Indo Tech Transformers: PAT up 67% & Revenue down 12% in Q1-25 at a PE of 42
Outlook of 50% revenue growth in FY25. Doubling of capacity to sustain revenue growth over the longer term. FY25 margins to be sustained given price escalation clauses in majority of the orders.
1. Why is INDOTECH interesting
Transformer industry is flush with orders and the demand outlook is positive leading to improved order books for transformer manufacturers. INDOTECH is riding this wave and growing in-line with the market, sustaining its market share while maintaining margins.2. Transformer manufacturer
indo-tech.com | NSE: INDOTECH
ITL, incorporated in 1992, manufactures power and distribution transformers and various special application transformers and mobile sub-station transformers. The company’s manufacturing plants are in Chennai and Kancheepuram in Tamil Nadu. ITL is a subsidiary of Shirdi Sai Electricals Limited, and SSEL currently holds a 70.01% stake in ITL.
Products
3. FY20-24: PAT CAGR of 122% & Revenue CAGR of 25%
4. Strong FY23: PAT up 111% & Revenue up 32% YoY
5. Strong FY24: PAT up 82% & Revenue up 36%
6. Q1-25: PAT up 67% & Revenue down 12% YoY
7. Business metrics: Strong & Improving return ratios
8. Strong outlook: 50% revenue growth in FY25
i. FY25: Strong order book indicating 50% revenue growth
Rs 700 cr of orders to be executed by Q4-25 end along with the Q1-25 revenue of Rs 86 cr is indicating a 50% growth over the Rs 503 cr revenue of Fy24
ii. FY25: Margins of FY24 are sustainable
Given that orders have price escalation clauses one can assume the margins to be sustainable.
iii. Capacity to more than double in FY26
iv. Industry tailwinds creating strong demand
Management outlook in FY23-24 Annual report is very optimistic based on industry tailwinds
Transformer industry is flushed with orders and the demand outlook is positive vis-a-vis end use in various industries such as railways and renewables. The pent-up demand from industrial expansions backed by a rise in capex is leading to higher consumption of power in India, in turn leading to improved order books for transformer manufacturers.
We remain confident of sustaining the market share and maintaining margins at healthy levels.
9. PAT growth of 67% & Revenue down 12% in Q1-25 at a PE of 42
10. Do I stay?
If I hold the stock then one may continue holding on to INDOTECH
The outlook for FY25 is strong
Even though there is no management commentary available on INDOTECH, one can hold on as long as one sees the momentum of FY22-24 continues.
The proposed capacity expansion by INDOTECH management indicates that they confident of the growth momentum to continue into FY26 and beyond.
11. Do I enter?
If I am looking to enter INDOTECH then
INDOTECH has delivered PAT growth of 67% & with Revenue down by 12% in Q1-25 at a PE of 42 which makes the valuations fully priced in the short term.
Outlook for 50% revenue growth with margin expansion in FY25 by INDOTECH at a PE of 42 which makes the valuations fair from a FY25 perspective.
Outlook for INDOTECH looks positive given the planned doubling of capacity coming online in FY26. Opportunity in INDOTECH will emerge if the momentum of FY22-24 is continued in to FY26 and FY27.
The lack of any management commentary or public information is the biggest problem one faces in taking a call on INDOTECH. Additionally at a PE of 42, the margin of safety is small in INDOTECH
Previous coverage of INDOTECH
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