Hold Voltas; target of Rs 845: ICICI Direct

ICICI Direct recommended hold rating on Voltas with a target price of Rs 845 in its research report dated November 10, 2020.

Broker Research

November 12, 2020 / 18:07 IST

ICICI Direct's research report on Voltas

Voltas’ unitary cooling product (UCP) segment performance was better than our estimate both in terms of topline, profitability. The company clocked volume growth of ~11% in the room AC division, better than our estimate of -10%. Air cooler sales also came in ahead of our estimate with volume growth of 28% YoY. Better product mix and various cost optimisation measures help drive segment EBIT margin up 230 bps YoY to 11%. On the other hand, timely closure of some overseas projects help drive the electro mechanical project and services (EMPS) segment revenue growth of 15% YoY in Q2FY21. However, cost overruns of some old projects led to a decline in EBIT margin by ~450 bps YoY to 2.5%. According to the management, the domestic projects business witnessed improvement post easing of lockdown. We believe execution of domestic and international project business is likely to pick up with opening up of the economy. We also believe normalised RAC inventory at dealer level and pent up demand from metro, tier 1 cities would further help in demand recovery of room ACs in H2FY21. While we maintain our positive stance on Voltas due to its robust balance sheet and well distributed dealer network, we believe the recent run up in the stock captures all near term positives. We introduce our FY23 estimates.

Outlook

We introduce our FY23 estimates with revenue, earning CAGR of ~9% and ~24%, respectively. We believe at the CMP all near term positives are priced in. Hence, we downgrade our rating from BUY to HOLD. We roll over our valuation on FY23, and ascribe PE multiple 8x, 8x and 36x to EMPS, EPS and UCP segment, respectively with a revised target price of Rs 845/share.

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