Voltas - Q3FY22 Result Update - Delicately poised before upcoming summers

By Mr. Amnish Aggarwal - Director Institutional Equities at Prabhudas Lilladher

Quick Pointers:

- Soft demand & high competitive intensity prevents pricing action in RAC
- MEP order book impacted due to order delay from state/center & B2B business restructuring

We cut our FY22 earnings by 14.8% given 1) input cost inflation led margin pressure 2) slow order inflow in MEP segment & 3) increase in JV loss. We, however, expect margins to make a swift recovery in FY23/24 led by 1) likely normal summer season sales (after 2 years) 2) Govt initiatives promoting local manufacturing to help create component ecosystem thereby aiding industry growth & profitability 3) improving mix, calibrated price increase & cost efficiencies & 4) leveraging strong brand recall & wide distribution reach.

RAC margins were impacted in 3Q due to demand softness, RM inflation & high competitive intensity which made it difficult to initiate price hikes. However, VOLT remains cautiously optimistic on upcoming summer season sales & expects industry to hike prices as demand normalizes which shall aide margins. In MEP (order book: Rs56bn), VOLT expects Centre/State govt to begin awarding orders & will continue to focus on domestic infra projects. Voltbek JV continues to witness consumer acceptance for its products & remains on track to breakeven & achieve 10% market share by FY25.

We continue to like VOLT for the longer term given 1) leadership position in high potential RAC segment 2) balance sheet comfort and 3) Restructuring in B2B business to focus on B2C. We estimate 25.5% EPS CAGR over FY21-24. We value the stock on SOTP basis and arrive at a target price of Rs1,200/- (valuing UCP business at 46x FY24EPS). Maintain HOLD.

Revenues de-grew by 10.1% YoY; PAT down by 25%: Revenues de-grew by 10.1% YoY to Rs17.9bn. Gross margins expanded by 240bps YoY to 27%. EBITDA grew by 6.7% YoY to Rs1.6bn. Margins expanded by 140bps YoY to 8.7%, as a % of sales, employee cost was up by 100bpsYoY. PAT de-grew by 25% YoY to Rs960mn. Share of loss of JV at Rs320mn vs loss of Rs201mn.

UCP sales up 9.1%, margins at 9.3%; EMPS margins at 6.6%: UCP segment revenues grew by 9.1% YoY to Rs10.9bn. EBIT de-grew by 17.4% YoY to Rs1bn, while margins contracted by 300bps YoY to 9.3%. EMPS segment revenues fell by 34.6% YoY to Rs5.5bn. EBIT grew 2.7x YoY to of Rs363mn, while margins improved to 6.6% vs 1.6%. Products & services segment revenues/EBIT grew by 3.1%/ 24.9% to Rs1.2bn / Rs400mn, while margins expanded by 560bps to 32.1%.

Concall Takeaways: 1) YTD RAC industry volumes grew by 35% on a soft base. Oct-Nov21 industry volumes de-grew by 5%. Voltas did better than the industry. 2) 3) Soft consumer demand and high competitive intensity prevented further price hikes. However, Voltas expects pricing action across the industry in coming months. 4) Channel inventory at 35-40 days. 5) Order book remained subdued due to delay in order awarding by State/ Centre and transition period of moving MEP business into subsidiary. 6) Commenced manufacturing of Frost Free Ref in Sanand. Added line for fully automatic WM. 7) Voltbek: Ref/ WM market share at 2.8/ 3.4% YTD.

Shares of Voltas Limited was last trading in BSE at Rs. 1304.65 as compared to the previous close of Rs. 1281.00. The total number of shares traded during the day was 77602 in over 4026 trades.

The stock hit an intraday high of Rs. 1339.85 and intraday low of 1298.75. The net turnover during the day was Rs. 102526507.00.

Source : Equity Bulls

Keywords

Voltas INE226A01021 PrabhudasLilladher