Aditya Birla Money neutral on Voltas

Aditya Birla Money has maintained neutral rating on Voltas with a target of Rs 110 in its November 9, 2012 research report.

“Voltas’s top-line rose by 5.4% y-o-y during 2QFY13 to Rs11,664.9mn. The UCP segment continues to surprise positively and grew by 22% yoy; while the Electro mechanical projects (MEP) is still reeling under pressure and showing no signs of stabilization.MEP consolidated order book stood at Rs41,370mn which is ~1.3x FY13E revenues of which domestic order book stood at Rs22,070mn while the balance is from the international operations. The international market scenario is getting highly uncertain and competitive while in the domestic markets despite uncertain macro environment order inflows are picking up. In the UCP segment sales have been above estimates and the company continues to maintain its strong foothold; however the management expects the competition to increase going forward.”
“Voltas has performed well despite various challenges and is going through turbulent times. In the UCP segment the company has strengthened its footing and outperformed its peers and the EBIT margins are showing signs of stabilization; however in the medium term margins are likely to be under pressure as competition is intensifying. In the EMP segment in the international markets cost overruns is taking a toll on top-line as well as profitability front, while on the domestic front order inflows are picking up. Engineering products division performed well despite various challenges, however we believe it is likely to be under pressure as textile and mining business are both facing tremendous pressures due to macro and micro environmental conditions.”
“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 are showing indications of improvement however regulatory hurdles are impacting the overall growth cycle. On the back of strong margin pressures we revise our operating margin estimates downwards by 30bps for FY13 and FY14 to 6% and 7.1% respectively and PAT estimates downwards for FY13 and FY14 by 4.5% and 3.8% to Rs2,374.6 and Rs2,981 respectively while maintaining our top-line estimates. We continue to value the company at 8.5x FY14 EV/EBITDA and arrive at a rolled over Sep13 price target of Rs110/share and change our recommendation to “neutral” from “accumulate” on the stock. At the CMP of Rs114.8 Voltas trades at FY14 P/E 12.7x and 9.4x its FY14E EV/EBITDA,” says Aditya Birla Money report. Shares held by Insurance Companies Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. To read the full report click on the attachment

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