Maintain ADD on Voltas - UCP steals the show - HDFC Securities

Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities.

Voltas (Q4FY20 Results Review): UCP steals the show. Maintain ADD

Voltas posted a strong set of numbers in 4QFY20 as UCP revenue/EBIT grew 20/69% yoy beating estimates. However, EMPS biz was impacted severely and saw a decline of 18% yoy, leading to consolidated revenue growth of 1% yoy. Voltas clocked strong growth of 50% yoy in its UCP volumes YTD Feb 20. Part of the growth was fuelled by expectations of a strong summer and channel concerns over supply constraints from China. Due to the heavy channel filling pre-Covid, trade inventory stands at ~60 days. Liquidation of this inventory will be a key monitorable for the co as liquidity constraints will keep channel appetite low. Market share gain of 50bps yoy to 24.2% was heartening particularly as it also become no.1 player in inverter AC (beating LG). We remain confident on Voltas' market share gain continuity. Project execution is likely to be slower on account of stressed liquidity and labour availability issues. On account of high channel filling in 4Q and continued extended lockdown, we cut our UCP/EMPS estimates for FY21. Our EPS cut for FY21/FY22 is at 13/1% (31/25% cut in FY21/FY22 in our 4QFY20 Preview). We value Voltas on SOTP basis with an implied P/E of 28x on Mar-22E EPS, deriving a TP of Rs 551. Maintain ADD.

UCP leads the way: Con. revenue saw a growth of 1% yoy to Rs 20.9bn (HSIE -8%). UCP (58% rev) beat our estimates as it posted 20% yoy growth (-6% 4QFY19, +14% 3QFY20) vs est of 2% decline. We were also expecting strong growth in Jan/Feb for Votas UCP (20%) but co clocked 50% growth. Air coolers performance was also strong with 60% yoy growth. EMPS (39% of rev) declined by 18% yoy (+12% in 4QFY19, -8% in 3QFY20) vs expectation of 14% decline. Project work halted due to lockdown and key geographies like MENA were impacted adversely. Order book remains healthy at Rs 78bn vs Rs 50bn yoy and Rs 70bn qoq.

Robust UCP margins: UCP EBIT margins rose by 273bps yoy to 14.6% (HSIE 12%). UCP EBIT registered a growth of 69% yoy to Rs 1,754mn. EMPS EBIT margin was at 1.4% vs est of 4% (4.5% in 4QFY19 and 4.6% in 3QFY20) due to time based provisions made by the co amidst liquidity constraints. EMPS EBIT declined by 74% yoy to Rs 113mn. EBITDA increased sharply by 33% to Rs 1.9bn (HSIE Rs 1.5bn). Volt-Beko losses were at Rs 195mn vs est of Rs 131mn (Rs 193mn in 4QFY19 and Rs 187mn in 3QFY20). Lower taxes in 4QFY19 impacted APAT, up by 14% yoy to Rs 1,612mn.

Call & other takeaways: (1) Channel inventory currently stands at ~60 days, (2) Co is focusing on reducing dependence on imports, (3) Order book growth is expected to be slower due to stressed liquidity, (4) Co continues to scale Volt-beko and will drive online sales through the brand, (5) Net debt for the co improved to negative Rs 906mn from negative Rs 65mn in FY19.

Shares of VOLTAS LTD. was last trading in BSE at Rs.557.8 as compared to the previous close of Rs. 539.75. The total number of shares traded during the day was 156668 in over 4430 trades.

The stock hit an intraday high of Rs. 577 and intraday low of 536.4. The net turnover during the day was Rs. 86193740.

Source : Equity Bulls

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