Voltas shares were in focus in the early hours of trade on February 13 after Nomura and Jefferies saw further upside in the stock based on its December quarter earnings.
The air-conditioning and engineering services provider on February 9 reported a consolidated net loss of Rs 110.49 crore for the third quarter ended December 2022 on account of provisioning made on overseas projects.
The Tata group firm had posted a consolidated net profit of Rs 96.56 crore in the October-December quarter last fiscal, Voltas said in a regulatory filing.
Its revenue from operations was up 11.82 percent to Rs 2,005.61 crore during the quarter under review as against Rs 1,793.59 crore in the year-ago period. Voltas had a profit before exceptional items and tax of Rs 56.93 crore in the third quarter of FY23. Its expenses on exceptional items were at Rs 137.39 crore.
Its total expenses stood at Rs 1,946.72 crore, up 17.89 percent from Rs 1,651.27 crore a year ago.
Japanese research and broking firm Nomura has maintained its 'buy' rating on the stock with a target of Rs 1,083 per share.
According to the research firm, Voltas's third-quarter revenue at Rs 20 billion, +12 percent on-year, was around 5-6 percent above its consensus estimates. However, EBITDA at Rs 0.8 billion, -51 percent on-year, was below estimates. Its PAT was impacted by an exceptional loss of Rs 1.4 billion for the overseas projects business.
The company's unitary cooling products (UCP) revenue (up 11 percent on-year) was ahead with lower EBIT margin at 7.4 percent (flat on-quarter), leading to in-line EBIT. RAC market share remained stable at 22.5 percent YTD in December 2022. Projects disappointed, with EBIT margin at -7.1 percent, while the order book was at Rs 75.4 billion, it said.
While Nomura has maintained a 12 percent volume growth for the AC industry for FY24-25, stronger summer season can lead to an upside risk, given the seasonal nature of the product. Competitive intensity remains unsustainable and should normalise over a period. Operating leverage and price hikes can be other margin tailwinds for FY24, the brokerage firm added.
"In UCP, we lower EBIT margins by 100/50/50bp to 8 percent/10.5 percent/11.5 percent over FY23/24/25. For Projects, while revenue is up by 14-16 percent on higher order book, EBIT margin is lowered to 2 percent/3.5 percent/4.5 percent (3 percent/5 percent/5.5 percent earlier). Thus, we cut EPS by 25 percent/9 percent/7 percent over FY23-25," Normura said in its report.
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"The stock is trading at 30x FY25 EPS, which we believe offers a favourable risk reward and maintain target P/E of 40x/13x/15x for UCP/Project/Service, value VoltBek at Rs 69 per share, and roll forward to Mar-25 to arrive at our unchanged target of Rs 1,083, implying a 27 percent upside," the Japanese research firm said.
Jefferies also has a 'buy' call with target of Rs 1,050 per share. It is of the view that Q3 EBITDA was a miss as MEP Engineering reported loss. However, outlook is positive as order book is up 35 percent YoY. Cooling segment margin and market share have stabilised QoQ, which is a lean quarter.
"We see strong EPS growth and double digit stock returns in FY24," it said.
Goldman Sachs on the other hand has a 'sell' call on Voltas with target at Rs 840 per share. "Market share loss and structural decline in margins dampen profitability. We see intense competition in air-conditioning resulting in continued margin pressure."
The brokerage firm sees elevated multiples with the stock trading at a 44x FY24 P/E for RoE of 11 percent.
At 9:27am, Voltas was quoting at Rs 844.55, down Rs 5.40, or 0.64 percent on BSE. It has touched an intraday high of Rs 854.25 and an intraday low of Rs 841.05.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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