITDA at 2.1% Y-o-Y to INR 369 mn. The dip in the EBITDA margin was primarily due to sharp increase of 16.8% Y-o-Y in the raw material (RM) cost (increased 487bps Y-o-Y to 76% of sales). The sharp rise in RM cost was to an extent negated by 64.6% Y-o-Y decrease in other expenses (down 319bps Y-o-Y to 1.5% of sales). The substantial increase in RM cost indicates
margin pressure due to increased commodity prices. Due to commissioning of its new capacity, VAMP’s depreciation increased 56.1% Y-o-Y to INR 20 mn besides reduced other income (down 47.7% Y-o-Y) pulled PAT down to INR 265 mn, a 12.4% Y-o-Y decline during the quarter. The company’s current order backlog stands at INR 4.1 bn (0.7x FY11E revenues), a 8.9% decline Y-o-Y.

■ Volumes spurt; realisation dips
Realisations during the quarter, at INR 523K/MVA, were down 23.2% Y-o-Y. VAMP has recorded drop in realisation during each of the quarters during FY10. Volumes, however, at 3,485 MVA, were up 42.3% Y-o-Y, highest during the past 12 quarters. On a full year basis, volume recorded a muted growth of 4.9% Y-o- Y to 10,009 MVA amid concerns of overcapacity in its transformer range.

■ Outlook and valuations: Capacity utilisation a concern; maintain ‘HOLD’ We expect capacity utilisation to remain under pressure on the back of increased capacity. Also, with increase in commodity prices, we expect the margin to be under pressure going forward. On our current estimates of INR 85.2 and INR 93.1, the stock is trading at P/E of 10.0x and 9.1x for FY11E and FY12E, respectively. We maintain ‘HOLD’ recommendation on the stock and rate it ‘Sector Performer’ on relative return basis.

To read the full report: VOLTAMP TRANSFORMERS