Voltas H2FY11 Promise; Retain BUY :: Emkay

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Voltas

H2FY11 Promise; Retain BUY

BUY

CMP: Rs 246                                       Target Price: Rs 275

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n     Results marginally below estimates with (1) 3% yoy decline in revenues to Rs10.7 bn (2) 140 bps yoy drop in EBITDA margins and (3) 17% yoy decline in PAT to Rs746 mn

n     EMP division performance negatively impacted due to slower execution on international orders & one-off expenditure

n     Order inflows up 76% yoy to Rs8.5 bn – YTD secured 44% of FY11E target order flows. Order book at Rs49.7 bn – equivalent to 1.4X standalone FY10 revenues

n     Maintain earnings estimates and Maintain ‘BUY’ with target price of Rs275/Share

Net profits decline 17% yoy to Rs746 mn – below estimates
Led by low revenue booking and impact of one-off expenditures, Voltas consolidated net
profits declined 17% yoy to Rs746 mn in Q2FY11, marginally below estimates. Key
highlights of the Q2FY11 performance - (1) Revenues for the quarter decreased 3% yoy
to Rs10.7 bn – attributed to 8% yoy decline in the EMP division (2) EPS and UCP
division registered healthy growth at 8% yoy to Rs1.3 bn and 16% yoy to Rs2.3 bn
respectively (3) One-off expenditures / write-offs aggregating Rs240 mn – largely
attributed to the EMP division and (4) 140 bps yoy drop in EBITDA margins to 10.1%
EMP – Impacted due to slower execution on international orders & oneoff
expenses
Electro-Mechanical Projects (EMP) division performance was negatively impacted due
to (1) about 57% of FY10 order inflows received in Q4FY10, not yet gathered
momentum in booking (2) 23% yoy decline in revenue booking on international orders –
due to continuing delays in large projects execution and (3) One-off expenditures / writeoffs
aggregating Rs240 mn – split as forex loss of Rs90mn (Vs forex gain of Rs20 mn in
Q2FY10) and losses in JVs / Subsidiaries of Rs145 mn (Vs gain of Rs45 mn in
Q2FY10).
Sustained momentum in order inflows – up 76% yoy to Rs8.5 bn
Led by healthy order inflows, Voltas order book stands at a healthy Rs49.7 bn (net of
Rs1.5 bn decrease on forex fluctuation) –equivalent to 1.4X revenues. Voltas witnessed
sustained momentum in order inflows – up 76% yoy to Rs8.5 bn, led by improvement in
ordering activity in local and international markets. YTD, Voltas has secured orders
worth Rs18.0 bn in H1FY11 – equivalent to 44% of FY11E target order flows.
No change in earning estimates, Maintain ‘BUY’ rating
Prima facie Q2FY11 results seems disappointing, but by large impacted by one-offs and
extra-ordinary expenditure in EMP division. Management has guided for a better
performance in H2FY11 over H1FY11- based on ramp-up in execution. We retain our
earnings estimates of Rs11.3/Share and Rs13.3/Share for FY11E and FY12E
respectively. We maintain BUY rating with target price of Rs275/Share.