Accumulate Voltas; target of Rs 100: P Lilladher

Prabhudas Lilladher's report on Voltas

"Voltas reported Adj. PAT of Rs 423m, up 49 percent YoY, which was better than ours and street estimates, largely driven by higher other income and improved margin performance in the EPS/UCP segment. Margin in the MEP segment continued to be subdued due to issues in international projects. We believe, given the prospects of improved ordering from international market, company's effort to pick up better margin order and leadership changes across important verticles, will benefit in the medium/long term. Healthy balance sheet and cash flow gives us additional comfort. We maintain 'Accumulate' on the stock."

"Voltas reported sales de-growth of 7 percent YoY. Sales for the Electro-mechanical projects & services (MEP) segment were down 13.7 percent YoY to Rs 6.7bn on account of slow execution and low order book in international projects. Sales for the Engineering products & services (EPS) segment were up 11 percent YoY and that of Unitary Cooling products (UCP) segment was up 3 percent YoY, partly impacted by extended monsoon in few parts of the country. EBITDA was up 9 percent YoY to Rs 432m as margins improved 60bps YoY. Improved EBIT margin in EPS segment (up 320bps YoY to 21.3 percent) due to improved contribution from agency businesses and UCP segment (up 360bps YoY to 11.3 percent) helped improve overall margins. 33 percent increase in other income helped company post a PAT growth of 49 percent YoY to Rs 423m."

"Order book of the company stood at Rs 43bn, up 5 percent YoY and inflow stood at ~Rs 7bn (up 106 percent YoY). The company has finally seen some movement in terms of order flow from international markets. It has received letters of award for MEP works, aggregating to Rs 6bn, pertaining to projects in Qatar and Oman. However, companies continue to be cautious in choosing orders in international markets. In domestic markets, sectors such as Urban Infra, IT/ITES etc. are showing some positive traction."

Outlook and Valuation: "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 and leadership changes across important verticles 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 100," says Prabhudas Lilladher research report.

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