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Last Updated : Sep 19, 2019 03:36 PM IST | Source: Moneycontrol.com

Slowdown impact limited for ACs, Citi and HSBC retain bullish stance but CLSA advises selling

HSBC also said Voltas had not seen slowdown in demand in the room AC industry in Q2FY20 though project business outlook continued to be a mixed bag

Sunil Shankar Matkar
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Shares of Voltas almost remained flat in the last three-six months and gained nearly 12 percent in the last one year when the Nifty50 fell nearly 5 percent and Consumption index 9 percent.

The reason behind this stock performance was steady growth in room air conditioners (RAC) and normal system inventory though pricing remained a bit of concern.

Most brokerages feel the festive demand will be the key deciding factor for growth in products and selective price hikes for some products.

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"There is not much slowdown yet in AC business and the festival season is key. There is no meaningful consumption slowdown in the products business and projects business inflows could see a pick-up," said Citi while maintaining buy call on the stock with a target price at Rs 717 per share, implying 13.7 percent potential upside from current levels.

HSBC also said Voltas had not seen slowdown in demand in the room AC industry in Q2FY20 though project business outlook continued to be a mixed bag.

The global brokerage house also retained a buy call on the stock with a target price at Rs 684 per share, implying 8.5 percent potential upside from current levels.

"RAC demand remains healthy but pricing continues to be suppressed. System inventory is at normal levels," said Emkay after having an interaction with the Voltas management.

The market share gains of Voltas in Q1FY20 amid the hyper-competitive scenario shows the strength of its brand, said the brokerage, which maintained its estimates with 22/19 percent EBITDA/PAT CAGR in FY19-21. It also maintained hold rating with a SoTP-based target price of Rs 604 per share.

The brokerage said the festive demand would be the deciding factor for selective price hikes for some products and in some regions. "Any adverse currency and commodity impact going forward will not leave any option for the industry other than price hikes to protect margins," it added.

Emkay said some domestic projects, such as metros, were seeing execution delays due to unexpected complexities while the execution of the rural electrification project remained on track. The management alluded to healthy domestic order inflows in the ensuing quarters, it added.

While having a sell rating on the stock with a target price at Rs 535 per share, CLSA said the impact of the slowdown was limited for ACs products. But, the company sees limited scope to raise prices in the upcoming festive season.

The management has maintained the annual margin guidance of 11 percent in unitary cooling products against the five-year average of 13 percent, CLSA said, adding company's incremental focus was on domestic orders in project business.

Voltas-Beko JV is expected to miss out on festive season sales for the second consecutive year as it has no presence in the direct cool refrigerators (70 percent of market) and semi-automatic washing machines (50 percent of market).

The Voltbek product launch is likely in the second half of FY19 as it will remain in an investment phase for the next four years, given expenses on distribution, branding and stiff competition in the white goods market, said Prabhudas Lilladher which has hold rating on the stock with a target price at Rs 609.

The brokerage estimates the JV to report loss of around Rs 150 crore/Rs 120 crore in FY20/21. MEP business is focusing on domestic projects in Rural Electrification and Urban Infra as return of NDA Govt is likely to retain continuity in policies, it said.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.


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First Published on Sep 19, 2019 03:36 pm
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