Sunday 27 December 2015

Brokerage Research Report on Voltas

Excerpt from Research Report published by one of the leading Brokers

At the current market price of 304, based on our estimates, Voltas is trading at FY 2017E and FY2018E P/E of 22.1x and 18.1x, respectively.
With  inflation  under  control,  rate  cuts  announced,  when  coupled  with  Voltas'strong  positioning  in  the  lowly penetrated  AC  market,  comforts  us  that  AC  sales should  continue  to  report  strong  growth,  going  forward.  In  FY2015,  the  UCP segment contributed ~72% of the consol. EBIT.  Also,  completion  of  low  margin  EMP  projects  and  increased  contribution  of  high margin projects indicate that the EBIT margins of the EMP segment would improve from 1.0% in FY2015 to 5.0% in FY2018E. 
On the whole, we expect Voltas to report a top-line and bottom-line CAGR growth of  9.5%  and  13.1%  during  FY2015-18E,  respectively.  Our  growth assumption captures  (a)  pick-up  in  international  award  activity,  which  should  lead  top-line growth  as  well  as  EMP  segment  EBIT  margin  expansion,  (b)  continued  growth  in domestic AC sales, with Voltas being able to retain its ‘Numero Uno’ status.
Noticeably in the  last  few  years, the  EBIT  mix  of  Voltas  has  shifted  from  being
heavily  dependent  on  the  EMP  segment  to a
now  dominant  share  of  the  UCP segment.  The contribution  of  the  UCP  segment  in  the  consol.  EBIT  has  increased
from 32% in FY2011 to 72% in FY2015. We expect the same to be over 64% levels during  FY2016-18E.  Considering  the  shift  in  the  consol.  EBIT  mix,  positive  cues, and  case  for  improvement  in  the  business  segment’s performances,  we  expect
scope for improved profitability and better investment return ratios, going forward.
Considering  the  higher  dependency  on  the  UCP  segment,  we  have  compared Voltas to Hitachi (which is trading at a FY2018 P/E multiple of ~36.0x).
We assign Voltas a 21.0x PE multiple to our FY2018E EPS estimate of 16.8/share and arrive
at a price target of 353 in 12 months time. This reflects 16% upside potential from the current levels.

1 comment:

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