Downgrade to ADD on Voltas - Market leading show; momentum sustaining - HDFC Securities

Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities

Voltas reported a strong 3QFY21 with UCP and EMPS delivering a beat on revenue as well as margins. UCP delivered a growth of 40% YoY (43% volume growth for RAC), driven by pent-up demand as well as pre-buying by the channel. Market share gains continued with RAC (26%, up 170bps YoY) and Inverter AC gained salience with 75% YoY growth (22% market share). We expect Voltas to continue fortifying its leadership in RAC, and margins to sustain with oplev and market leadership. EMPS too posted strong growth (26% YoY), led by improved speed of execution and better liqudity. Volt-Beko continued to receive an encouraging response and the demand is ahead of supply. Distribution expansion and increased manufacturing capacity is expected to drive success for the brand. We increase our EPS estimates by 7/9% for FY22/FY23. We value Voltas on an SoTP basis, arriving at an implied P/E of 38x (UCP/EPMS/EPS P/E at 45/15/15x and Volt-Beko P/S of 4x) to derive a target price of Rs 1,100. Downgrade to ADD from BUY on account of sharp stock run-up of 36/19% in 3M/1M and limited upside in the near term.

Surprises continues in UCP: Consolidated revenue grew by 34% YoY (flat in 3QFY20 and +13% in 2QFY21), beating our above consensus estimates (HSIE 14%). UCP revenue was up by a robust 40% YoY (14% in 3QFY20 and +9% in 2QFY21), vs expected growth of 15% YoY. UCP volume growth stood at 40% YoY (14% YoY in 2QFY21), driven by RAC volume growth of 43% YoY (11% YoY in 2QFY21). Commercial Refrigeration grew by 100% YoY (20% YoY in 2QFY21) and Air cooler by 11% YoY (28% YoY in 2QFY21). EMPS grew by 26% YoY growth (-8% in 3QFY20 and +15% in 2QFY21) and EPS was up 46% YoY (-1% in 3QFY20 and +16% in 2QFY21).

Robust margins: GM dipped 402bps YoY to 24.6% (+172bps in 3QFY20 and - 236bps in 2QFY21). EBITDA grew by 50% YoY (-16% in 3QFY20 and -8% in 2QFY21), beating our above consensus estimates (HSIE 11%). UCP EBIT was up by a robust 72% YoY (36% in 3QFY20 and +36% in 2QFY21) vs expected 25% YoY growth. EMPS EBIT margin was at 3.2% (4.6% in 3QFY20 and 2.5% in 2QFY21), HSIE 2.5%. PBT grew by 39% YoY while PAT was up 46% YoY.

Call takeaways: (1) PLI scheme is not expected to provide significant support; (2) 5-6% price hike in RAC is expected to cover commodity inflation; (3) Inverter mix stood at 60% vs 49% YoY; (4) Volt-Beko factory produced 2.1 lakh units of DC refrigerators in the first year; (5) EMPS order book stands at Rs 73bn; (6) EMPS sustainable margin is 6-7%.

Shares of VOLTAS LTD. was last trading in BSE at Rs.1040.65 as compared to the previous close of Rs. 1057.95. The total number of shares traded during the day was 85682 in over 2418 trades.

The stock hit an intraday high of Rs. 1079.9 and intraday low of 1026.05. The net turnover during the day was Rs. 89392925.

Source : Equity Bulls

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