Voltas Ltd. Result Review by PINC Research

Voltas Ltd. Result Review by PINC Research Voltas Ltd's Q3FY11 results were disappointing and below our expectations as net sales grew by 5.3% YoY to Rs10.4bn. OPM contracted by 147bps to 7.6% dragged by Electro-Mech segment. Lower operating profit coupled with higher interest charges translated in a 13.3% fall in adj net profit to Rs602mn (PINCe Rs755mn). Reported net profit was Rs705mn including exceptional income of Rs155mn.

Muted performance by Electro-Mech (MEP) segment: Revenues from MEP segment (contributes ~65% to topline) de-grew by 2.9% YoY. PBIT margin for the segment contracted by 259bps to 6.4% on the back of lesser revenue booking, higher raw material cost and loss of Rs90mn in Rohini Industrial Electricals. This led to 31% degrowth in PBIT from this sector resulting in 13.3% decline in net profit for the company.

Sluggish order inflows: Total order book as of end of Q3FY11 stands at Rs47bn (-6% YoY and -6% QoQ) out of which, domestic orders comprise of Rs16bn. Order inflows in the quarter is Rs5bn which is 41% lower QoQ.

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. This segment performed extremely well in FY10 on the back of completion of several high profile projects. We expect pressure to continue for this segment for couple of quarters due to higher raw material cost and muted execution.

VALUATIONS AND RECOMMENDATION

We have decreased our net profit estimates for FY11 and FY12 by ~12% on the back of margin pressure and muted outlook for Electro- Mech project division. At the CMP of Rs181, the stock trades at a P/E of 18.6x & 15.4x and an EV/EBITDA of 10.2x & 8.4x its FY11E and FY12E estimates respectively. We maintain our `HOLD' recommendation with a reduced target price of Rs211 (18x FY12E PER) till further clarity emerges in terms of order inflows.