Accumulate Voltas; target Rs 92: P Lilladher

Prabhudas Lilladher's report on Voltas

"Voltas highlighted that the order outlook in the international market has improved, largely driven by Qatar. The company believes Qatar will be the biggest market in the Middle East for the next two years. It has received a letter of award for MEP works of a project in Qatar in August amounting to Rs2.8bn. Further, the company is in advanced stages of negotiation on Letter of Intent, aggregating to Rs5.2bn, pertaining to projects in Qatar and Oman. However, it also highlighted that the competitive intensity in international markets have not come down significantly. Voltas is targeting orders with bid margins at ~3-4 percent and not looking at orders with very large execution cycle. For the quarter, orders secured by the Domestic Projects Business saw a healthy growth. New orders came from sectors like Urban infrastructure, IT/ITES, Industrial and Automotive sectors. Voltas received Rs2.5bn order from Delhi's Mass Rapid Transport System for environmental control and tunnel ventilation of eight underground stations, as well as related electrical and mechanical works. However, the commentary on order inflow and execution in domestic market remained quite subdued. The book for the company stood at Rs38bn (down 17 percent YoY) and inflow was Rs7.8bn (up 2 percent YoY)."

"The stock is trading at 11xFY14E earnings. We believe the near-term outlook on earnings is likely to be subdued, given the challenging environment for UCP businesses and weak margin outlook for FY14 for the MEP segment. However, given the prospects of improved ordering from international market, company's effort to pick-up better margin order will benefit in the medium/long term. Healthy balance sheet and cash flow gives us additional comfort. We maintain 'Accumulate' on the stock with a target price of Rs 92," says Prabhudas Lilladher research report.

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