Accumulate Voltas; target of Rs 272: Prabhudas Lilladher

Prabhudas Lilladher's research report on VoltasVoltas reported PAT of Rs520bn (down 17% YoY) in Q3FY16, in line with our estimate. While MEP segment showed strong pick up in execution (up 56% YoY), profitability suffered due to provision for the acceleration claim in an overseas project. Management remained focused on achieving decent profitability in short/medium term in MEP segment. While environment in International markets remains volatile, Voltas continue to focus on orders with healthy profitability and right commercial terms. Sales in UCP segment bounced back (up 13% YoY) on the back of good festive demand. The company is preparing for the upcoming peak season with a wider portfolio of customer‐centric products, a refreshed advertisement campaign and determination to protect our leadership position. We believe Voltas is the best proxy to play the growth in the AC industry. We expect stock to deliver earnings CAGR of 20% over FY16‐18E. Maintain Accumulate. The stock is trading at 21.2x FY17E earnings. We have cut our earnings by ~10% for FY16 & FY17 to factor in slower ramp‐up in MEP margins. We remain positive on Voltas over medium/long, given the improving margin profile of fresh orders, strong consumer business franchisee, healthy balance sheet and cash flow. We expect stock to deliver earnings CAGR of 20% over FY16‐18E. Maintain ‘Accumulate’.

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