Accumulate Voltas; target of Rs 123: Prabhudas Lilladher

Prabhudas Lilladher is bullish on Voltas and has recommended accumulate rating on the stock with a target of Rs 123 in its February 13, 2013 research report.

“Voltas reported flat sales for the quarter at Rs11.5bn (PLe: Rs10.6bn). The MEP segment reported sales de-growth of 3.3% YoY to Rs7.9bn. Sale for the UCP segment came in lower at Rs2.3bn, up 2% YoY. EBITDA margin came in at 2.4%, down 275bps YoY. EBIT for the MEP segment stood at 0.75%, down 655bps YoY largely due to sales from Sidra project being booked at cost and delay in clearance/certification in few international projects and execution of low margin orders. EBIT margin for the UCP segment also came in lower at 6.2% (largely due to lower volume and higher advertising cost). Adj. PAT stood at Rs378m down 42% YoY (PLe: Rs436m). Reported PAT stood at Rs760m; however, the company reported an exceptional item of ~Rs560m relating to profit on sale of investments.”

“Order inflow for the quarter stood at ~Rs8bn (up 2.2xQoQ and down 16% YoY). Order inflow for the quarter largely came from domestic market and mainly from the Industrial segment and IT/ITES sector. Order book at the end of the quarter stood at Rs42bn (down 18% YoY). The company highlighted that the margin in few of the projects in international markets have come down to unsustainable levels and does not make sense to pick-up orders at such low margins. (Case in point being Abu Dhabi airport MEP package which was initially priced at AED3bn was finally awarded at a price of AED2bn). The company highlighted that it is not aggressively chasing orders with low margin and decided to stick with projects offering decent margins and better cash flows.”

“The stock is trading at 10.6x FY14E earnings. We continue to believe that the worst might be behind us, given that the provisions on cost overruns on Sidra project have already been accounted for. The outlook might be slightly muted in the near term on order flow and margin, given the increased reach in terms of geography in international markets and business segments in the domestic market which should help order flow once cycle turns. We maintain our ‘accumulate’ rating on this stock,” says Prabhudas Lilladher research report. 

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