Buy Voltas; target of Rs 725: ICICI Direct

ICICI Direct's research report on Voltas

Voltas’ unitary cooling product (UCP) segment performance was better than our expectation both in terms of topline, profitability. Despite lower volume in Q1FY21, Voltas clocked UCP segment EBIT margin of ~15.5% (up 240 bps YoY), highest margin in the last eight quarters supported by better product mix, lower raw material prices. UCP segment sales decline of ~60% was largely due to loss of revenue for almost 40 days amid pandemic related lockdowns. However, with its robust supply chain management and pan-India distribution network (~19,000 touch points) Voltas managed to gain market share (YTD market share of 26.2%) in Q1FY21. With festive season around the corner and changing consumer habits as more people stay at home due to lockdown, we believe trade level inventory (of ~45 days) would be liquidated by end of Q3FY21. On the project, product & services front, Voltas reported decline in revenue by ~37%, ~36%, respectively, mainly impacted by lockdown, slow execution of projects. We believe while project business may face delay in revival (on lower private expenditure) UCP segment would recover from H2FY21 led by good festive demand and onset of second summer. We maintain our positive stance on the stock, considering Voltas’ robust balance sheet and well distributed dealer network that would help the company to sail through this challenging scenario.

Outlook

Voltas being a market leader in the cooling product segment would recoup sales with recovery in demand, going ahead. We like Voltas for its strong brand recall and healthy balance sheet, which would cushion the company from any adverse situations arise due to project business. We maintain our BUY rating on the stock with a revised target price of Rs 725/share ascribing PE multiple 8x, 8x and 36x to EMPS, EPS and UCP segment, respectively.

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More