Hold Voltas; target of Rs 694: Prabhudas Lilladher

Prabhudas Lilladher's research report on Voltas

We increase our FY20, FY21 & FY22 EPS by 6.1%, 3% & 1.2% respectively given 1) continued momentum in UCP sales and margin expansion & 2) 41.2% increase in MEP order book on the back of large order wins in urban infrastructure and waste water management With inventory of RAC and components in place for 4Q20, Corona virus is unlikely to impact ahead of peak season build up. However, any prolonged shutdown of Chinese factories can inflate sourcing cost and negatively impact margins in an industry which is witnessing heightened competition from around 20 players. We believe Voltas's MEP business is well placed to gain from renewed Govt focus on Metros, Airports, Healthcare and water management. We will keenly watch for scale-up in VOLTBEK JV in FY21 as commissioning of Sanand facility will enable it to launch mass market products in refrigerators and washing machines. We expect the JV to report a loss of Rs1.5bn/Rs1.2bn in FY20/21.

Outlook

We estimate 19.3% EPS CAGR over FY20-22 and value the stock at 28x Dec21 EPS. Maintain Hold with a target price of Rs694 (earlier Rs662 based on 28xSept21 EPS).

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