Voltas - Strong recovery prospects - Edelweiss

We recently met Voltas (VOLT) management to get an update on the company's businesses. Management indicated improved traction in international projects business riding robust order inflow in H1FY14. Moreover, Dubai Expo 2020 and Football World Cup 2022 (Qatar) will be major catalysts which could spur ordering activity in Middle East. VOLT anticipates most of its low-margin orders to be completed by next twothree quarters; also, with incremental order intake above its threshold level, we are confident of VOLT's projects business' margin catapulting ~400bps over FY14-16E. Factoring in improved margin we revise up our FY15E earnings 17%. In light of the improved outlook and earnings uptick, we upgrade VOLT to 'BUY' with revised TP of INR140 (earlier INR80).

Middle East: Dubai Expo, Football World Cup brighten outlook

VOLT's international order inflow surged significantly in H1FY14, after several tepid quarters. Dubai Expo 2020 and the Football World Cup 2022 (Qatar) will be a further shot in the arm for the region. Total spending on the two mega events is likely to top USD120bn (Qatar) and USD43bn (Dubai). Ergo, ordering activity in the Middle East is expected to get a humungous leg up given the events' potential multiplier effect. The real estate market is already indicating uptick in new construction and rentals.

Cautious approach, superior margin orders to spur profitability

The company has adopted a cautious approach in accepting new orders—~5% and 6- 7% margin threshold for international and domestic markets, respectively. Also, new orders in the Middle East are increasingly entailing higher margins, further bolstering VOLT's optimism on potential profitability. Hence, we anticipate the company's project business' blended margin to catapult ~400bps over FY14-16E.

Outlook and valuations: Tide turning; upgrade to 'BUY'

Improving business environment in the Middle East along with better profitability and return ratios expected going forward, underpin our positive outlook on VOLT's project business. Hence, we upgrade our recommendation/ rating to 'BUY/SO' from 'HOLD/SP' with revised target price of INR140. We also introduce FY16 estimates. On our revised estimates, the stock trades at 13.3x and 10.6x FY15E and FY16E earnings, respectively.

Source : Equity Bulls

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