Buy Voltas; target of Rs 635: ICICI Direct

ICICI Direct's research report on Voltas

Voltas’s UCP segment performance was robust with segment revenue growth of ~20% (in line with our estimate) despite Covid-19 related lockdown in March 2020. Voltas outpaced its peers in revenue growth terms in Q4FY20 mainly due to 1) heavy pre-buying activity by dealers in anticipation of supplies getting impacted due to outbreak of virus in China, 2) well distributed dealer network (~17000) in tier-II, tier-III cities across India, 3) rising market share in southern region. Segment EBIT margin also increased significantly by ~424 bps YoY to 14.6% led by better gross margin. However, performance of project (EMPS) and product & services division was significantly marred by lockdown. While Voltas’ FY21 performance is likely to get impacted by lockdown (cut our revenue, earnings estimate by 24%, 46%, respectively), we believe recovery in sales would start from H2FY21 led by good festive demand and onset of second summer. Considering its robust balance sheet condition and well distributed dealer network, it may regain momentum post normalisation of business.

Outlook

We upgrade our rating from HOLD to BUY with a revised target price of Rs 635/share ascribing PE multiple 8x, 8x and 32x to EMPS, EPS and UCP segment, respectively.

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