Buy Voltas; target of Rs 680: JM Financial

JM Financial's research report on Voltas

We met the Voltas management for an update on its growth outlook and the key takeaways are as follows: a) While nonseasonal rains continued to play havoc, a favorable base and market share gains may help maintain single-digit volume growth. b) The company hiked prices by 2-5% from mid-May’18 to counter rising commodity prices and a depreciating INR (40-45% import content in room ACs). c) Consumer durables products under the Voltbek JV are slated to be launched during the festive season in 2HFY19; these would be imported in CKD form for the first 18 months. d) An increase in the share of rural electrification (RE) projects to 35-40% of Voltas’ order book is likely to reduce its average execution cycle, while the launch of DDUGJY scheme phase-2 should keep inflows strong in FY19-20. e) EMP margins are likely to sustain at 7-7.5% over FY19-20 as management remains cautious when bidding for new orders in the Middle East, despite a pick-up in tendering activity.

Outlook

We maintain BUY with an SOTP-based TP of INR 680, implying 30x FY20E EPS

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