Voltas' Q3FY21 performance was much ahead of our expectation. Unitary cooling product (UCP) division reported strong volume growth of 40% YoY led by pent up demand and inventory building at dealer's level amid fear of price increase. Inverter AC sales increased sharply by 75% YoY in Q3FY21, and are now 60% of total AC sales (vs. 49% in Q3FY20). The company has also initiated a price hike in the range of 5-6% largely to offset input price pressure (the impact will be visible in Q4FY12). The EBIT margin of the division has also increased ~236 bps YoY to 12.5% supported by better gross margin (use of low cost of inventory) and favourable product mix. According to management, the room air conditioner (RAC) performance is likely to remain strong in Q4FY21 as well due to continuous inventory build-up at dealers' level (due to upcoming season) and a favourable base. We believe changing lifestyle (rising work from home culture) along with demand staying intact in semi urban and rural India is likely to drive UCP segment sales CAGR of ~15% for Voltas in FY20-23E.
Valuation & Outlook
We tweak our revenue, PAT estimate upward by ~9%, 8% YoY, respectively, for FY23E, considering its strong future outlook and focus on premium product category. We build in revenue, PAT CAGR of ~12%, 27%, respectively, for FY20-23E, and revise our rating from HOLD to BUY by ascribing PE multiple 11x, 11x, 52x to EMPS, EPS, UCP segment, respectively. We also revise target price to Rs. 1260 (earlier Rs. 845).
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Voltas_Q3FY21.pdf
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.