Voltas Ltd’s Q2FY11 results were slightly lower than our expectation as net sales de-grew by 2.8% YoY to Rs10.7bn. OPM contracted by 136bps to 10.1%. Reported net profit was Rs924mn (+2.3% YoY), however, adjusting for exceptional income of Rs178mn, net profit declined by 10.9% to Rs805mn against our estimate of Rs855mn.

Outlook: Pickup in industrial activities and volume traction in cooling product division promise better performance for the Engineering product and Cooling product divisions. However, the main concern for Voltas, at present, is the order inflows in the Electro-mech division and their execution in the coming quarters.

VALUATIONS AND RECOMMENDATION We maintain our earning estimates for FY11 and FY12. At the CMP of Rs246, the stock trades at a P/E of 22.0x & 18.5x and an EV/EBITDA of 12.8x & 10.6x its FY11E and FY12E estimates respectively. We are positive on Voltas and expect good order inflows in the coming quarters, however, as our target price of Rs239 (18x FY12E PER) is achieved, we downgrade our recommendation to ‘HOLD’ till further clarity emerges in terms of order inflows.