Published on 13/09/2019 10:19:24 AM | Source: Prabhudas Lilladher Ltd

Hold Voltas Ltd For Target Rs.609 - Prabhudas Lilladher

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UCP leads growth, JV losses a drag

Voltas remains confident of achieving annual margins of 11% in UCP segment led by

1) strong 1Q20 performance on the back of favourable summer season & delayed onset of monsoon

2) launch of new technology products in AC with rising share of inverter

3) expected savings in logistics and distribution costs post starting of Tirupati unit and

4) increased local sourcing.

With uncertainty relating to elections behind and expected resumption of government spending on infrastructure, the MEP segment shall continue to focus on rural electrification and urban infrastructure projects. Although Voltas-Beko JV performance was in line with management’s expectations, we continue to maintain our cautious stance and expect it to report a loss of ~Rs1.5bn/Rs1.2bn in FY20/21 on the back of increased spends on branding & distribution. We estimate 14.5% EPS CAGR over FY19-21 and value the stock at 28x June21 EPS. Maintain Hold with a target price of Rs609.


Sales grew by 23.6%; Adj PAT up by 13.2%: Revenues grew by 23.6% YoY to Rs26.5bn as 46.8% YoY increase in UCP segment revenues was offset by 5%/4% de-growth in EMPS/EPS revenues respectively. Gross margin declined by ~190bps to 25.4%. Absolute EBITDA grew by 19.7% to Rs2.9bn while margins declined 30bps YoY to 11%. Adjusting for Rs430mn in VRS expense adj PAT grew by 13% YoY to Rs2.1bn. Share of JV reported a loss of Rs214mn vs profit of Rs5mn largely on account of Voltas-Beko.


UCP segment EBIT grew by 53.9%; EMPS EBIT down by 25.6%: Aided by favorable summer season sales, UCP segment revenues grew by 46.8% to Rs17.5bn. Although UCP EBIT grew by 53.9% to Rs2.3bn, despite strong volume growth inability to take price hikes led to muted margin expansion of 60bps YoY to 13.1%. EMPS segment revenues declined by 4.9% YoY to Rs8.2bn while EMPS EBIT declined by 25.6% YoY to Rs656mn with margins falling by 220bps to 8%. Engineering products & services segment revenues were down 4% YoY to Rs740mn while EBIT declined by 10.5% YoY to Rs239mn. EBIT margins declined by 230bps to 32.4%.


Concall Takeaways:

1) RAC industry grew by 36% in 1Q20. Industry missed the trick of taking a price hike prior to the start of the season

2) RAC industry mix in terms of Split vs Windows at 80%-20%.

3) For Voltas, inverter AC’s now account 50% of Split AC sales. Voltas a strong no.2 player in Inverters

4) Impact of increase in import duty on IDUs, ODUs & compressors minimal in 1Q20. Next season sales more likely to be impacted. Voltas continues to focus on increased indigenization

5) VRS expense in 2Q20 likely to be lower than Rs430mn booked in 1Q20.

6) RAC market share at 24.1% in 1Q20

7) Electro-mechanical Projects (EMPS) order book at Rs48bn (Domestic - Rs29bn, International –Rs19bn). EMPS will focus on government infrastructure & electrification projects. To enter solar segment.

8) Voltbek product range includes 31/17 SKUs in Refrigerators/ Washing Machines. Product gaps to remain until Direct Cool refrigerator facility in Sanand becomes operational by end of CY19.

9) Voltas/Voltbek products being sold through 150 exclusive brand outlets.


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