Voltas : 2QFY11 results in line; execution prospects improving :: HSBC

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Voltas Ltd
N(V): 2QFY11 results in line; execution prospects improving
 2QFY11 net profit adjusted for non-recurring expense
(INR888m) was in line with our estimates
 Management reaffirms strong order inflow and execution for
2HFY11, which is factored in our forecasts
 Maintain Neutral(V), raise target price to INR255(INR190);
higher than estimated margin is an upside risk



2QFY11 adjusted net profit (at INR888m) was in line with our estimates and
consensus: The reported profit of INR924m included non recurring expense of INR230m
and exceptional income of INR178m on sale of property. While sales were below our
estimates (INR10.6bn vs. INR13.5bn) this was partially offset by higher EBITDA margin
(10.2% vs. 9.4%).
Strong order inflow and execution reaffirmed for 2HFY11 by management: The
company had a closing order book of INR50bn (c1.6x FY10 sales), which has remained
flat sequentially. However, the management has indicated that it has received new orders
in 3QFY11 (not included in the existing order book), which is a positive. Further, it has
also reaffirmed that the order execution and order inflow is likely to improve in 2HFY11.
However, this is already factored in our estimates, hence there is no change in our
earnings estimates for FY11 and FY12. That said, this does improve top line visibility and
is therefore a positive.
Maintain N (V) with TP of INR255 (earlier was INR190): We are raising our 12 month
target price to INR255 (INR190) based on a target PE of 20x (up from 15x previously) on
our FY12 EPS forecasts (INR12.8) as we factor in improved earnings visibility. The stock
is currently trading at PE of 21.5x FY11 earnings (historical band 15-25x). With potential
return of 5.5%, we remain Neutral (V). Voltas is a debt free, cash flow generating
company. Higher than estimated order inflows and better margins are upside risks.