Buy Voltas;target of Rs 291: Edelweiss

Edelweiss's research report on VoltasVoltas’s (VOLT) Q3FY16 result saw sharp uptick in revenue ahead of our and consensus estimates driven by strong execution (up 60%) in electro mechanical projects & services segment (EMPS) led by its international projects. EBITDA margin, at 4.5%, declined 150bps (gross margin down 390bps) owing to loss reported in its EMPS segment as certain variation claims were not received during the quarter, which management expects to receive going ahead. While Q3 is a seasonally weak for unitary cooling product (UCP) business, it logged moderate growth at 13% given festive season demand. PAT, adjusted for sale of property, jumped 2x, in line with our estimates. Order backlog while flat sequentially, declined 11% YoY to INR35.1bn as order intake at INR5.4bn was low (down 21%) given difficult environment and heightened competition. Maintain ‘BUY’. We like VOLT’s selective approach towards new orders in EMPS. Competition remains heightened in UCP unit, but the company is maintaining its leadership position. Building in lower order intake and profitability, we trim our FY16E and FY17E earnings by 16% and 13% respectively. The stock trades at 25.1x and18.8x FY17E and FY18E EPS, respectively. Maintain ‘BUY/Sector Outperformer’ with a revised target price of INR291 (INR350 earlier), as we introduce and roll valuations based on 20x FY18E EPS.

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