Maintain ADD on Voltas - Outperformance continues; margin beat inspiring - HDFC Securities

Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities

Voltas continued to surprise both on revenue and margin front, beating our as well as street's expectation. UCP revenue/EBIT grew by 20/28% YoY (HSIE 25/20%) despite firm base (4QFY20 revenue/EBIT growth of 20/69%). UCP volume growth was at 18% YoY and YTD market share was at 25.6% (24.2% last year). Market share gain, pre-buying, increased mobility, and anticipation of strong demand in season supported the 4Q growth. UCP revenue/EBIT growth in FY21 was at -13/- 2% YoY despite a firm base (29/57% in FY20) and summer 2020 being a washout. . We were expecting supply constraints and RM inflation to impact EBIT margin by (60bps) in 4Q but Voltas surprised with 100bps EBIT margin expansion to 15.6% (12 quarters highest margin). EMPS revenue was up by strong 37% YoY (-18% in 4QFY20) and 9% QoQ, HSIE 25%. EMPS EBIT margin also improved sharply by 700bps to 8.4% (10 quarters highest margin), HSIE 3.5%. COVID-led lockdown again reduced selling window for RAC (impact is unlike last year). We cut our EPS estimates for FY22 by 7% while maintain for FY23. We value Voltas on SoTP basis, (UCP/EPMS/EPS P/E at 45/15/15x and Volt-Beko P/S of 4x) on Jun-23 (earlier Mar-23) to derive a target price of INR 1,100 arriving at an implied P/E of 37x. Maintain ADD.

Surprises continues in UCP: Consolidated revenue grew by 27% YoY (+1% in 4QFY20, +34% in 3QFY21), beating our above consensus estimates (HSIE 24%). UCP revenue was up by robust 20% YoY (+20% in 4QFY20, 40% in 3QFY21), HSIE 25%. UCP volume growth was at 18%. Commercial refrigeration clocked 17% volume growth in 4Q. Air cooler registered 37% growth, driven by increased new variants and SKUs. EMPS clocked robust 37% growth (-18% in 4QFY20, +26% in 3QFY21). EPS clocked 3% growth (+21% in 4QFY20, +46% in 3QFY21). Voltas market share gain story remained intake (~500bps market share gain in the last 5 years).

Beat in margins for all segments: GM dipped 300bps YoY to 25.6% (+ 500bps in 4QFY20 and -400bps in 3QFY21), led by steep RM inflation. Employee/other expenses were down by 18/12% YoY. EBITDA grew by 72% YoY (+33% in 4QFY20 and +50% in 3QFY21), beating our above consensus estimates (HSIE 40%). EBITDA at INR 3.3bn is an all time high. UCP EBIT was up by robust 28% YoY (+69% in 4QFY20, +72% in 3QFY21), HSIE 20%. EMPS EBIT margin was at 8.4% (1.4% in 4QFY20, 3.2% in 3QFY21), HSIE 3.5%. EPS EBIT growth was at 25% (-2% in 4QFY20, 39% in 3QFY21).

Call and BS/CF takeaways: (1) RAC industry declined by 29% in FY21 while Voltas RAC was down by 15%; (2) inverter RAC contributes 70% of split RAC; (3) carry forward inventory supported UCP EBIT margin by 2%; (4) RAC channel inventory was 30-35 days in March which increased to 45 days now; (5) EMPS order book stands at INR 66bn (INR 42bn in domestic); (6) Volt-Beko sold >300k direct cool refrigerator in FY21; (7) Volt-Beko dishwasher tops the category in India, having 30% market share; (8) Volt-Beko billing points touched 1,000 (significantly lower than RAC billing points); (9) FCF was at INR 5.3bn vs. INR 3.7bn in FY20.

Shares of VOLTAS LTD. was last trading in BSE at Rs.999.75 as compared to the previous close of Rs. 970.55. The total number of shares traded during the day was 151540 in over 4422 trades.

The stock hit an intraday high of Rs. 1040 and intraday low of 963.7. The net turnover during the day was Rs. 150255705.

Source : Equity Bulls

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