Buy Voltas; target of Rs 320: Motilal Oswal

Motilal Oswal's report on Voltas

LG had dominated the Indian AC market for years. In CY13, VOLT became the number-1 brand in the multi-brand outlets category (which account for 80-85% of industry sales), and in CY14, it became India’s number-1 AC brand. While VOLT continues to maintain its leadership position at most outlets, several distributors highlighted the intense efforts being made by LG to get back its pole position.

VOLT has launched new products like all-weather inverter ACs and smart ACs. LG has made several course corrections in terms of (1) new products like inverter ACs with mosquito away technology, and (2) 5-7% price cuts – pricing is now just at a slight premium to VOLT.

Competitive intensity remains elevated, particularly from Japanese brands like Panasonic, Hitachi, Daikin, Sharp, and General. Also, Indian brands like Videocon, Godrej, Whirlpool, and Onida are attempting to gain share.

Distributors expect VOLT to possibly enter the air coolers segment. The company already has a portfolio and the dealership network is largely similar. This could be an important monitorable; new product introductions can accelerate growth momentum.

"We model PAT CAGR of 23% over FY15-17, largely led by profitability improvement in MEP, 18% EBIT CAGR in Unitary Cooling (UC) and 5% EBIT CAGR in Engineering Products. Maintain Buy with an SOTP-based price target of INR320 (UC at 22x FY17E EPS, MEP at 16x, and Engineering Products at 20x)", says Motilal Oswal research report.

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