Best Transformer Stock: Transformers & Rectifiers India vs Voltamp Transformers

India's economic engine is roaring, projected to become the world's third-largest powerhouse by 2030. This translates to a skyrocketing demand for electricity.

As the lifeblood of power transmission, the transformer industry stands to benefit immensely and is expected to grow at a compound annual growth rate (CAGR) of 8.3% in the next few years.

This growth is driven by the government's 'Power for All' initiative and rising demand for power.

Moreover, to support the government's renewable energy ambitions, the industry has planned transformers for 557 gigawatts (GW) of renewable energy.

Within this high-voltage market, two key players are poised to emerge as frontrunners: Transformers & Rectifiers India (T&R) and Voltamp Transformers.

Both are well-established players and are equipped with the technology and capacity to grow and rise to the top.

Business Overview

#Transformers & Rectifiers India (TRIL)

Transformers & Rectifies India (TRIL) is engaged in the manufacturing of power, furnace, and rectifier transformers.

It is the most preferred brand in India, and it manufactures high-voltage transformers such as 220 kilovolts (kV), 400 kV, 765 kV, and 1,200 kV.

Apart from transformers, the company also manufactures shunt reactors up to 765 kV class.

TRIL has an installed capacity of 37,200 MVA (mega volt amp) across India and plans to expand its capacity further.

Its products are widely used in power transmission and distribution, and its clients are spread across central and state utilities and other industrial sectors.

#Voltamp Transformers

Voltamp Transformers primarily manufactures electrical transformers.

Its product portfolio mainly comprises oil-filled power and distribution transformers with a voltage ranging up to 160 MVA, 220 kV, and dry-type transformers up to 12.5 MVA, 33 kV class.

The company has an installed capacity of 14,000 MVA in Gujarat but sells its products in various countries such as India, Nepal, Bhutan, Sri Lanka, Middle East Asia, South East, and African countries.

It has a diversified client base of over 1,000 customers across various industries such as power, oil refineries, textile, chemical, real estate, automobile, infrastructure, and steel.

Particulars	Transformers & Rectifiers India	Voltamp Transformers
Market Cap (in Rs billion)*	92.7	112.5
Order Book (in Rs billion)**	258.0	140

Source: Equitymaster|*as of 28th May 2024|** as of December 2023

Between the two companies, Voltamp Transformers has a higher market cap of Rs 112.5 billion (bn) as against TRIL, which has a market cap of Rs 92.7 bn.

However, TRIL has a higher order book of Rs 258 bn and higher manufacturing capacity when compared to Voltamp Transformers, which has an order book of Rs 140 bn.

If we compare the two stocks in terms of their performance on the stock market, then TRIL is again leading, with a return of 686.2%, as against 169.6% return of Voltamp Transformers and 23% return of Nifty 50.

#Revenue

TRIL majorly earns revenue from power transformers (58%), followed by distribution transformers (12%), furnace transformers (6%), rectifier transformers (5%), and shunt reactors (4%).

On the other hand, Voltamp Transformers earns the majority of its revenue from the sale of products (98%). It also offers after sale services which contribute a very minor portion (2%) of its revenue.

If we compare the two companies in terms of revenue growth between 2019-2023, TRIL is leading with a 13.1% compound annual growth rate (CAGR) as against 10.8% of Voltamp Transformers.

A healthy order book and larger manufacturing capacity have helped TRIL grow its revenue at a higher rate when compared to Voltamp Transformers.

On the other hand, diversified clientele and repeat orders from the existing clientele has helped Voltamp Transformers grow its revenue.

Revenue

Net Sales (in Rs m)	Mar -2019	Mar -2020	Mar -2021	Mar -2022	Mar -2023	5-Year CAGR
Transformers & Rectifiers India	7,010	7,421	11,617	13,960	12,947	13.1%
Voltamp Transformers	8,288	8,586	6,923	11,272	13,851	10.8%

Source: Equitymaster

#Profitability

With respect to profitability, TRIL is leading when compared to Voltamp Transformers.

The earnings before interest tax depreciation and amortisation (EBITDA) of TRIL grew by a CAGR of 21.1% in the last five years, as against the 19.6% growth of Voltamp Transformers.

The net profit of the TRIL grew by a whopping 116% against 18.7% of Voltamp Transformers.

TRIL's ability to secure raw materials at a lower price and pass on additional costs to its customers has supported the growth of its profit.

However, with respect to profit margins, Voltamp Transformers is leading with a five-year average EBITDA margin and net profit margin of 12.8% and 12.6%, respectively.

On the other hand, TRIL's five-year average EBITDA margin and net profit margin are 8.4% and 1.8%, respectively.

Going forward, the profit margins of both the companies are expected to improve further as the volume of their operations grows.

Profitability

EBITDA (in Rs m)	Mar -2019	Mar -2020	Mar -2021	Mar -2022	Mar -2023	5-Year CAGR
Transformers & Rectifiers India	514	685	741	1,209	1,341	21.1%
Voltamp Transformers	942	1,046	774	1,390	2,309	19.6%
PAT (in Rs m)	Mar -2019	Mar -2020	Mar -2021	Mar -2022	Mar -2023	5-Year CAGR
Transformers & Rectifiers India	10	76	143	423	470	116.0%
Voltamp Transformers	848	894	1,122	1,328	1,999	18.7%
Gross Profit Margin	Mar -2019	Mar -2020	Mar -2021	Mar -2022	Mar -2023
Transformers & Rectifiers India	7.3%	9.2%	6.4%	8.7%	10.4%
Voltamp Transformers	11.4%	12.2%	11.2%	12.3%	16.7%
Net Profit Margin	Mar -2019	Mar -2020	Mar -2021	Mar -2022	Mar -2023
Transformers & Rectifiers India	0.1%	1.0%	1.2%	3.0%	3.6%
Voltamp Transformers	10.2%	10.4%	16.2%	11.8%	14.4%

Source: Equitymaster

#Debt Management

It is important to look at the debt metrics to understand whether a company has fixed financial obligations.

High fixed financial obligations can reduce the net profit margin of the company.

Voltamp Transformers is a debt-free company and hence has no fixed financial obligations such as interest costs. Moreover, the company also has healthy cashflows and steady profitability to support its operations.

At present, the company has no immediate capex requirement, and even if it does, it can rely on its cashflows or take debt to fund its capex.

TRIL, on the other hand, has a debt-to-equity ratio of 0.1x at the end of financial year 2023. Over the past few years, the company has invested heavily in capex to expand its manufacturing capacity.

It plans to expand its capacity further by adding 12,00 MVA by the end of the financial year 2025 for the renewables and green energy sector.

Debt Management

Debt to Equity Ratio (x)	Mar -2019	Mar -2020	Mar -2021	Mar -2022	Mar -2023
Transformers & Rectifiers India	0.10	0.20	0.20	0.20	0.10
Voltamp Transformers	0.00	0.00	0.00	0.00	0.00

Source: Equitymaster

#Financial Efficiency

Two ratios help in assessing the financial efficiency of a business are return on capital employed (RoCE) and return on equity (RoE). Both the ratios tell us how much return the company is generating on its capital invested.

The five-year average RoCE and RoE of TRIL are 17% and 5.1%, respectively, whereas for Voltamp Transformers, the ratios stand at 18.4% and 14%, respectively.

Clearly, Voltamp Transformers is leading against TRIL with respect to financial efficiency.

Financial Efficiency

ROCE	Mar -2019	Mar -2020	Mar -2021	Mar -2022	Mar -2023
Transformers & Rectifiers India	12.6%	14.3%	16.2%	22.9%	19.0%
Voltamp Transformers	17.9%	15.2%	16.9%	18.5%	23.6%
ROE	Mar -2019	Mar -2020	Mar -2021	Mar -2022	Mar -2023
Transformers & Rectifiers India	0.3%	2.2%	1.0%	10.7%	8.5%
Voltamp Transformers	12.4%	11.9%	13.5%	14.1%	18.1%

Source: Equitymaster

#Dividend

A company paying dividends regularly to its shareholders is considered more stable than a company that doesn't primarily because dividends are paid from profits.

Over the last five years, the dividend per share of Voltamp Transformers grew by a CAGR of 21.7%. The dividend yield and dividend payout averaged 2.2% and 27%, respectively.

For TRIL, the dividend payout and dividend yield averaged 8.4% and 0.3%, respectively.

Clearly, Voltamp Transformers outpaced TRIL in terms of dividends.

Dividend

Dividend Per Share (Rs)	Mar -2019	Mar -2020	Mar -2021	Mar -2022	Mar -2023	5-Year CAGR
Transformers & Rectifiers India	0.0	0.1	0.1	0.1	0.2	NM
Voltamp Transformers	22.5	25.0	25.0	35.0	60.0	21.7%
Dividend Yield	Mar -2019	Mar -2020	Mar -2021	Mar -2022	Mar -2023
Transformers & Rectifiers India	0.0%	0.7%	0.5%	0.3%	0.1%
Voltamp Transformers	2.2%	2.3%	2.3%	2.1%	2.2%
Dividend Payout Ratio	Mar -2019	Mar -2020	Mar -2021	Mar -2022	Mar -2023
Transformers & Rectifiers India	0.0%	17.3%	13.9%	4.7%	6.1%
Voltamp Transformers	26.8%	28.3%	22.5%	26.7%	30.4%

Source: Equitymaster

#Valuation

Price to earnings (PE) ratio and price to book value (PB) ratio are two popular valuation ratios that help us in understanding a company's real worth.

A high ratio indicates the company is overvalued, whereas a low ratio indicates it is undervalued.

The PE ratio of TRIL is 197.3x, whereas for Voltamp Transformers, it is 36.6x. The PB ratio of the two companies are 16.7x and 8.4x respectively.

Clearly, TRIL is highly overvalued when compared to Voltamp Transformers. Moreover, when compared to their five-year average, both companies are overvalued.

Valuations	Transformers & Rectifiers India	5-Year Average	Voltamp Transformers	5-Year Average
P/E (x)	197.3	53.5	36.6	12.1
P/B (x)	16.7	2.0	8.4	1.7

Source: Equitymaster

Which Transformer Stock is Better: Transformers & Rectifiers India or Voltamp Transformers?

TRIL is leading in terms of revenue growth and profit growth.

Voltamp Transformers, on the other hand, is leading in terms of profit margins, debt management, and financial efficiency.

The company has a long track record of operations headed by a well-experienced management team. It has diversified clientele across various industries, mostly from the private sector, and most of them are repeat business owners.

This helped the company improve its order book and profits steadily over the years.

TRIL, on the other hand, has invested in improving its capacity over the last few years and has become one of the most preferred transformers brands in the country.

Its current manufacturing capacity is 37,200 MVA, and it plans to increase by another 12,000 MVA by the end of the financial year 2025.

Apart from this, it has planned to increase its export revenue to 25% by the financial year 2026. In line with this goal, it has technological tie-ups with companies in Ukraine and Japan that manufacture various products.

Overall, the company is headed for its next leg of growth.

The transformers industry is poised for growth primarily due to growing demand for power, government's infrastructure capex, renewable energy push, and adoption of smart grid will drive the demand for transformers.

However, to sustain the intense competition in the industry, innovation in areas like smart transformers will be crucial for the company's future success.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...