Buy Voltas; target of Rs 394: ICICIdirect

ICICIdirect.com's report on Voltas

Voltas reported abysmal revenue growth of ~2% YoY in Q4FY15 to Rs 1490 crore due to 13%, ~18% YoY dip in electro-mechanical projects (EMPS), engineering product (EPS) segment revenue, respectively. However, revenue of unitary cooling products (UCP) surged ~19% YoY driven by ~14% YoY growth in volume of cooling products. Consolidated order book was at Rs 3893 crore (domestic: Rs 2022 crore, international: Rs 1871 crore)

Despite muted revenue growth, the EBITDA margin increased significantly (~240 bps YoY) due to improved profitability in the project business (recorded EBIT profit of Rs 4 crore vs. EBIT loss of Rs 13.8 crore in Q4FY14) and a decline in raw material cost to the tune of ~1000 bps YoY

Despite a decline in other income by ~2% YoY and ~18% rise in depreciation charges, PAT improved ~18% YoY to Rs 118 crore (vs. I-direct estimate: ~Rs 110 crore) mainly on account of higher EBITDA margin and saving in tax outgo (down ~227 bps YoY)

"We believe the stock is trading at attractive multiples considering the strong performance of the UCP business and recovery in the EMPS segment. Considering the two different portfolio consumer and industrial facing business of Voltas, we are valuing consumer and industrial businesses separately using sum of the parts (SOTP) method. We have valued the UCP segment on a PE basis by ascribing PE multiple of 26x FY17 earnings. We ascribe a PE multiple of 5x FY17E earning to EMPS business (considering sharp volatility in earnings) and 8x FY17E earnings to the EPS segment. We have maintained our BUY rating with a revised target price of Rs 394/share (based on 25x FY17 earnings)", says ICICIdirect.com research report.

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