ICICI Direct recommended hold rating on Voltas with a target price of Rs 650 in its research report dated March 19, 2019.
ICICI Direct's research report on Voltas
Voltas’ UCP division performance remained flat in 9MFY19 owing to bad weather, subdued festive demand and a poor second summer. The overall RAC industry de-grew ~4% YoY in 9MFY19. Despite such challenging conditions, Voltas has maintained its leadership position with market share of 24%. With normal inventory of ACs at dealers level (1-1.5 months) and slight demand revival in southern regions, the management expects strong AC volume growth in FY20E. This along with rising contribution of inverter AC sales (inverter AC now contributes ~40% of total split AC sales) would restrict any sharp fall in EBIT margin (the management expects EBIT margin of ~11% in the UCP division, going forward, ~100 bps higher than reported EBIT margin during 9MFY19). We model revenue CAGR of ~14% in FY18-21E in the UCP segment led by volume CAGR of 11% during the same period. On the EMPS front, we slightly cut our revenue CAGR estimate from 14% to 11% in FY18-21E due to mainly focus on execution of quality orders.
We believe rising contribution of premium products (inverter AC) and stable raw material/currency movement would help in maintaining EBIT margin at ~11%, going forward. We maintain HOLD on Voltas with a revised target price of Rs 650/share. Under our SOTP based valuation, we value the UCP segment by ascribing PE multiple of 35x FY21E earnings. We ascribe a PE multiple of 15x FY21E and 10x FY21E earning to EMPS and EPS segment, respectively.
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