UCP business outperforms
Voltas posted strong numbers led by superior performance from its UCP business. Topline growth of 23.6% yoy was ahead of our estimates of 13% yoy growth. UCP segment registered strong growth of 46.8% yoy (est. 20%) was driven by favorable weather conditions leading to robust offtake in volumes. Voltas managed to outperform the market growth of 36% yoy in Q1. Inventory at the company level has reduced substantially. RAC market share of Voltas improved to 24.1% in Q1 FY20 at MBO from 23.9% in Q4 FY19. Commercial refrigeration products and Air Coolers also witnessed healthy growth. EMPS segment revenue de-grew 4.9% yoy (est. growth of 5% yoy) as recently received order were under early stage of execution. Of the total order inflow of Rs6.8bn, Rs4.5bn was from the domestic market, whereas in the international market it continues to be selective. Total order book stands at Rs47.6bn, of which domestic book is Rs29bn and the rest is international. Management is expecting to bag few orders in the near term, where it has received LOI’s. On the Voltbek front, the response from the trade has been encouraging. The company is steadily launching several SKU’s in refrigerators, washing machines and dish washer segment. Also, it is increasing its distribution reach having 150 exclusive brand outlets showcasing Voltas RAC and Voltbek products.
The company’s focus would be largely on expanding its distribution reach, appropriate A&P spends and increased localization. While EMPS business emphasis would be on orders related to rural electrification, water projects and urban infrastructure. We have slightly increased our UCP revenue estimates, considering strong growth in Q1. At CMP, the company appears fairly valued at 27.8x FY21E P/E. Maintain Hold.
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