Voltas shares gain 7% as analysts hold positive stance post Q4, but cut EPS estimates

The brokerage believes the complete lockdown would hit the entire supply chain of the unitary cooling products (UCP) segment (which contributes around 45 percent of sales) and derail Q1FY21 segment revenue.

On the other hand, the electromechanical projects (EMPs) business is also likely to be hit by a delay in project execution in the Middle East and India due to lockdown situation across operating geographies, according to ICICI Securities.

However, the brokerage believes Voltas being a market leader in the cooling product segment would recoup sales as and when economic activity normalises in the coming future. It likes Voltas for its strong brand recall and healthy balance sheet, which would cushion the company from any adverse situations.

Voltas has reported a 13.6 percent year-on-year growth in Q4FY20 profit at Rs 158.66 crore and 1.3 percent growth in revenue from operations at Rs 2,089.63 crore compared to the same period last year.

At the operating level, earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 33 percent to Rs 190 crore driven by favourable sales mix. EBITDA margin expanded 220 basis points YoY to 9.2 percent.

"Voltas' Q4 FY20 earnings were 37 percent ahead of expectation led by the UCP segment's outperformance. It has further cemented its leadership position with its market share improving 50bp to 24.2 percent YTD. It also achieved the No. 1 position in Inverter ACs for the Jan-Feb'20 period," said Motilal Oswal which has maintained buy rating on the stock with a target of Rs 600 (revised from Rs 620 earlier).

"The AC industry is perhaps one of the worst-hit due to the COVID-19 led lockdowns, especially owing to the shutdowns coinciding with the peak summer season. This is likely to result in higher inventory for the entire supply chain across dealers, brands (incl. in-transit goods) and manufacturers. As the lockdown eases, we are witnessing pent-up demand. We expect system-level inventory to normalize by November-December 2020, and hence, FY22E should turn out to be a normal year," the brokerage said.

Motilal Oswal cut its FY21/FY22 earnings estimates by 28/6 percent as FY21 is likely to be a washout year. "We have also built-in lower revenue and profitability for the EMP business given the weak macro environment for the Projects' business. However, the cut in target price is limited as the EMP business commands lower valuation multiple."

Yes Securities also feels Voltas reported very strong numbers in a challenging environment and in comparison, to its peers, but maintain reduce rating on the company with a revised target of Rs 492.

"Inventory with the channel was quite high at 60 days (15-20 percent higher than normal) at the start of lockdown. Even though offtake has been strong over the last two weeks in North and East India due to heat wave, liquidating inventory would remain a challenge in the near term. Cooling products business margins would be under pressure as the competition heats up and players cut prices to liquidate inventory to benefit from the recent spurt in demand," said the brokerage which cut its FY21/FY22 estimates by 43.9/17.5 percent factoring in the lost summer season in UCP and slower execution in the international projects' business.

The stock was trading at Rs 544.90, up 0.95 percent on the BSE at 1021 hours IST.

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