Buy Voltas; target of Rs 980: Prabhudas Lilladher

Prabhudas Lilladher's research report on Voltas

We downward revise our FY23/FY24/FY25 adjusted earnings by 27.2%/10.3%/5.7% to factors in 1) margin contraction in UCP segment (-90bps YoY Q3FY23), due to high cost inventory & price competition, 2) losses in EMPS business (-Rs461mn) given delay in collections & settlements and 3) continued losses in Voltas Beko (-Rs326mn). Voltas (VOLT) share price declined ~35% YTD FY23, over concerns of losing market share in RAC and one-off losses in EMPS, however, we believe it has limited downside risk. In YTD Dec-22 the company reported market share of 22.5% (vs 25.8% YTD Nov21 & 22.8% YTD Sep-22), largely due to aggressive pricing from competitors. Management expects good volume growth in upcoming summer season, while not taking price hikes because of competition will impact margins. We continue to like VOLT for long term, despite near term challenges related to margins given 1) its leadership position in RAC 2) balance sheet comfort (Rs8.6bn net cash H1FY23) and 3) better traction in order flow from domestic/international.

Outlook

We estimate 18.7% EPS CAGR over FY22-25 and maintain ‘BUY’ rating with SOTP based revised TP of Rs980 (earlier Rs1030) valuing UCP business at 45x FY25EPS.

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Voltas - 14 -02 - 2023 - prabhu