Voltas Ltd. share price target

Voltas Analyst meet indicated the likelihood of no immediate price hikes owing to benign commodity costs offsetting customs duty hike. Voltas remains hopeful of continuing the UCP momentum in H2 while maintaining annual margin guidance at 11%. MEP business is focusing on domestic projects as the outlook on urban infrastructure and water management remains positive. With commissioning of Sanand facility in the coming two months Voltbek shall be able to fill gaps in key product segments (Direct-Cool refrigerators and semi-automatic washing machines). However, it is expected...

However, industry has made representation that a continuous energy rating change does not make the desired impact as it results in price increases and consequently the shifting of customers to lower energy level products. However, there is a significant difference between the price points of VOLT and Samsung. We believe that any significant market share erosion for VOLT is unlikely, given its pricing strategy, strong procurement and distribution network. However, there is a long tail of AC brands and Samsung may be able to gain market share at the cost of these fringe players in the near term. In the room AC business, VOLT has grown by 42% in 1HFY20 v/s industrys secondary sales growth of 33%. Further, market share for the company in room ACs stood at 24.4%. Management expects strong momentum in the AC business to continue in 2HFY20.

Topline and margins remained under pressure due to weak consumer demand and slower economic growth. Net revenue remained flat at Rs. 1,415cr in Q2FY20 and EBITDA margin declined by 20bps to 7.5% primarily on higher other operating costs (+27.0% to Rs. 140cr). However, adj. PAT rose to Rs. 113cr (+8.7%YoY) primarily benefitting from higher other income (+57.6% YoY to Rs. 73cr). Weaker EMP operations offset growth from UCP segment Voltas recorded robust growth in revenue from UCP segment in Q2FY20 (+19.2% YoY to Rs. 526cr; 37.1% of total revenue) with increased traction and healthy growth in Air...

Voltas Q2FY20 results came broadly in-line with our estimates as improved performance of UCP segment offset the impact of weakness in EMPS division.

Voltas is winning in its product segment strategy as it is able to meet demand across the pyramid i.e. mass (window), mass premium (fixed speed and inverter) and premium (7 star products for EESL). This is in contrast with peers who have migrated towards inverters and 5-star products. Low channel inventory drives visibility for robust growth in 2HFY20. Besides, robust growth in order book is expected to drive recovery in EMPS business. Voltas delivered another strong show in its UCP business while EMPS business was weak. Low channel inventory for RAC supported growth in an off-season quarter (expect it to sustain over 2HFY20). Robust growth in order book signals a recovery in project business. We value Voltas on SOTP basis, valuing EMPS/EPS/UCP at 17/20/35x on Sep-21E EPS and Volt-Beko at 1x P/S, translating to a TP of Rs 742. Maintain BUY.

Voltas's UCP segment revenue growth (19% YoY in Q2, 39% YoY in H1FY20) was much higher than domestic air conditioner industry growth of 33% during H1FY20. With a slight gain in market share (~24% market share in Q2FY20) coupled with rising contribution of inverter AC into sales (inverter AC contributes ~50% in AC sales) helped drive the UCP division performance in Q2FY20. The management guided at intact demand of RAC in H2FY20 supported by intact demand from tier II, tier III cities, expansion in new geographies (expanding in southern regions) and strong order from...

maintaining annual margin guidance at 11%. MEP segment shall continue to focus on domestic projects in Urban Infra and Rural Electrification. With Voltas Beko JV to remain in an investment phase over the next 2-3 years, we expect the JV to drag profitability in the medium term and report a loss of Rs1.5bn/Rs1.2bn in FY20/21. We estimate 18% EPS CAGR over FY19-22 and value the stock at 28x Sept21 EPS. Maintain Hold with a target price of Rs662. Sales flat at Rs14.2bn; Adj PAT up by 8.8%: Revenues were flat YoY at Rs14.2bn as gains from UCP segment were offset by fall in EMPS segment. Benign...

Voltas Limited, part of the TATA group, is a leading air conditioning and engineering services...

Voltas has indicated that while other consumer durable products saw a slight slowdown, demand for cooling products such as room air conditioners (RAC), air coolers and refrigerators remained firm during H1FY20. The volume growth of RACs is likely to remain strong in H2FY20 as well supported by demand remaining intact from Tier II, Tier III cities. In addition to this, deferral of rating change norm by a year coupled with absence of price hikes would help drive volume growth of industry, going forward. The management further said that despite launch of various premium SKUs in...

Voltas Analyst meet indicated cautious demand scenario post positive start to UCP in FY20 as continuing slowdown in the economy can negatively impact festive season sales. The management has maintained annual margin guidance of 11% in UCP. With no presence in key product segments (Direct Cool refrigerator & Semi-automatic Washing Machines) Voltbek is unlikely to make any major inroads this festival season. It is expected to remain in an investment phase over the next 3-4 years given expenses on distribution, branding and stiff competition in white goods market. We estimate the JV to...