Buy Voltas; target of Rs 273: Emkay

Emkay Global Financial Services research report on Voltas>> Voltas reported strong results led by robust profitability in the Unitary Cooling Product (UCP) segment>> Revenues increase by 9.6% YoY to Rs17.5bn. (a) Electro Mechanical (EMPS) down by 10% YoY (b) UCP surge by 27%YoY>> EBITDAM increase by 440bpsYoY to 7.5%>> Offers upbeat outlook; Buy with target of Rs273/Share“Revenues increased by 9.6% yoy to Rs17.5bn driven by volume growth in the UCP segment. Revenues in the EMPS fell by 10%yoy to Rs6.2bn as project execution continued to get delayed in the domestic and international markets. The EPS segment reported flattish revenues at Rs1.1bn as mining and construction remained subdued while sale of textile machinery reported modest growth. The UCP segment reported 27%yoy growth to Rs10bn, positively impacted by the extended summer. Voltas maintained its leadership with ~21.7% market share in the Room AC business (RAC). While the RAC industry grew at 22%, Voltas managed to register 29% growth which enabled the company extend its lead over its nearest competitor. EBITDAM increased by 440bps to 7.5% led by strong profitability in UCP segment. EMPS managed to avoid losses and reported a meagre 0.7% EBITM as against EBIT loss of Rs265mn yoy. EBITM in the EPS segment declined by 610bps to 21.6%. EBITM in UCP rose by 300bps to 11.6% led by higher realization and better product mix. EBIDTA increased by 161%yoy to Rs1.3bn, while APAT rose 166%yoy to Rs1.08bn.” “Management expects margins to gradually improve in the EMPS segment from FY15E as slow moving orders (~35% of the order backlog) get executed and newer projects with better profitability (threshold margins of >5%) come into execution. In the Sidra project (95% complete), Voltas has already provided ~Rs4bn for anticipated losses and does not expect any incremental provisions thereon. Better activity in Middle East region would also benefit Voltas with improved order flows in FY15E and FY16E. Voltas has a strong balance sheet and cash flow generating capabilities which will help it wither the storm in the near to medium term. The stock trades at FY16 P/E multiple of 16.5x. Maintain Buy with a target price of Rs273 per share,” says Emkay Global Financial Services research report.

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