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Add Voltas Ltd For Target Rs. 1,089

Result Highlights

* Quarter summary – Voltas delivered better than expected revenue growth of 27% yoy on back of beat in project business. UCP and EPS business grew in line with estimates. Increased efficiencies and cost controls have led to EBITDA margin increase of 328bps despite sharp contraction in gross margins.   

* EMPS business delivers positive surprise – EMPS business registered growth of 37.2% on improved execution. Better collections, lower provisioning and increased efficiencies have led to strong margin delivery. Margin at 8.4% expanded 701bps/524bps on yoy and sequential basis.

* Commodity inflation impact – Gross margins contracted sharply by 306bps to 25.6% on back of steep increase in commodity prices. Company will require another round of price increase to offset commodity price inflation as cushion of lower priced inventory has been utilized in Q4.  

* UCP and Volt‐Bek – Cooling products have delivered in‐line performance with market share of 25.6%. Voltas‐Beko products have started to gain prominence in the market with dishwashers commanding market share of 30%. Refrigerator and Washing machine market share stood at 3% and 2.5% respectively

Valuation and view –

Strong growth momentum continued in Q4 as well after bumper festive season. All the business segments have seen improvement in profitability in 4Q. Lockdown/restrictions across various part of the country on back of second wave could challenge growth momentum in the near term; but we expect it to recover as soon as restrictions are eased as underlying demand continues to remain strong.      

Voltas being a strong brand and with its distribution presence and increase in product offering on the commercial refrigeration side should outperform the industry. This along with improved execution and better order book mix will drive improved performance for project business. Its Volt‐Bek JV has stared gaining prominence in the market and localized product is expected to increase efficiency and bring down losses. We estimate FY21‐23E Revenue/EBITDA/PAT CAGR of 17%/22%/31% and continue with our ADD rating with SoTP based TP of Rs1,089.

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