Brokerage firm ICICI Securities has initiated a ‘buy’ call on Voltamp Transformers Ltd with a target price of Rs 3,610 per share, 35% above the current market price.

Voltamp is a major player in the transformer manufacturing industry with a 15% domestic market share.

According to ICICI Securities, Voltamp is poised to benefit significantly from the energy transition, recovery in private capital spending and government production-linked incentive (PLI) schemes in the manufacturing sector. The company expects strong earnings growth over the next three years with strong order books, a solid balance sheet, and a positive earnings outlook.

“We model a revenue/earnings CAGR of 11%/16% from FY22 to FY25. Also, pick-up in distribution capex and manufacturing investments could lead to the higher order book for Voltamp,” ICICI Securities said in its recent report.

Voltamp’s order inflow rose 18% year-on-year to Rs 1,170 crore in the first nine months of FY23. The growth has resulted in the company’s transformer backlog at a record Rs 900 crore, totalling around 8,160 MVA.

More than 85% of the backlog is from private operators, with the rest from SEB and utilities. Looking ahead, Voltamp has strong opportunities in manufacturing, industrial capex for capacity expansion, and energy transition, according to ICICI Securities, suggesting the company is well on its way.

“We believe the order book will improve with capex revival and higher delivery capex. Higher sales on the back of improving installed capacity utilisation of the industry will ensure better profitability. We believe any new capacity addition plan by the company could be a positive trigger going forward,” the ICICI Securities report said.

Voltamp’s clients have long favoured the company for its track record of responsible execution and effective working capital management, even in the cyclical nature of the business.

The report added that Voltamp managed its cash flow more effectively than its peers, resulting in a healthy rate of return. The company will have net cash of Rs 640 crore by end-December 2022, equivalent to 23% of the current market cap.