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 June 08, 2012 research report.

“Voltas’s top-line declined 6% y-o-y during Q4FY12 to `15,745.3mn. Company’s key segments Electro Mechanical projects(MEP) and Unitary Cooling Products(UCP) which declined by ~3% y-o-y each respectively; however the Engineering products and services(EPS) division declined by 39% y-o-y. MEP consolidated order book stands at `42,920mn which is 1.4x FY13 revenues of which domestic order book stands at `23,360mn while the balance is from the international operations. In the UCP segment company has been able to maintain its no.2 position with a market share of 16.9% (April GfK-Nielsen report) despite adverse market conditions. The EPS division was down 39% y-o-y mainly on account of transfer of material handling business and regulatory challenges in mining sector.”

“We expect Voltas’s top-line to grow by 4% y-o-y to `54,041.8mn. The Company’s operating profit declined marginally by 3% y-o-y to `1,366.9mn; however operating margin improved by 27bps and 118 bps y-o-y and q-o-q respectively which came as a positive surprise. MEP and UCP EBIT margin were expected to contract q-o-q; however MEP EBIT margin were flat at 8.3% while UCP EBIT margin improved by 252bps to 8.6% despite inventory pile up and intense competition. Company’s MEP business and UCP business are currently facing turbulent times and intense competition which are likely to continue in the medium term.We expect its operating margin to be at 6.2-6.5% levels in FY13.”

“Voltas has performed satisfactorily as compared to its peer and has been able to perform well in its 2 major segments MEP and UCP. In the MEP segment Voltas has been strengthening its domestic footprint given the opportunity and international situation which is getting competitive and taking time to stabilize. On the UCP front Voltas has been able to sustain its market share and is likely to maintain its market share despite situation getting highly competitive. Voltas being a capex and consumption dependent for its growth is likely to face medium term headwinds as the macro as well as micro environment is deteriorating. Capital investments have taken a back seat due to tight liquidity conditions and regulatory hurdles. On the back of challenging environment we revise our estimates downwards. We cut our FY13 and FY14 topline estimates by 8% and 12% respectively and our PAT estimates by 4% and 8.5% respectively. We value the company at 8.5x FY14 EV/EBITDA and arrive at a revised target price of `114.9 and retain our “accumulate” view on the stock. At the CMP of `101.9 Voltas trades at FY14 P/E 10.2x and 7.6x its FY14E EV/EBITDA,” says Aditya Birla Money research report.

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