Scrip May Decline Further - Voltamp Transformers

Ali On Content / 08 Dec 2008

Even though the financials are going to be good, poor sentiments are expected to pull the scrip further down. 

We had recommended Voltamp Transformers to our investors in our analysis column (Issue No 9, April 27, 2008) at Rs 1188.  Our recommendation was backed by various factors like its higher order book, good financial performance, expansion plans, higher institutional holding and management’s confidence of maintenance of the margins. Now, although the company has performed according to our expectations on financial front, due to poor sentiments in the capital goods sector and slowdown in real estate sector (which was expected to be one of the major growth drivers), the scrip is trading at just Rs 313 showing a decline of 72 per cent. We would recommend the investors to book loss at current level, as they would get another opportunity to buy at lower levels. Even though the financials are going to be good, poor sentiments are expected to pull the scrip further down.

Although the scrip has corrected sharply there are certain positives which we would like to mention. First, as mentioned in our analysis, the company has showed topline as well as bottomline growth in H1FY09. While the topline stood at Rs 395.81 crore, bottomline stood at Rs 50.51 crore as compared to Rs 328.30 crore and Rs 35.55 crore in H1FY08. As stated by the management, it has also improved EBITDA margins by more than 350 basis points to 22.30 per cent. But going ahead we feel the margins are expected to come down as realization is expected to decline as more capacities are expected to go on stream in 2009. Even, on account of expected slowdown in capacity expansions, demand for the industrial transformers is expected to come down.

So although the company is performing well on the financial front, macro sentiments are not good and hence we recommend the investors to book loss at current level and enter at further lower levels of Rs 275-280.

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