Motilal Oswal has maintained a cautious view on the stock given threat to margins driven by increasing competition in the room air conditioner segment, industry convergence to inverters where Voltas has weak share and rating change in January 2018.
Motilal Oswal has retained a sell call on Tata Group firm Voltas with a 20 percent downside from the current level.
The research house has maintained a cautious view on the stock given threat to margins driven by increasing competition in the room air conditioner segment, industry convergence to inverters where Voltas has weak share and rating change in January 2018.
In Q1 FY18, Voltas reported 17.68 percent rise in consolidated net profit at Rs 187.91 crore for the quarter ended June 30, on account of higher income which was inline with estimates.
Unitary Cooling Products (UCP) was impacted by GST which grew by a muted 1 percent YoY to Rs 1210 crore. Room air conditioner (AC) sales were impacted by dealer destocking (given uncertainties related input credit recovery in GST era) and unseasonal rains in South. Voltas remained the market leader, with a share of 22.2 percent (21.4 percent in Q4FY17). Despite increasing competitive intensity, the company has been able to maintain EBIT margin at 14.1 percent.
Electro-mechanical projects and services (EMP) revenue grew 14 percent YoY to Rs 660 crore, led by better execution of projects in hand. Segment EBIT margin expanded 340bp YoY to 5.3 percent, led by execution of better-margin new orders and efficient execution. Order inflow rose 4 percent YoY to Rs 990 crore, led by order finalization in domestic segment. Order backlog stands at Rs 4910 crore, with book-to-bill at 1.8x its TTM sales. Order backlog from Qatar was Rs 600 crore.The research firm has raised estimates for FY18/19 by 4/5 percent to factor in better-than-expected EMP margin.