Buy Voltas; target of Rs 619: HDFC Securities

HDFC Securities's research report on Voltas

We recently met the management of Voltas Limited (VOLT). Our discussion covered  points  like  (1)  Update  on  EMP  projects  in international and domestic  markets,  with  potential  improvement in the segment margin, (2) Pickup  in  inverter  ACs,  restocking  post GST and the upcoming change in energy  efficiency norms in the consumer AC segment and (3) Progress in the Arcelik JV w.r.t product launch timeline and management team.  We are encouraged by healthy underlying demand in the consumer business, and VOLT’s focus on sustaining the project’s EBIT margin of 4-5% (aim to achieve 7%).  We  maintain  our  positive  bias  on the consumer business, despite  near-term  disruption  through  channel  destocking  and change in energy efficiency norms (from Jan-18).

Outlook

We  remain constructive on VOLT, given favourable macros in the AC industry (low  penetration  and  increasing  affordability)  and  foray  into  other consumer  durable  categories will provide multi-year growth visibility. We expect a revenue/PAT  CAGR  of  14% each over FY17-20E, based on which we arrive at a TP of Rs 619 (refer to the SOTP table).

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