Buy Voltas Ltd With Target Of Rs 211
Voltas Ltd’s Q4FY11 revenue grew by 16.4%YoY to Rs16.8bn. As expected, OPM contracted by 210bps to 8.4% dragged by Electro-Mech segment (PINCe 8.6%). Lower operating profit coupled with higher interest charges translated in a 23.9% fall in adj. net profit to Rs961mn (PINCe Rs882mn). Reported net profit was Rs1.0bn including exceptional income of Rs77mn.
Muted performance by Electro-Mech (MEP) segment:
Revenues from MEP segment (contributes ~57% to topline) grew by 2%YoY. PBIT margin for the segment contracted by 184bps to 8.3% on the back of lesser revenue booking, higher raw material cost and loss of Rs160mn in Rohini Industrial Electricals. This led to 16.6% de-growth in PBIT from this segment resulting inYoY decline in net profit for the company.
Strong Revenue growth from Engineering/Cooling segments:
Revenues from Engineering segment grew by 45.2%YoY driven by mining & construction, material handling business. Also, Cooling segment posted strong growth of 44.7%YoY in Q4FY11. However, PBIT margins for the segments fell by 599bps and 133bps respectively mainly due to higher raw material prices.
Strong order inflows:
Total order book for MEP segment as of Q4FY11 stands at Rs49bn (up 4%YoY and 4%QoQ) out of which, domestic orders comprise of Rs20bn. Order inflows in the quarter of Rs11bn (up 175%QoQ) includes ~Rs2bn Metro Rail project and another ~Rs2bn order from Middle East.
Pickup in industrial activities and volume traction in cooling product division promise better performance for Engineering and Cooling segments. Rohini Industrial Electricals is expected to see a turnaround in FY12 which should provide support to MEP segment. Strong order inflow in the current quarter provides further upside.