Sell Voltas: Way2Wealth

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Sell Voltas: Way2Wealth

Way2Wealth is bearish on Voltas and has recommended sell rating on the stock in its February 21, 2012 research report.

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Way2Wealth is bearish on Voltas and has recommended sell rating on the stock in its February 21, 2012 research report.

"Voltas declared an order book of Rs.50.94bn (8.5% yoy), with the domestic segment delivering a growth of 21% as compared to a weak international growth which remained flat yoy. Net sales for 9Ms showed an increase of 3% marking a growth majorly from its EMPS segment @8%. EPS segment showed a degrowth of 22% whereas the pick was visible in the UCP segment. Voltas suffered a setback on account of cost overruns, designing changes & execution delays in its Sidra project at Qatra for which it booked a one time loss of Rs.2.7bn (shown in P/L below the line) taking down its overall PAT by 30% Yoy."

"The consolidated Domestic O/B (including Water Management and RIEL) stood @ Rs.19.49bn showing an increase of 23% yoy. This includes Rs. 4.03bn of orders booked in Q3FY12 & Rs. 9.58bn YTD. Net sales grew by 19% with stable operating margins @7.3%. The International O/B stood @ Rs.31.45bn, of which Rs.8.29bn has been won YTD & Rs.5.60bn in Q3FY12. It has now started focusing on key growth markets of Saudi Arabia & Qatar as there are sign of faster revival in these regions. Due to intense competition in the international market, Voltas has indicated that competitive bids would @3-4% margins as compared to 6-7% margin that they we enjoying in the recent past. This segment has been materially impacted witnessing a sharp decline of ~39% yoy & a similar degrowth in profits although margins have improved @ 19% of its sales. Its textile division has performed well for the EPS segment but new investments are lagging given the poor sentiment, cyclical nature and pollution based environment issues being encountered. At the same time, high interest rates and the poor pace of environmental clearance for mining activities is affecting the Mining and Construction Division."

"This division registered a growth of ~19% but saw a strong degrowth in its profit by 25%. Despite intense competition & unfavourable climatic conditions, Voltas maintained its No.2 position with a market share of 16.4%. The AC industry suffered aggregated sales volume de-growth of 28% YTD, but Voltas contained the volume shortfall and managed a 19% revenue growth in Q3 on back of mix and pricing corrections."

"Given the adverse macro environment, the current O/B gives a revenue visibility of ~12mths based on FY11 revenues. In the recent rally as the stock has run up extensively, at its CMP of Rs.108, it now trades at 14x FY13E earnings of Rs.7.7 respectively, we give a SELL rating to the Stock," says Way2Wealth research report.

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To read the full report click on the attachment