Voltas Ltd. share price target

VOLT gave a cautiously optimistic outlook given 1) outperformance in the UCP segment (50% growth vs 30% of industry in 11MFY20) and 50bps market share gain across RAC segments 2) encouraging response to VOLTBEK portfolio with 2% market share in key segments and 3) improved order book in MEP led by domestic operations. Although the industry is witnessing reasonable demand post lifting of lockdown in May, 1Q21 sales & profitability are likely to be impacted due to 1) washout summer season sales and 2) high channel inventory (60 days) limiting primary sales. Also, with migrants...

Voltas (VOLT) 4QFY20 earnings were 37% ahead of expectation led by the UCP segments outperformance. However, the cut in our TP is limited as the EMP business commands lower Revenue was flat YoY at INR20.9b, (in line with est). Due to lockdowns, secondary sales could not materialize and as such, dealer level inventory stood as high as 60 days at end-Mar20. As primary sales were also impacted, company level inventory stood at 90 Inverter ACs now form 64% of the total Split AC business and 50% of the overall Room AC business. However, VOLT is looking to focus on cash flow rather than just top line growth in the EMP segment. Market share in Frost-free refrigerators and Washing machines We expect the system level inventory to normalize by Nov-Dec20, and hence, FY22E should turn out to be a normal year. Total order book stood strong at INR78b (+57% YoY).

Voltas had a stellar Q4, with main highlight being the 20% growth in the unitary cooling (compared to de-growth in teens for competitors) along with margin expansion and market share gains. Projects...

Our interaction with managements and dealers indicates significant prebuying activity of consumer goods during January-February 2020 on fears of supply related issues from China. While companies have secured supplies to avoid any disturbance in sales in Q4FY20, demand was negatively impacted in March 2020 owing to holiday and post that lockdown across countries. We also believe a late recovery in demand for consumer goods will also impact Q1FY21 performance due to 1) shortage of workers (due to heavy migration), 2) shift in focus on essential goods compared to discretionary products and 3) streamlining of supply chain....

Despite a strong order book in EMP segment, we remain cautious on company's near-term outlook owing to the current macro environment. Hence, we reiterate our REDUCE rating on the stock with a roll forward target price of Rs. 653 based on 32x FY22E adj. EPS. Weak demand continues to put pressure on topline and margins Tepid economic growth and weak consumer demand slowed down company's growth. Q3FY20 revenue remained flat at Rs. 1,487cr (+0.2% YoY). EBITDA fell 15.7% YoY to Rs. 98cr, as EBITDA margin contracted by 120bps YoY due to higher employee benefit...

Voltas is winning through better product range 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 healthy growth in the coming quarters. While, RAC supply issue from China will remain overhang in the near term. Gradual recovery in EMPS can be a catalyst to improve overall performance in FY21. Voltas delivered another strong show in its UCP business while lumpiness in EMPS dragged the overall performance. UCP rev/EBIT growth at 14/36% with market share gain was heartening. Voltas has been able to manage rising competition better than its peers. EMPS rev/EBIT was down by 8/46% on account of slow execution (liquidity crisis impacting visibility of payments). While strong order book (40% YoY) gives visibility of ramp up in project business in 1HFY21. We cut EPS estimate by ~5% to factor-in delayed recovery in EMPS. We value Voltas on SOTP basis, EMPS/EPS/UCP at 17/20/35x on Dec-21 EPS and Volt-Beko at 1x P/S, translating to a TP of Rs 724. Maintain BUY.

Slow execution of orders drags project business While Voltas's UCP segment revenue increased 33% (vs. industry growth of 29% YoY) in 9MFY20, the EMPS segment revenue declined 8% YoY due to slow execution of domestic and international projects owing to liquidity issues. However, strong order book of | 7024 crore in Q3FY20 (up 40% YoY) provides strong revenue visibility for FY21E-22E. We believe sustained demand of room ACs and improvement in execution rate of existing order...

Voltas Q3FY20 results came below our estimates and flat YoY, however tax benefit & higher OI drives profitability.

Voltas (VOLT) 3QFY20 earnings disappointed, entirely led by weak execution in the EMP segment and provisions impacting margins. We lower our FY20E EPS by 9% on account of lower contribution from the EMP segment, but maintain our FY21/FY22E earnings as strong order book provides comfort. We maintain our Buy rating with unchanged TP of 3QFY20 revenues were muted at INR14.9b and missed our expectation by 8%, attributable entirely to the EMP segment (12% miss). We lower our FY20E EPS by 9% on account of lower contribution from EMP segment, but maintain our FY21/FY22E EPS as strong order book provides comfort. We estimate UCP revenue CAGR at 13.5% over FY20-22, but near- term disruption due to the Coronavirus issue needs to be carefully with unchanged TP of INR785, based on Sep21E Inverter AC accelerated now forms 43% of total AC sales (35-36% last year).

Positive outlook on urban infrastructure, water management The company continued its focus on select urban infrastructure and water management business in India (domestic order book of | 3800 crore) where the segment margin is secure at 7-7.5%. The domestic project business was impacted by low pricing and funding issues, which led to a slowdown in the...