ICICI Direct recommended hold rating on Voltas with a target price of Rs 605 in its research report dated May 13, 2019.
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.
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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