Sell Voltas; target of Rs 91: PINC Research

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Sell Voltas; target of Rs 91: PINC Research

PINC Research is bearish on Voltas and has recommended sell rating on the stock with a target of Rs 91 in its September 29, 2011 research report.

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PINC Research is bearish on Voltas and has recommended sell rating on the stock with a target of Rs 91 in its September 29, 2011 research report.

"We recently met with the management of Voltas. The management expects its near term profitability to be impacted on account of cost overrun in some of the overseas projects, unfavourable weather conditions impacting the growth of the cooling products and lack of orders on account of poor sentiments."

"The size of the Middle East market is shrinking on account of weak sentiments. This has led to increased competition and pricing pressure. In order to address the concern of slowdown in order inflows, management has strategically decided to bid for new orders (overseas) @ 4-5% (earlier 7-8%) PBIT margins. Voltas has been asked to put the Sidra Medical centre and Barwa City projects in Qatar on fast track and accomplish them as per the terms and conditions of the customer at any cost. We believe this would put severe pressure on the profitability of the division. Domestically, there is lack of orders, competition is increasing and hence margins are expected to be under pressure. Rohini Electricals is expected to break even (at PBIT level) in FY12. Due to unfavourable weather conditions, there is a huge pile up of inventory in the industry. This has forced the players to offer freebies and discounts to liquidate the inventory. Resultantly increased competition would put pressure on margins. Management expects margins in the range of 8-8.5% in this division going forward."

"Factoring in the above concerns we believe next few quarters would be very stressful for Voltas. We have reduced our earning estimates by 15% for FY12 and 10% for FY13. Considering steep fall in profitability and return ratios, near term concerns of cost overrun on account of execution of Qatar projects, increased competition putting pressure on margins on new orders and weak sentiments, we reduce our target multiple from 13x to 10x and downgrade the stock to SELL with a reduced target price of Rs 91 (10xFY13E) from Rs131 earlier," says PINC Research report.     

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To read the full report click on the attachment