Accumulate Voltas; target of Rs 115: Aditya Birla Money

Aditya Birla Money is bullish on Voltas and has recommended accumulate rating on the stock with a target of Rs 115 in its August 06, 2012 research report.

“Voltas’s top-line rose by 20% y-o-y during 1QFY13 to Rs16,168mn. The UCP segment came as a huge surprise and grew by 34% yoy; while the Electro mechanical projects (MEP) and Engineering Products & Services division grew by ~10% yoy each respectively. MEP consolidated order book stood at Rs45,740mn which is ~1.5x FY13E revenues of which domestic order book stood at Rs21,930mn while the balance is from the international operations. The management expects the international order flows to pick up, especially from Abu-Dhabi and Qatar, while on the domestic front the overall macro environment is still uncertain. In the UCP segment, company has come to no.1 position with a market share of 19.1% (in the Room Air conditioner segment as per GfK-Nielsen report) despite high competitive intensity and huge inventory pile-up.”

“The Company’s operating profit declined by 13.8% y-o-y to Rs939mn; while operating margin declined by 227bps and 287 bps y-o-y and q-o-q respectively which was below our as well as street expectations. Despite strong top-line growth from the UCP segment EBIT margin contracted by 293bps y-o-y and a marginal dip q-o-q to 8.4%. Company’s MEP business and UCP business are currently facing turbulent times and intense competition which is likely to continue in the medium term and we maintain our operating margin estimates to be at 6.3% levels in FY13. Company’s debt-to equity ratio increased to 0.24 during 1QFY13 as against 0.14 during 1QFY12 led mainly due to higher borrowings for overseas operations and RIEL. Company’s net profit (adjusted) increased by 53.3% y-o-y to Rs778.6mn (reported was Rs791.2mn down 40% y-o-y); however its interest cost jumped by 42.9% y-o-y to Rs121mn due to cost overruns and delayed payments from customers. We expect the interest costs to continue to remain high in the medium term as the business environment is challenging and the debt levels at their peak levels.”

“Voltas has performed satisfactorily in line with its peer group as well as street and our estimates. In the UCP segment the company has strengthened its footing and outperformed its peers. In the EMP segment the domestic as well as international situation is getting competitive and taking time to stabilize; however in the international markets there are opportunities especially in the Qatar and the Middle East region which will come up in the 2HFY13. The Engineering products division is likely to be under pressure as textile and mining business are both facing tremendous pressures due to macro and micro environment.”

“Voltas a perfect proxy to investment and consumption growth story is likely to face medium term headwinds as the macro as well as micro environment is deteriorating and highly uncertain. Capital investments have taken a back seat due to tight liquidity conditions and regulatory hurdles. We revise our top-line estimates upwards by 2.9% and 1.3% to Rs55,607.9mn and Rs58,160.3mn respectively on account of above expected results however, on the back of challenging environment and increasing debt we revise our PAT estimates downwards by ~1% and 7.5% for FY13E & FY14E respectively to Rs2,485.8mn and Rs3,097.4mn We value the company at 8.5x FY14 EV/EBITDA and arrive with a rolled over March13 price target of Rs115/share and retain our “accumulate” view on the stock. At the CMP of Rs106.9 Voltas trades at FY14 P/E 11.4x and 8.2x its FY14E EV/EBITDA,” says Aditya Birla Money research report.

Non-Institutions holding more than 90% in Indian cos

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