Voltas Ltd. share price target

In an otherwise dull FY19, Voltas maintained industry leading RAC margins and still gained market share (23.9% Feb YTD vs. 22.1% YoY). This validates the co's focus on the mass-premium segment and deep distribution, unlike premium hunting peers. Low RAC penetration, higher incomes and rising cultural affinity for cooling in India drive our long-term structural stance on Voltas, a clear and persistent industry leader. Additionally, entry in other categories (via the Volt-Beko JV) only bolsters the multi-year growth story at Voltas. Voltass 4Q missed estimates, with high RAC channel inventory, an extended winter and weak UCP/EMPS segment margins. We cut EPS estimates by ~4% over FY19-21E to factor the miss in 4Q and moderation in order book growth in project business. Retail offtake of RACs has improved in Apr/May-19 driven by a hot start to summer. FY20 should see healthy volume growth for RACs after a tough FY19. Our SOTP for Voltas values EMPS/EPS/UCP at 17/20/35x Mar-21E EPS and Volt-Beko at 1x P/S, translating to a TP of Rs 658. Future growth drivers are intact. Maintain BUY.

Weak Q4: FY20 appears more sanguine; Maintain Buy Q4 was a weak quarter in both RAC and projects business. We believe FY20 should be a normal year on the back of Q1FY20, which is expected to be good on the back of good summer- a fact corroborated by competitors and channel checks. While project business suffered due to quarterly quirks, it was decent on a FY basis. With FY20 expected to be normal, we expect balance sheet, currently expanded due to working capital, to improve as well. We continue to like the structural penetration story of ACs and...

Voltas' EMPS segment revenue growth at ~12% YoY (owing to fast execution of domestic and international orders) was partly offset by ~6% drop in revenue of each UCP and EPS segments, respectively. Lower volume growth in UCP segments in Q4FY19 can be attributable to extended winter and focus on rationalisation of inventory at dealer's level. However, we believe FY20E will be better than FY19 for the UCP segment considering demand revival of air conditioners (April/May 2019 saw strong demand of cooling products). We model UCP segment revenue CAGR of ~18% in FY1921E led by ~14% volume growth during the same period. We believe strong...

issue. PAT declined 28% to INR1.4b (21% miss). UCP margin guidance of 11% suggests competitive pressure: Management guided for a sustainable UCP margin of 11% versus 13-14% over FY15-18. In our view, high competitive intensity is restricting price hike actions, as VOLT looks to secure its leadership position (market share expanded to 23.9% v/s 22.1% last year). Capital employed in the segment increased to INR5.6b from INR2.5b in 4QFY18 on account of higher inventory in the system. Inventory has now been liquidated and primary sales have seen revival in 1QFY20....

We are downgrading our rating from Accumulate to Hold following 16.5% and 4.6% cut in FY20 & FY21 EPS on account of 1) estimate loss of Rs750mn and Rs600mn in FY20 and FY21 due to increased spends on brand building and distribution in Voltas-Beko JV to establish itself in highly competitive white goods market 2) low growth of EMPS in FY20 due to poor order inflow and 3) limited pricing power in RAC market due to rising competition Voltas is focusing on consolidating its leadership (YTD market share gain of 180bps to 23.9%) and look at margin expansion mainly through cost...

Voltas' UCP division performance remained flat in 9MFY19 owing to bad weather, subdued festive demand and a poor second summer. The overall RAC industry de-grew ~4% YoY in 9MFY19. Despite such challenging conditions, Voltas has maintained its leadership position with market share of 24%. With normal inventory of ACs at dealers level (1-1.5 months) and slight demand revival in southern regions, the management expects strong AC volume growth in FY20E. This along with rising contribution of inverter AC sales (inverter AC now contributes ~40% of...

13 March 2019 Capital Goods AC industry to register double-digit growth in FY20 on back of a pick-up in demand in certain pockets of the country. VOLT expects volumes to increase in March- April (post the festive season of Holi). Inventory levels have started to recede and primary channel filling has increased. The new facility will come up in phases with the INR5b capex spread over the next five years; annual capex will be in the range of INR1b. VOLT expects the factory to start in 2H 2020. margins to settle around 11-12% on sustainable basis, despite its inability to take price hikes given the subdued demand, INR depreciation and increase in competition, raw material cost, and import duty on compressors and completely built units (CBUs). EBIT margins for 9MFY19 for the UCP segment stood at 9.1%. 4Q margins for VOLT over the last five years stood at an average of 16.9%.

We value Voltas based on SOTP, valuing EMPS/EPS/UCP at Dec-20 P/E at 17/20/35x with TP of Rs 650 (Rs 640 earlier). Voltas reported a weak quarter led by muted off-season RAC performance. Net Revenues grew by 9% driven by healthy execution in the project biz (up 16% vs. exp. of 22%). Weak RAC sales (-3% vs. exp. of 5%) was owing to high channel inventory, modest festive season offtake and heavy base (32% in 3QFY18; rating change led pre-buying).

ICICI Securities Ltd | Retail Equity Research Topline growth of ~9% YoY was largely impacted by the UCP division where segment revenue declined ~3% YoY. The tepid performance was led by poor festive demand and failure of second summer. However, the project (EMPS) and product (EPS) segment recorded revenue growth of 16% and 21% YoY, respectively, owing to efficient execution of quality orders UCP segment EBIT margin was down ~450 bps YoY to 8.5% due to...

15 February 2019 Sales grew 9% YoY to INR14.8b, marginally below our estimate of INR15.4b, impacted by lower EMP sales (INR8.7b v/s our estimate of INR9.2b). EBITDA declined 3% YoY to INR1.2b estimate of 8.2% due to weak UCP margins. Adj. PAT declined 8% YoY to INR0.9b, below our estimate of INR1b. VOLT booked a loss of INR308m pertaining to its JV business with BEKO. declined 3% YoY to INR5.2b (in-line). The segmental margin shrank 450bp take price hikes, despite a rise in RM cost and INR depreciation.