IGI Logo

Ongoing lockdowns overshadow the strong operating performance

Strong cash flow generation despite a washout season commendable

* VOLT’s 4QFY21 earnings were 28% better than our expectation, led by better than expected margins in EMP and UCP segment. Voltas continues to be No.1 player in Room Air Conditioners (RAC), with a market share of 25.6%. Favorable product mix aided UCP margin as the share of Inverter ACs now constitutes 77% of Split AC sales (64% in 4QFY20).

* Current valuations adequately factors in franchise strength of the UCP business. We note that a large part of the margin surprise is due to cut in ad spends and low-cost inventory that was procured last year (~200bp advantage). We marginally lower our FY22E/FY23E EPS estimate by 5%/4% on account of lower order book in the EMPS segment and maintain our Neutral rating with a TP of INR1,060/share. We prefer Consumer Electrical plays over White Goods, with Orient Electric (OEL) and Crompton Greaves Consumer Electricals (CROMPTON) as our top picks.

EMP margin surprise led earnings beat

* 4QFY21 snapshot: Consolidated revenue grew 27% YoY and was in line with our expectation. EBITDA grew 72% and was 25% ahead of our estimate. EBITDA margin came in at 12.5% v/s our expectation of 9.9%. Adjusted PAT grew 48% YoY to INR2.4b and was 28% ahead of our estimate.

* FY21 snapshot: Consolidated revenue stood flat YoY at INR75.6b. EBITDA fell 7% YoY to INR6.4b, with EBITDA margin declining 50bp to 8.5%. Adjusted PAT stood at INR5.2b (-5% YoY). CFO stood at INR6b in FY21 (v/s INR5.2b in FY20), up 16% YoY, aided by efficient working capital management.

* Segmental highlights: a) EMP | 4QFY21: Revenue grew 37% YoY to INR11b and was in line with our estimate. PBIT margin surprised positively at 8.4% v/s our expectation of 3.7%. FY21: Revenue grew 10% YoY to INR35.7b, with PBIT margin at 3% (v/s 5.2% in FY20). b) UCP| 4QFY21: Revenue grew 20% YoY to INR14.4b and was in line with our estimate. PBIT margin stood at 15.6% v/s our expectation of 14.9%. VOLT continues to be the market leader and is numero uno in ACs with a market share of 25.6% in Feb’21 YTD. FY21: Revenue declined by 13% YoY to INR35.6b, with PBIT margin at 14.1% (v/s 12.6% in FY20).

Key takeaways from the management commentary

* UCP: For the full year FY21, Voltas registered 15% decline in RAC business vs. industry de-growth of 29%. However, 4QFY21 margin is not sustainable. ~200bp positive impact was on account of low-cost inventory and moderate ad spends.

* EMPS: Over the long term, the management aims to have 6-7% margin in this business. It has undertaken a conscious strategy to bid for government contracts for long-term projects as receivables are protected and the commodity escalation costs are also built in.

* Voltbek: More than 0.3m units of Direct Cool Refrigerators were sold in FY21, despite the lockdown and limited selling window. Voltas Beko Dishwasher tops the category in India, with a market share of 30%, despite being a late entrant. Its Refrigerator market share stood at 3%, while that of Washing Machines stood at 2.5%.

Valuation and view

* The on-going lockdown in the peak summer season presents downside risk to air conditioner industry sales. We expect Voltas’s 1QFY22 UCP segment revenue at ~70% of 1QFY20 level. Prolonged lockdown into June presents further downside to our estimates.

* We marginally lower our FY22E/FY23E EPS estimate by 5%/4% on account of lower order book in the EMPS segment and maintain our Neutral rating with a TP of INR1,060/share. At the CMP, the UCP business is trading at a FY22E/FY23E P/E of 57x/47x. Current valuations adequately factors in franchise strength of the UCP business. We prefer Consumer Electrical plays over Consumer Durables, with OEL and CROMPTON as our top picks.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer