Voltas Ltd. share price target

Voltas is India's largest air conditioning company and one of the world's premier engineering solutions providers and project specialists. It operates its business under three segments, namely i) Unitary Cooling Products, ii) Electro Mechanical Projects and iii) Engineering Products & Services.

14 September 2018 Consumer Durables home appliance portfolio consist of refrigerators, washing machines, dishwashers and microwaves, and these will be sold under the brand Voltas Beko. With this launch, the Voltas-Arcelik JV should address a potential market of INR430b, which is growing at 10-12% annually. The company is looking to corner around 10% market share, and to generate revenues of INR100b by 2025 in the home appliances segment. Key competitors for Voltas Beko are LG, Samsung and Whirlpool (Page-2 onwards market size, market share, competition and pricing across categories). The JV named Voltbek Home Appliances Private Limited (Voltbek) plans refrigerators; b) 40 SKU's in washing machines; c) 12 SKU's in microwaves; and d) 7 SKU's in dishwashers. The products will initially be imported from Arceliks plants in Thailand and Turkey. Production is slated to begin from mid-CY19 onwards and the factory would have a capacity of 1m refrigerators and washing machines, along with 0.

A weak summer coupled with lower volume offtake in Q1FY19 led to ~2% YoY decline in sales growth of unitary cooling product (UCP) YoY in Q1FY19. On the other hand, strong sales growth in EMPS segment (up ~31% YoY) was on the back of a pick-up in execution of domestic and international orders. Despite rising competition, its market share was at 23.5% in Q1FY19 in the RAC segment Saving in other expenses (down ~50 bps YoY) and employee cost (down 90 bps YoY) helped offset lower gross margin. As a result,...

12 August 2018 Sales of INR20.5b (+11% YoY) were above our estimate of INR19.9b. EBITDA rose 17% YoY to INR2.4b (our estimate: INR2.3b), with the margin at 11.3% (+60bp YoY) v/s our estimate of 11.5%. PAT of INR1.8b (flat YoY) was lower than our estimate of INR2.0b on account of lower other income (INR282m v/s our estimate of INR500m). UCP sales declined 2% YoY to INR11.9b due to unseasonal rains across the northern and southern markets. Market share stood at 23.5% (+130bp YoY and +70bp QoQ).

We value based on SOTP, valuing EMPS/EPS/UCP at Jun-20 P/E at 17(15 earlier)/20/35x with TP of Rs 663 (Rs 638 earlier). Voltas reported a strong quarter with 6% primary growth in RAC during an erratic summer. RAC market (secondary level) declined by ~10% while Voltas was flat. Voltas channel inventory is at normal levels (60 days) which gives us better visibility in the upcoming quarter. It was encouraging to note that Voltas gained market share (23.5% share; up 130bps) when MNCs have raised their game (Daikin and LG).

Voltas is a Tata Group company, it has 3 business vertical Unitary Cooling Products,Trunky HVAC services and equipment services business.

Rising temperatures and promo offers alleviate the pain This summer, we conducted several channel checks surveying over 25 dealers across 15 of the most populous cities in India to track room AC sales during the season. The key takeaways are as follows: a) volumes improved sequentially during May-June'18 (vs. a 1520% YoY decline in Apr) as average temperatures increased in the second half of May and June (Exhibit 1); b) overall volumes were down 10-15% in 1QFY19, but the increasing share of inverter ACs and price hikes of 3-5% are likely to keep sales growth at -5 to 0%'; c) Voltas, Hitachi and Daikin fared better than competition as Samsung and Panasonic suffered, while Blue Star and Lloyd continued to maintain share in their territories; d) aggressive...

Staring at single-digit growth in near term We met the Voltas management for an update on its growth outlook and the key takeaways are as follows: a) While unseasonal rains continued to play havoc, a favourable base and market share gains may help maintain single-digit volume growth. b) The company hiked prices by 2-5% from mid-May'18 to counter rising commodity prices and a depreciating INR (40-45% import content in room ACs). c) Consumer durables products under the Voltbek JV are slated to be launched during the festive season in 2HFY19; these would be imported in CKD form for the first 18 months. d) An increase in the share of rural electrification (RE)...

Unseasonal rainfall hurt 1QFY19 room AC sales Inverter ACs account for 30% of room AC sales We met VOLT's management. Our key takeaways:...

We cut our EPS estimates by ~3-4% in FY19/20 to incorporate weak summer 2018. However, we advise investors to buy on dips and not evaluate the performance of a company based on one season. We value based on SOTP (valuing EMPS/EPS/UCP at Mar-20 P/E at 13/20/35x) to arrive TP of Rs 667 (Rs 710 earlier). Voltas reported a weak 4QFY18 result with EMPS margin expansion as the only positive takeaway. Consolidated net revenue was up by ~9% like-like (exp. was 18%). EBITDA/APAT grew by 14/12%.