Accumulate Voltas; target of Rs 97: PLilladher

Prabhudas Lilladher`s research report on Voltas

"Voltas reported sales of Rs15.9bn, up 1.5 percent YoY (PLe: Rs15.3bn). EBITDA margins came in at 5.2 percent, down 340bps YoY, on account of significantly low profitability in the MEP business. Increased interest cost (up 25 percent YoY) and an additional provision of Rs955m on Sidra due to the extended timeline for completion (now expected to get completed in March 2014), led to an adj. PAT loss of Rs135m. However, extraordinary gain of Rs322m (profit on sale of investment) helped the company report a profit of Rs90m, down 91 percent YoY.”

“The MEP segment reported sales of Rs8.8bn for Q4FY13, down 4 percent YoY, which was in line with expectations, given the reducing order book over the last few quarters. Profitability in the MEP segment continued to be subdued (EBIT margin at 0.5 percent, down 20bps QoQ and 780bps YoY) due to a delay in execution and approval from various clients (both domestic and international) leading to incremental provisions for additional cost and overall pressure on margins. The company booked additional provision of Rs955m on Sidra Medical Center in Qatar. The main contractor has instructed a revised schedule of completion which is expected to end on March 31, 2014, including integrated Testing and Commissioning. The company reported order book of Rs37bn, down 13 percent YoY. Order inflow for the quarter was ~Rs4bn, up ~10 percent YoY and was largely from the domestic market from segments like Industrial, IT/ITES and Urban Infrastructure sectors. The commentary on international order flow was largely subdued. However, some signs of rising property prices and associated economic activity picking up in Dubai and certain parts of UAE, provided some green shoots.”

“Stock is trading at 13X FY14E earnings. We have downgraded our earnings by 15 percent in FY14 to factor in delay in completion of Sidra (we had built write-back from Sidra in FY14). We believe that the difficult market environment will make timeline of margin recovery and order flow uncertain and act as an overhang on the stock in the near term. We maintain ‘Accumulate’ on the stock,” says Prabhudas Lilladher research report. 

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.

Read More