Accumulate Voltas; target of Rs 702: Prabhudas Lilladher

Prabhudas Lilladher recommended accumulate rating on Voltas with a target price of Rs 702 in its research report dated February 12, 2018.

Broker Research

February 15, 2018 / 02:21 IST

Prabhudas Lilladher's research report on Voltas

Voltas reported PAT of Rs1bn (up 23% YoY) in Q3FY18 led by better margin in MEP/UCP segment and strong growth in Unitary Cooling Products segment. With improved quality of order book, the company is looking at delivering EBIT margin of ~6% (3.2% in FY17) in MEP segment in FY18. GCC countries continue to indicate a slow pickup in economic activity, mainly tied to the upcoming Mega Events in the geography. Voltas has adopted a cautious approach towards risk mitigated order booking looking at the political instability in Qatar. In the domestic market, government's focus on stepping up infrastructure and Voltas' strategy to broaden horizon in areas like urban infrastructure & transportation, electrical distribution, water treatment is helping support growth. The quarter witnessed a pre-buying in room AC segment due to changes in energy efficiency norms for fixed speed air-conditioners from 1st January 2018.Voltas maintained its No. 1 position in the Unitary Cooling Products business with a market share of 23.7% at Multi-Brand Outlets. Voltas has ramped up its product basket, with the right mix in the energy efficiency segment which are being well received in the market. The share of inverter ACs has gone up to 17% of Split AC sales (was 15% in Q2FY18). The launch of products from Arcelik JV is expected in H2CY18 as company will get their product basket ready with the right products in terms of quality and variety. We remain positive on Voltas over medium to long term, given the improving margin profile of fresh orders, strong consumer business franchise, and structural growth in Room AC segment given the low penetration, healthy balance sheet and cash flow.

Outlook We maintain 'Accumulate' with revised TP of Rs702 (previous Rs670) as we roll forward to March'20 earnings.

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