- Our view
- Hold
- Price then
- INR 485/-
- Target
- INR 496/-
- Upside
- 2%
- Market cap then
- INR 1,187 Cr.
Vilas Transcore Ltd manufactures CRGO transformer cores and related products at facilities near Vadodara, Gujarat. Minerva Capital Research Solutions has a Hold recommendation, with a fair value of INR 496/- and potential upside of 2%. Growth depends on commissioning expanded capacity after a delay, while the company’s existing capacity is already highly utilized.
About Vilas Transcore
Incorporated in 2006, Vilas Transcore manufactures and supplies electrical lamination products made from cold rolled grain oriented (CRGO) steel. Its range includes transformer laminations, slit coils, stacked cores, wound cores and toroidal cores, used in power, distribution and other transformers. Its two ISO 9001:2015-certified facilities are located in Por near Vadodara, Gujarat. The company is listed on NSE SME.
Investment Rationale
- Capacity expansion: The company operates 12,000 MTPA of installed capacity and reported 91% utilization in FY24. A further 12,000 MTPA addition is targeted for Apr’25, with another 12,000 MTPA planned to commence in Q1-FY27; the first addition was delayed by 3-4 months because of excessive rains and pending approvals.
- Industry demand: The report cites an India power and distribution transformer market valued at $3.97 Bn. in 2023 and projected to reach $8.41 Bn. by 2030, at a CAGR of 10.84%. CRGO lamination core is described as critical to transformers and as accounting for 25% to 35% of total transformer cost.
- Customer relationships: The company has longstanding relationships with customers whose vendor selection involves stringent review. Its top 5 customers accounted for 67% of sales as on Dec’23, with Voltamp Transformers representing ~42% of sales.
- Promoter experience: Mr. Nilesh Patel has 3 decades of experience in the business. Atlas Transformers, where he is also managing director, sourced INR 22.6 Cr. of raw materials from Vilas Transcore, equal to 7.3% of FY24 sales.
- Raw-material sourcing: Suppliers include Russia, Germany, Poland and Brazil, as the company seeks to reduce supply-chain disruption from China. Imported raw material was 46.5% of total raw-material cost in FY24, compared with 39.3% in FY23.
- Product diversification: Medium-term plans include radiators and nano-crystalline cores. The projections do not include revenue from these products.
Vilas Transcore Key Financials
| Particulars | FY21(A) | FY22(A) | FY23(A) | FY24(A) | H1-FY25 (A) | FY25(E) | FY26(P) | FY27(P) | FY28(P) |
|---|---|---|---|---|---|---|---|---|---|
| Op. Rev. | 133 | 233 | 283 | 310 | 162 | 365 | 493 | 665 | 898 |
| Y-o-Y % | 76% | 21% | 10% | 5%^ | 18% | 35% | 35% | 35% | |
| EBITDA | 9 | 27 | 29 | 30 | 18 | 38 | 51 | 69 | 94 |
| EBITDA % | 6.6% | 11.5% | 10.4% | 9.8% | 11.1% | 10.4% | 10.4% | 10.4% | 10.4% |
| PAT | 5 | 18 | 20 | 23 | 14 | 24 | 30 | 43 | 61 |
| PAT % | 3.9% | 7.6% | 7.1% | 7.3% | 8.6% | 6.7% | 6.0% | 6.4% | 6.7% |
| Debt (D) | 8 | 3 | 5 | 0 | 15 | 27 | 36 | 49 | 66 |
| D/E | 0.08x | 0.03x | 0.04x | 0.00x | 0.06x | 0.10x | 0.12x | 0.14x | 0.16x |
| NWC (Days) | 97 | 52 | 79 | 41 | 91 | 90 | 90 | 90 | 90 |
Above projections do not include revenue from sale of radiators & nano crystalline core. ^Annualized basis.
The projections show operating revenue rising from 310 in FY24 to 898 in FY28(P), with EBITDA margin projected at 10.4% from FY25(E) through FY28(P).
Valuation and Target Price
The report uses a Discounted Cash Flow approach to estimate fair value as on 30-Sept-2024. It arrives at a fair value of INR 496/- per share, compared with the CMP of INR 485/- and potential upside of 2%. The recommendation is Hold.
- INR 485/-
- CMP
- INR 496/-
- Fair value
- 2%
- Potential upside
- Hold
- Recommendation
Industry and Peer Context
The report estimates demand for CRGO steel at around 300,000 MT per year, driven by power generation, distribution systems and renewable energy projects; it states that 100,000 MT is met domestically and the balance is imported. Jay Bee Laminations Ltd. is identified as another listed company in a similar product space.
| Particulars | Vilas Transcore FY24 | Vilas Transcore H1-FY25 | Jay Bee Laminations Ltd. FY24 | Jay Bee Laminations Ltd. H1-FY25 |
|---|---|---|---|---|
| Installed Capacity (MTPA) | 12,000 | 11,700 | ||
| Proposed Capacity (MTPA) | 36,000 | 18,000^ | ||
| Op. Revenues (INR Cr.) | 310 | 162 | 303 | 153 |
| EBITDA (INR Cr.) | 30 | 18 | 32 | 23 |
| EBITDA % | 9.8% | 11.1% | 10.4% | 15.0% |
| PAT (INR Cr.) | 23 | 14 | 19 | 14 |
| PAT % | 7.3% | 8.6% | 6.4% | 9.4% |
| Debt (Long + Short Term; INR Cr.) | 0 | 15 | 24 | 25 |
^Jay Bee manufacturing facility is located in Noida & Greater Noida with additional 6,300 MTPA to become operational in H2FY25.
Key Risks
- Capacity commissioning: Operations for the expanded capacity are expected to start from Apr-25 and contribute to FY26 topline growth. Existing capacity is fully utilized, so future additional revenue growth depends on the expansion.
- Margins and working capital: The report identifies sustaining EBITDA margins at ~11% as a monitorable. Adverse raw-material price changes that are not passed on to customers, or an increase in working capital, could pressure margins.
- IPO proceeds: Utilization of IPO proceeds in line with the stipulated end use is a key monitorable.
- Credit rating: A future credit-rating downgrade is identified as a risk to monitor.
Our View
The report’s growth case rests on demand for transformer-related products and the planned expansion of manufacturing capacity, while its projections exclude the potential contribution from radiators and nano-crystalline cores. Given the narrow stated potential upside and execution, margin and working-capital monitorables, the recommendation is Hold, with a fair value of INR 496/-.
Standard disclosures
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Rating rationale
Minerva Capital Research Solutions endeavors to provide objective opinions and recommendations. Ratings are assigned to stocks according to their fair value vs current market price and then categorizes them as Buy, Hold, Reduce, Sell. The performance horizon is one year unless specified and fair value is defined as analyst’s valuation for a stock.
- Buy:> 15%
- Hold: -5% to 15%
- Reduce: -15% to -5%
- Sell: <-15%