Buy Voltas; target of Rs 780: Dolat Capital

 Dolat Capital's research report on Voltas

The UCP segment saw a strong 14.7% YoY growth, with 10% margins, in Q3FY20. Although overall EBITDA and PAT were lower than our estimates, due to the projects business. VOLT maintained its market leadership at 24.3%, growing at 35% YoY, versus industry growth of 29% YoY in 9MFY20. The company is optimistic about maintaining its market leadership in the upcoming season and confident of sustaining 11% margins in UCP even in the highly competitive conditions. With the hope of a normal summer, increasing inverter share of RACs, better product offerings, the company’s leadership in RAC, and stable prices, we expect Voltas to report a sales and PAT CAGR of 13%/22% over FY19-FY22E. It is confident of gaining 10% market share and profit break even in FY24 in the Beko venture, in which it has recently started in-house manufacturing.

Outlook

Given the PAT miss in Q3FY20, we marginally lower our PAT estimates by 7% for FY20E We continue to like Voltas for its structural story of AC under-penetration. We maintain our Buy rating, with a TP of `780 valuing it at 32x for FY21E.