Buy Voltas; target of Rs 350: Motilal Oswal

Motilal Oswal's reserach report on VoltasThe street appears concerned over VOLT’s Cooling Products business, post a weak 1QFY16. We draw a parallel from FY12/FY13 (industry volumes declined 14%/5%), when a shortened summer season had led to a drop in industry sales and increased discounts to clear inventory. We take comfort that the weakness in air conditioner sales in FY16 is only transitory and believe that growth should bounce back to 10-15% CAGR. For FY16, we build in a base case of 5% industry growth; VOLT usually outpaces industry growth, driven by market share gains. Moreover, air cooler sales should start contributing meaningfully from FY17.We cut our earnings estimates by 4% for FY16 and by 3% for FY17. VOLT trades 23x FY16E and 17x FY17E adjusted EPS. We maintain Buy; our revised target price is INR350 (INR360 earlier). In our view, there are multiple triggers for the stock, which include (1) positive impact of 7th Pay Commission hikes, (2) improving margins in the Projects business, and (3) structural uptrend in the air conditioner market.

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