voltamp transformers overweight) - initiating coverage - 5 oct 09 (ifin)

8/3/2019 Voltamp Transformers Overweight) - Initiating Coverage - 5 Oct 09 (IFIN)

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5 October 2009

Initiating Coverage

Voltamp

Overweight

Refer to disclaimer, analyst certification and ratings criteria on the last page prior to making any investment decision.

TRANSFORMING TO A BIGGER SCALE

Voltamp was set up in 1963. Companys recent foray into 220 kV,

from the existing 132 kV will augur well for future growth. Further

development to 400 kV shall be a key technological advancement.

Capacity enhancement to lend growth in new business areas:

Voltamp has recently increased its capacity from 9,000 to 13,000

MVA in line with its foray into 220 kV (100 MVA) class transformers.

In the first two years of the 11 th plan ~ 183,000 MVA capacities have

been added in the 200 kV class, surpassing the 10th

plan by ~17%

(156,500 MVA). New capacity addition coupled with significant

replacement demand (from 6th

and 7th

plan) will drive up volumes forall players including Voltamp especially in the 220 kV class.

Zero Debt: Voltamp is a zero debt company with net debt to

equity at -0.5 offering significant scope to venture into new working

capital intensive but high revenue generating activities. (Cash and

cash equivalent Rs 140 per share in FY09).

Margins and return ratios to recover in FY11: We expect EBITDA

margins to correct to ~17% (FY09 23%) in FY10 and recover to 19% in

FY11 on account of dip in commodity prices and lesser hedging gains.

Sharp dip in profits expected in FY10 coupled with significant capexfor new plant will lead to a sharp drop in ROE and ROCE for FY10,

with recovery expected only in FY11 led by incremental volumes from

new plant and better realisation.

Valuation & Recommendation:At CMP of Rs 815 stock trades at

10x FY10E and 7x FY11E EPS of Rs 81.8 and Rs 116.3 respectively. We

initiate coverage with an Overweight rating on the stock with a

target price of Rs 940 (See page 7 for Valuation).

Market Data

Bloomberg codeSensex

Price

Target Price

Target return

VAMP IN17,134

Rs 816

Rs 940

15%

Equity shares o/s (mn)

Market Cap ($ mn)

52 Wk H/L

FII Limit

10.1

173

917 / 263

24%

Stock performance

(%) Absolute Relative1 Month (0.9) (12.5)

6 Months 149.5 36.0

12 Months 40.0 1.6

Shareholding pattern

Sensex Relative chart

Key financial highlightsYear end 31 Mar (Rs mn) FY08 FY09 FY10E FY11E CAGR (08-11E)

Net Sales 5,553 6,431 6,084 7,785 11.9

EBITDA 1,179 1,498 1,023 1,533 9.2

PAT 799 1,132 828 1,177 13.8

EPS (Rs) 79.0 111.9 81.8 116.3 13.8

PE (x) 10.3 7.3 10.0 7.0 -

EV/EBITDA (x) 6.5 4.6 6.1 3.6 -

P/BV (x) 5.0 3.1 2.5 1.9 -

EBITDA % 21.2 23.3 16.8 19.7 -

PAT % 14.4 17.6 13.6 15.1 -

ROE % 60.5 52.9 27.8 30.8 -ROCE% 94.3 79.0 41.7 46.1 -

Vinay Pandit +91-22-4333 5115 [email protected]

Jason Soans [email protected]

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Sensex
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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IFIN ResearchIFCI Financial Services

Voltamp TransformersOverweight

5 October 2009 2

Contents: Page

Key Investment Criteria 3 Key Assumptions 6 Sensitivity Analysis 6 Valuation 7 Peer comparison 8

What to expect in 2QFY10? 8

Business Background 9 I-Fin Estimates Cash Flow & Balance Sheet 10 I-Fin Estimates Income Statement and Key Ratios 11 Disclaimer / Analyst Certification / Key Ratings 12


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5 October 2009 3

Key Investment CriteriaVoltamp Transformers is a key player in the sub 100

MVA (220 kV) capacity transformers. The company

not only sells to external customers such as

industries and State Electricity Boards, but also sells

to its competitors such as ABB, Siemens, etc who

prefer outsourcing custom designed small

transformers.

Moving from 50 MVA to 100 MVA (220 kV);Capacity increase from 9,000 to 13,000 MVA

Until FY09, Voltamp has focused on the sub 50 MVA

(132 kV) transformer capabilities. However, with

the new additional 4,000 MVA facility operational

from Sep 09, the company has now extended their

capabilities from 50 to 100 MVA (220 kV).

Source: IFIN Research; Company

Company continues to witness competition in this

space from players like Emco, Indotech, Accurate,

Alfa, IMP Power, Bharat Bijlee and Transformer &

Rectifiers. Larger players like Crompton Greaves,

Areva T&D, ABB and BHEL continue to maintain

their niche in the larger transformer such as 765 kV

and above up to 1200 kV

Company

Transformer

up to

Upgrading

to

Capacity

(MVA)

ABB 1200 kV - 16,875

Siemens 1200 kV - 15,000

Areva T&D 1200 kV - 15,000

BHEL 800 kV 1200 kV 35,366

Cr.Greaves 800 kV 1200 kV 24,670

Emco Ltd 400 kV - 20,000

Tr.& Rectifier 400 kV 765 kV 23,000

Bharat Bijlee 220 kV - 11,000

Indotech 400 kV - 7,450

Voltamp 132 kV 220 kV 13,000


Until the company was operating in the 50 MVA

(132 kV) class the market opportunity for the

company was limited in size and quantity to smaller

installation. Also, company had significant share of

business from different customers which was

depicted by the fact that no single customer hadmore than 10% of revenue share. However, with

the company now moving into the 100 MVA (220

kV) class, a new market has opened up for the

company. The potential growth in this class

segment can be shown as under:

Substation Transformer addition (MVA) in 220 kV

At the end of Central State Total

6th plan 500 36,791 37,291

7th plan 1,881 51,861 53,742

8th plan 2,566 81,611 84,177

9th plan 2,866 113,497 116,363

10th plan 4,276 152,221 156,497

11th plan

(Up to Mar09)4,476 176,879 182,455*

Source: Ministry of Power; * - incl. 800 MVA under JV/Pvt

The 220 kV class has witnessed growth in the first

2 years of the 11th

Plan (2007-2012), already

beating the total MVA addition at Substations in

the 10th Plan (2002-2007). The total planned

addition for the 11th Plan (2007-2012) under all

classes stands at 160,000 MVA per annum. Of the

total 306,892 MVA of transformer capacity added

at substation level until March 2009, 58% lies in the

220 kV range. At nearly Rs 0.5 mn per MVA this

indicates total investment of ~Rs 88 bn up to 31

March 2009 in the 220 kV range alone.

We believe that in the balance period of the 11 th

plan, significant demand in the 220 kV class can be

expected on account of the following:

1. Continued power capex: 7MVA of transformercapacity for every 1 MW power generated.

2. Replacement demand of old transformers to anextent of ~ Rs 45 bn over the 11th plan.

This will enable players like Voltamp to move faster

to the 100% capacity utilisation scenario.

The average replacement cycle of a transformer is

~25-30 years. Hence transformers installed in the

6th and 7th Plans up to ~90,000 MVA are in the

process of being replaced over the 11th

and the12

thPlan.


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5 October 2009 4

Power transformers lead the way; SEB revivesVoltamps business primarily comprises of

distribution transformers (up to 5 MVA), power

transformers (5 MVA and above) and dry type

transformers (up to 12 MVA). Power transformers

contributed to 58.4% of total MVA sold in FY09. Invalue terms the same contributed 48% to revenue.

Source: Company; IFIN Research

The company has also increased its capabilities in

power transformers from 50 MVA (132 kV) to 100

MVA (220 kV).

The growth in this business segment is also being

propelled by the companys renewed focus on

bidding for orders of State Electricity Boards (SEBs)

which contributed to 8% of revenue in FY09

(3.75% in FY08, 2-3% in FY07). In FY10, we expectthe SEB business to increase to ~12-14% and

further increase to 15% and above in FY11.

Source: Company

Hence Voltamp is estimated to participate in the

large chunk of orders estimated in this class over

the next 2-3 years (2010-2012) of the 11th Plan

(2007-2012). Various players are adding up

capacities to cater to this requirement.

Between Apr-Aug 09, 8,101 MVA was added at

various substations in the 220 kV class oftransformers.

o 300 MVA was added at Central Govt level.o 4166 MVA was added at State Govt level.o 800 MVA was added in JVs / Private sector.During 1QFY10, Voltamp executed 1,590 MVA

worth of transformers which were however

primarily in the 50 MVA (132 kV) class since thenew capacity was expected to be operational only

by Sep 09.

With the new facility now in place, company is

extending its range up to 200 kV transformers

targeting the growing SEB business. In the current

business scenario where private sector orders are

slowing down, we expect the company to deliver

~10,200 MVA worth of orders during FY10.

However, working capital cycles could marginally

increase on account of the SEB business, which

have a history of slower payment cycles.


Revenue growth driven by volume and rawmaterial prices; Order book set to grow

Voltamp has a pending order book of Rs 4.75 bn as

of Jun 09 which is an increase of 16.6% over closing

order book of Rs 4.07 bn as of Mar 09. Post that

company has received a large order of Rs 800 mn

from MSEB (Maharashtra State Electricity Board).

The total order book is executable by Mar-Apr 09.

In spite of a severe slowdown in various projects,

the company has been able to deliver volume

growth of 21% in FY09. However, due to capacity

constraint, new capacity gradually coming into

place and bleak business environment, we expect

volume growth of 10% in FY10 and 14% in FY11.

However, large order inflows on account of entry

into 220 kV class will help reach optimum capacity

utilisation of 13,000 MVA faster, and will lead toupsides to our earnings estimates.


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5 October 2009 5

Coupled with this is the drop in price of copper

which was an average of ~USD 6,000 per tonne in

FY09 (1HFY09 USD 8,072 per tonne). For FY10, we

have estimated average price of copper at ~USD

5,300 per tonne which will in effect pull down

average realisation for the company (for oil filledtransformers) from Rs 0.61 mn per MVA in FY09 to

Rs 0.53 mn per MVA in FY10. For FY11 our current

estimates factor in copper prices at ~USD 6,000

per tonne which would indicate an average

realisation of 0.58 mn per MVA.

Source: IFIN Research

Copper alone forms 33% of raw material cost. Raw

material cost forms ~70% of sales. Any change in

average copper prices will change our estimates for

the respective years.On a YoY basis, we expect a significant dip in

revenues in 2QFY10 on account of dip in average

realisation led by a sharp dip in copper prices. In

2QFY09, copper traded at an average of USD 7,684

per tonne while in 2QFY10, the average price of

copper is ~USD 5,834 per tonne, a dip of 24% YoY.

Source: IFIN Research; Company; Bloomberg

Robust hedging policies in placeVoltamp has strong hedging policies in place. The

typical approach when booking any order involves

booking the order plus the price of copper

prevalent of that day at the LME (London Metal

Exchange). The company books back to back

purchase orders of raw materials while taking a

hedge on the LME. However, this may at times offer

a good opportunity for the company to make better

than expected margins are seen in 3QFY09 (as seenin the above graph) where the EBITDA margins

moved up to ~30% vis-a-vis the fall in copper prices

to ~USD 4,000 per tonne from an average USD

7,684 per tonne in 2QFY09. While hedging prevents

the downside for the company, in times like these it

offers an opportunity to make exceptional margins

on certain orders.

Strong Balance Sheet; Healthy cash flows; Towitness marginal strain on working capital with

new capacities and growth in SEB business

Post FY06, when company started scaling up

capacities significantly to capitalise on the boom in

the economy thereby leading to a sharp rise in

demand for transformers by all classes of

industries, their cash flows had turned positive at

operating level. In fact, within the same plant the

company, which was manufacturing 3500 MVA in

FY03, and 4500 MVA in FY05 had scaled up to

manufacture 7,200 MVA in FY08 and 9,000 MVA inFY09. This has helped the company to derive

maximum benefit of operating leverage thereby

leading to sharp rise in operating cash flows and

EBITDA margins. At this point of time, SEB business

was also barely 3-4% of the total turnover hence

causing lesser strain on the cash flows.

Volume

(MVA)

CFFO

(Rs Mn)

FCF

(Rs Mn)

EBITDA

(%)

FY03 2,403 (3) (71) 9.8%

FY04 3,650 69 59 14.0%

FY05 4,462 (88) (118) 13.5%

FY06 4,503 (15) (39) 13.6%

FY07 6,188 553 267 15.2%

FY08 7,898 455 49 21.2%

FY09 9,541 1,043 163 23.3%

FY10E 10,000 687 246 16.8%

FY11E 11,000 750 153 19.7%

CFFO: Cash Flow From Operation; FCF: Free Cash Flow

Source: Company, IFIN Research


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5 October 2009 6

Key assumptions

Key Assumptions FY09 FY10E FY11E Comments

Volume (MVA) 9,541 10,500 12,000 SEBs share to increase in FY10 to 12% andFY11 to 15%Growth % YoY 20.8 10.1 14.3

Realisation (Rs mn/MVA)-Oil filled 0.61 0.53 0.58 Expect dip in realisation in line with fall incopper prices which were at life timehighs in FY09.

Competitive bidding in SEB business willpull down margins.

Growth % YoY (3.5) (13.0) 10.5

Realisation (Rs mn/MVA)-Total 0.67 0.58 0.65

Growth % YoY (3.6) (14.0) 12.0

Copper - Avg price (USD / Tonne) 5,893 5,300 6,000 1HFY09: $ 8072/ton; 2HFY09: $ 3702/tonGrowth % YoY (22.5) (10.1) 13.2 1HFY10: $ 5264/ton; 2HFY10E:$ 5400/tonRevenue mix (%) SEBs business expected to contribute

larger share in 220 kV space hence

improvement in share of Power Trf. Dry

type to stay low in line with lower real

estate activity.

Distribution Transformer 30.4 30.0 28.0

Power Transformer 58.4 60.0 61.0

Dry Type Transformer 11.2 10.0 11.0

Sensitivity AnalysisVoltamp revenue is highly sensitive to copper which contributes nearly 33% to the raw material cost. Other

key raw material CRGO (laminate) which contributes 37% to raw material cost is not as volatile as copper and

has seen better stability in pricing (approx. Rs 200 per kg +/- Rs 10-20) over the past 12 months.

Sensitivity analysis : CopperFY10E FY11E

Bear Base Bull Bear Base Bull

Avg Copper Price (USD/ton) 5,000 5,300 6,000 5,800 6,000 6,500

Avg Realisation - oil filled (Rs mn/MVA) 0.50 0.53 0.60 0.57 0.58 0.63

Revenue (Rs mn) 5,740 6,084 6,888 7,525 7,785 8,433

Sensitivity analysis : Volume

FY10E FY11E

Bear Base Bull Bear Base Bull

Volume (MVA) 10,000 10,500 11,000 11,500 12,000 13,000

Revenue (Rs mn) 5,794 6,084 6,374 7,460 7,785 8,433

EBITDA (%) 15.8% 16.8% 17.7% 19.2% 19.7% 20.8%

EPS (Rs) 74.7 81.8 89.0 109.9 116.3 130.7

Sensitivity to revenue mix:

FY10E 1 2 Base 3 4

Distribution transformers 26% 28% 30% 31% 32%

Power transformers 64% 62% 60% 58% 54%

Dry type transformers 10% 10% 10% 11% 14%

Revenue (Rs mn) 6,019 6,052 6,084 6,158 6,348

Avg. Realisation (Total)(Rs mn/MVA) 0.573 0.576 0.579 0.586 0.604

EBITDA % 16.6 16.7 16.8 17.1 17.7

EPS (Rs) 80.2 81.0 81.8 83.6 88.3

FY11E 1 2 Base 3 4

Distribution transformers 24% 26% 28% 30% 32%

Power transformers 65% 63% 61% 58% 54%

Dry type transformers 11% 11% 11% 12% 14%

Revenue (Rs mn) 7,719 7,752 7,785 7,893 8,075

Avg. Realisation (Total)(Rs mn/MVA) 0.643 0.646 0.649 0.657 0.673

EBITDA % 19.5 19.6 19.7 19.9 20.3

EPS (Rs) 114.7 115.5 116.3 119.0 123.4


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5 October 2009 7

ValuationsVoltamp has traditionally traded in the 8x-12x

band. The sharp break out beyond the 12x band

was largely lead by the strong growth displayed by

the company in volumes as well as rise in

realisation due to the sharp rise in commodity

prices. Since March 2008, the stock has returned

below the 12x and moved further below the 8x

level led by the sharp drop in commodity prices

especially copper, coupled with expectation of

slowdown in volume growth in FY10 led by capacity

constraint.

The company has now expanded capacity from

9,000 MVA to 13,000 MVA with the new plant.

However, due to the bleak economic outlook,orders have slowed down from private customers.

This has led to company focusing on SEB orders and

thereby increasing capacities to cater to the

demand in the 220 kV class (100 MVA).

We expect Voltamp to not trade beyond the 10-12x

bands on account of the following factors:

1. Lower volume growth expected in FY10 (10%)and FY11 (14%) against 21% in FY09.

2. Slower order inflows from private customersdue to ensuing economic scenario.

3. Dip in margin expected in coming years.4. Drop in average copper prices pulling down

average realisations in spite of volume growth,

therefore leading to overall dip in revenue.

5. Working capital strain to increase with growthin SEB business.

Cash per share

The company has cash & cash equivalents of Rs 140

per share as of March 2009.

Introducing the EV/MVA method of valuation

We hereby introduce the EV/MVA method of

valuing pure transformer players since revenues are

a combination of volume growth + realisation.

Realisation is also determined by prevailing price of

key raw materials such as copper, CRGO,

transformer oil. In typical scenarios as seen in FY09

and FY10 a sharp rise and subsequent sharp fall in

commodity prices primarily copper and crude oil

altered the revenues of the company, in spite of

growth in volume (MVA). Hence we decided to

arrive at the valuations using the EV/MVA method.

EV/MVA analysis

Since Sep 06

Peak 1.9x

Median 0.8x

Average 0.8x

Last one year

Peak 0.7x

Median 0.3x

Average 0.3x

Based on the data above, we value Voltamp on the

EV/MVA method. On giving it an average one year

forward EV/MVA of 0.6x we arrive at a target price

of Rs 950 per share.

Valuation and Recommendation

On a PER(x) basis we arrive at a target price of Rs

930 per share based on 8x FY11E EPS of Rs 116.3.

On averaging the price target based on EV/MVA

and based on PE(x) we arrive at a target price of Rs

940.

We recommend an OVERWEIGHT rating on the

stock with an upside potential of 15% from the

current levels.


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5 October 2009 8

Peer comparison

PE (x) based comparison

* - Bloomberg and Other estimates; # - Crompton Greaves numbers are standalone

EV / MVA (x) based comparison with immediate peers

* - Bloomberg and Other estimates;

What to expect in 2QFY10?

On the volume front we expect marginal improvement QoQ against 1,590 MVA executed in Q1FY10 andYoY over 1QFY09 led by order from SEBs.

Average Copper price is at USD 5,834 per tonne as of 2QFY10 vis-a-vis USD 7,684 per tonne as of 2QFY09, adip of 24% YoY.

Together, both the above factors could lead to a ~20% YoY dip in revenue for 2QFY10. Against this, average copper price for 3QFY09 was USD 3,943 per tonne which is much lower than current

prevalent prices. We are assuming an average copper price of USD 5300 per tonne for the whole year FY10.

Hence 2QFY10 could be the last point in the current commodity cycle where one would see a dip inrevenue on account of the same, offering a good entry point for various investors. We believe the chances

of under-performing to previous quarters would end with 2QFY10, subject to no similar knee jerk

correction in commodities as seen in FY09.

Margins too are expected to bottom out. However, increasing competitive bidding in 220 kV SEB businesswill keep margin suppressed vis-a-vis highs as seen in previous years.

Our view

Voltamps stock price could take a beating in the short term in the run up to the 2QFY10 results. However, we

look at it as a good investment opportunity to invest for the medium to long term in the stock led by a boost in

volumes and revenue on account of new businesses and capacity augmentation.

CMP

(Rs) FY09 FY10E FY11E FY09 FY10E FY11E FY09 FY10E FY11E FY09 FY10E FY11E FY09 FY10E FY11E

VOLTAMP 815 6,431 6,084 7,785 23.3% 16.8% 19.7% 17.6% 13.6% 15.1% 111.9 81.8 116.3 7.3 10.0 7.0Immediate peers:

Emco* 94 9,963 11,405 13,656 14.0% 12.6% 12.5% 5.0% 4.4% 4.5% 9.0 8.5 10.3 10.4 11.0 9.1

Trans former & Recti fi er* 383 4,310 4,298 5,750 16.0% 14.5% 15.1% 10.0% 9.1% 9.5% 34.1 30.4 42.4 11.2 12.6 9.0

Bharat Bijlee* 1016 5,459 5,827 7,011 15.0% 15.6% 15.9% 9.0% 9.2% 9.4% 84.1 94.5 117.2 12.1 10.7 8.7

Larger Peers:

ABB India* 790 69,464 65,528 83,173 13.0% 11.4% 11.5% 8.0% 6.9% 7.1% 25.8 21.3 28.0 30.6 37.1 28.2

Crompton & Greaves*# 322 46,106 52,790 61,912 14.0% 12.8% 13.2% 9.0% 8.1% 8.4% 10.8 11.6 14.2 29.7 27.7 22.7

Areva T&D* 319 26,551 34,438 42,884 15.0% 15.1% 15.6% 9.0% 7.5% 7.4% 9.5 11.1 13.2 33.6 28.7 24.1

PE (x)Company

Revenue (Rs mn) EBITDA (%) PAT (%) EPS (Rs)

CMP O/s shares Mkt Cap(Rs) (mn) (Rs mn) FY09 FY10E FY11E FY09 FY10E FY11E FY09 FY10E FY11E FY09 FY10E FY11E

VOLTAMP 815 10.1 8,248 -1,399 -1,992 -2,698 6,849 6,256 5,550 9,451 10,500 12,000 0.7 0.6 0.5

Emco Ltd* 94 58.8 5,527 2,153 1,516 1,979 7,680 7,043 7,506 10,947 12,000 14,000 0.7 0.6 0.5

Transformer & Rectifier* 383 12.9 4,941 -381 -271 -141 4,560 4,670 4,800 7,000 9,000 11,000 0.7 0.5 0.4

Bharat Bijlee* 1016 5.7 5,791 -56 -70 -92 5,735 5,721 5,699 7,589 8,500 9,500 0.8 0.7 0.6

Company Net Debt (Rs mn) Enterprise Value (Rs mn) Production (MVA) EV / MVA (x)


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5 October 2009 9

Business Background

Background

Voltamp was originally set up as a partnership firm

by the name of Voltamp Corporation by the

promoter Mr Lalitkumar Patel and others. Prior to

starting his own firm, Mr Patel had worked for 8

years with Siemens, Germany and 3 years with

Bharat Bijlee, India. The partnership firm was then

converted into a private limited company in 1967.

Voltamp got listed as a public company in Aug 2006

through the divestment of equity stake to the

public to the tune of 4.88 mn shares . The company

did not receive any proceeds from the listing

process.

Business

Products:

Voltamp is in the business of manufacturing

transformers. The company categorises their

business into 3 parts:

1. Distribution transformers (30%): these are oilfilled transformers up to 5 MVA range.

2. Power transformers (58%): these are oil filledtransformers from 5 MVA to 100 MVA range

(220 KVA).3. Dry type transformers (12%): these are dry (non

oil) type transformers up to 12.5 MVA range.

Production capacity:


The company has enhanced their capacity from

9,000 MVA to 13,000 MVA at a sum of Rs 270 mn .

The new capacity is expected to be operational

from Sep 09 onwards. However, it will take 2-3

years to reach optimum capacity utilisation levels.

We expect Voltamp to do ~10,500 MVA of sales

during FY10. By FY 11-12, we expect company to

reach the expanded capacity of 13,000 MVA.

Management

The day to day affairs of the company are managed

by Jt MD, CFO and CEO Mr Kanubhai S Patel. In the

past he has worked with Atul Products, Bombay

Dyeing and Cadbury India Ltd. He was been with

the company for almost 30 years.

The other Joint MD and Vice Chairman is Mr

Kunjalbhai L Patel who is an electrical engineer with

11 years of experience in production, marketingand general management.

Manufacturing capacities

The company has 1 plant at Makarpura, Vadodara

with installed capacity of 9,000 MVA. It has recently

set up a new plant of additional 4,000 MVA at

Savali, Vadodara (Gujarat). The new plant is

operational from Sep 09 and will take the total

manufacturing capacity to 13,000 MVA per annum.

The company can always, as seen in FY09,

outsource low value add activity at secondary

rented sites to improve the productivity of the

plants. These ancillary activities would typically

comprise of painting, assembly, tools, small

machining, etc.

Key CustomersThe company primarily has two kinds of customers:

1. State Electricity Boards: ~9 % of the turnover2. Industrial clients: ~91% of the turnoverThe company has, in the past always had a

preference for industrial clients anticipating better

payments terms and conditions. On the other hand

SEBs are slower in realising payments.

However, going by the current economic scenario

we expect the share of SEBs business to increase in

FY10 and FY11. In FY10, the share of SEBs to total

turnover is expected to increase to ~12% against

9% in FY09 and further to 14-15% in FY11.


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5 October 2009 10

Financial StatementsIncome Statement (Rs mn)

Year end 31 March FY08 FY09 FY10E FY11E

Net Sales 5,553 6,431 6,084 7,785

Expenditure 4,375 4,932 5,061 6,251

Operating Profit 1,179 1,498 1,023 1,533Other Operating Income - - - -

EBITDA 1,179 1,498 1,023 1,533

Other Income 108 240 270 283

Depreciation 31 45 52 54

EBIT 1,255 1,694 1,240 1,762

Interest 5 5 5 5

PBT (before non-recurring) 1,250 1,689 1,235 1,757

Non Recurring - - - -

Tax on non recurring - - - -

PBT (after non-recurring) 1,250 1,689 1,235 1,757

Total Tax 451 557 408 580Reported PAT 799 1,132 828 1,177

Adjusted PAT 799 1,132 828 1,177

Prior period items - - - -

Minority interest - - - -

Preference dividend - - - -

Net Income 799 1,132 828 1,177

Key ratios


Growth rates (%)

Net sales 36.9 15.8 -5.4 28.0

EBITDA 90.6 27.1 -31.8 49.9

APAT 100.6 41.7 -26.9 42.2

Margins (%)

EBITDA 21.2 23.3 16.8 19.7

EBIT 22.6 26.3 20.4 22.6

PBT 22.5 26.3 20.3 22.6

APAT 14.4 17.6 13.6 15.1

Valuation ratios (x)

EPS (Rs) 79.0 111.9 81.8 116.3

EPS Growth (%) 100.6 41.7 -26.9 42.2

PER (x) 10.3 7.3 10.0 7.0

Price / Cash EPS (PCEPS) (x) 9.9 7.0 9.4 6.7

Price /Book Value (P/BV) (x) 5.0 3.1 2.5 1.9

EV/Net Sales (x) 1.4 1.1 1.0 0.7

EV/EBITDA (x) 6.5 4.6 6.1 3.6

DuPont

ROE (%) 60.5 52.9 27.8 30.8

Net Margin (%) 14.4 17.6 13.6 15.1

Asset Turnover (x) 2.6 2.2 1.7 1.7

Leverage (x) 1.6 1.4 1.2 1.2

Other key ratios

ROCE (%) 94.3 79.0 41.7 46.1

Net Debt / Equity (x) -0.4 -0.5 -0.6 -0.6

Dividend Payout (%) 18.5 13.1 17.2 15.1


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5 October 2009 11

Cash Flow Statement (Rs mn)


Oper.profit before w.cap. changes 1,244 1,673 1,203 1,723

Change in current assets (483) 123 (88) (349)

Change in current liabilities 119 (222) (17) (15)

Others activities (425) (531) (411) (610)

Cash flow from operation (a) 455 1,043 687 750

Capital expenditure (99) (173) (31) 10

Investments (349) (771) (500) (700)

Dividend received 38 51 80 80

Interest received 4 14 10 13

Others - - - -

Cash flow from investing (b) (406) (880) (441) (597)

Free cash Flow (a+b) 49 163 246 153

Equity capital + share premium - - - -

Debt 1 (10) - -

Interest paid (5) (5) (5) (5)

Dividend paid (95) (148) (148) (142)

Others - - - -

Cash flow from financing (c) (98) (163) (153) (147)

Net change in cash (a+b+c) (49) 0 93 6

Cash and equivalents at the end 46 46 139 146

Balance Sheet (Rs mn)


Share Capital 101 101 101 101

Reserves & Surplus 1,545 2,531 3,216 4,216

Shareholder's funds 1,647 2,632 3,318 4,317

Short term debt 10 - - -

Long term debt - - - -

Total Debt 10 - - -

Creditors 139 24 22 36

Other current liab & provn 755 675 646 623

Other non-current liabilities - - - -

Total Liabilities 2,551 3,331 3,986 4,976

F.Assets (net) incl. Cap WIP 194 324 303 238

Investments 581 1,353 1,853 2,553

Cash & Bank 46 46 139 146

Inventory 807 523 504 703

Debtors 826 1,019 1,087 1,187

Other current assets 94 63 100 150

Total current assets 1,773 1,650 1,831 2,186

Other non-current assets 3 5 - -

Total Assets 2,551 3,331 3,986 4,977

Key Balance Sheet parameters (Rs mn)

Capital Employed 1,657 2,632 3,318 4,317

Net Current Assets 879 951 1,162 1,527

Book Value ( Net Worth ) 1,647 2,632 3,318 4,317

Working Capital 833 905 1,023 1,381


12/12



5 October 2009 12

Disclaimer:

I-Fin Disclaimer:

All information/opinion contained/expressed herein above by I-Fin has been based upon information available to the

public and the sources, we believe, to be reliable, but we do not make any representation or warranty as to its accuracy,completeness or correctness. Neither I-Fin nor any of its employees shall be in any way responsible for the contents.

Opinions expressed are subject to change without notice. This document does not have regard to the specific investment

objectives, financial situation and the particular needs of any specific person who may receive this document. This

document is for the information of the addressees only and is not to be taken in substitution for the exercise of

judgement by the addressees. All information contained herein above must be construed solely as statements of opinion

of I-Fin at a particular point of time based on the information as mentioned above and I-Fin shall not be liable for any

losses incurred by users from any use of this publication or its contents.

Analyst declaration

I, Vinay Pandit, hereby certify that the views expressed in this report are purely my views taken in an unbiased manner

out of information available to the public and believing it to be reliable. No part of my compensation is or was or in future

will be linked to specific view/s or recommendation(s) expressed by me in this research report. All the views expressed

herewith are my personal views on all the aspects covered in this report.

I-Fin Investment Rating

The ratings below have been prescribed on a potential returns basis with a timeline of up to 12 months. At times, the

same may fall out of the price range due to market price movements and/or volatility in the short term. The same shall

be reviewed from time to time by I-Fin. The addressee(s) decision to buy or sell a security should be based upon his/her

personal investment objectives and should be made only after evaluating the stocks expected performance and

associated risks.

Key ratings:

BUY (B): Stock offers returns upside of > 20%

OVERWEIGHT (OW): Stock offers returns upside of 5% to +20%

NEUTRAL (N): Stock offers returns of -5% to +5%

UNDERWEIGHT (UW): Stock offers returns downside of -5% to -20 %

SELL (S): Stock offers returns downside of < (20) %

NOT RATED (NR): Coverage not initiated / Not enough assurance to give a rating for varied reasons

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voltamp transformers overweight) - initiating coverage - 5 oct 09 (ifin)

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