Hold Voltas; target of Rs 605: ICICI Direct

ICICI Direct's research report on Voltas

Voltas’ muted performance in Q4FY19 was led by the poor performance of unitary cooling product (UCP) segments. The segment revenue declined ~6% YoY at ~Rs 998 crore (I-direct estimate: 4% YoY) led by continuous slowdown in AC demand due to extended winter and intense competition in Q4FY19. EMPS revenue growth at ~12% YoY was also below our estimate of 15% YoY. The EBITDA margin at 7% (I-direct estimate: 10%) was under pressure due to lower profitability from both UCP, EMPS business. The management has maintained the margin guidance at ~7% and ~11% for EMPS and UCP segment, respectively, in FY20E. We believe the UCP segment would face pricing pressure due to competition and higher advertisement expense, capping the margin expansion in FY20E-21E.

Outlook

Under our SOTP based valuation, we maintain HOLD on Voltas with a revised target price of Rs 605/share, by ascribing PE multiple of 32x FY21E earnings to UCP segment. We ascribe a PE multiple of 16x FY21E and 10x FY21E earning to EMPS and EPS segment, respectively. We believe pricing pressure in the UCP segment would cap overall margin expansion for Voltas.

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