Voltas Q2FY11 performance is line with our estimates:: Keynote

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Key highlights of Q2-FY11 results of Voltas

Voltas Q2FY11 performance is line with our estimates

Standalone profit after tax grew by 21.42% to `97.97Cr against `80.64Cr on y-o-y basis. Standalone Net Sales rose by 7.37% to `1069Cr in Q2FY11 as against `995.63Cr on y-o-y basis. Consolidated PAT (after minority Interest) of Voltas grew by 2% to `92.41Cr from`90.33Cr on y-o-y basis.  Consolidated Sales decline by 2% to `1069Cr from `1089Cr on y-o-y basis. However, on half yearly basis, the turnover registered growth of 7% to Rs 2467cr from`2314Cr on y-o-y basis. During Q2FY11 company has earned exceptional income of `18Cr on account of disposal of part of the surplus property.

Moderate growth in Engineering Product & Services

Engineering business has registered growth of 8% on y-o-y basis to `127Cr as against `117Cr on account of revival in textile sector which has contributed ~ 30% to the revenue of the segment. Sale of equipment has increased by 35% on account of higher activity in construction and mining sector on y-o-y basis. Segment has witnessed an EBIT growth of 106 bps as increased contribution from commissioning business. The operating management is cautiously optimistic about the segment on account of fluctuating IIP numbers, particularly in the capital goods sector, low credit off-take and increase in interest rates.

Subdued performance in Electro-Mechanical Projects & Services (EMP)

EMP business revenue declined by 8% y-o-y to `707Cr from `769Cr on account of factors that are non-operational/non-recurring in nature. EMP contribution to company’s top line was reduced from 71% to 66% y-o-y mainly due to slow movements of jobs in Domestic Projects business and change in internal policy for compulsory division projects especially those relating to airports. Going forward, we believe the company’s EMP business is set to grow by ~12% in FY11E on account of existing order book in South East Asia, Middle East and India. Company is banking on overall growth in Infrastructure sector such as mass transportation, Hotel, Hospitals, MEP projects, etc.

UCP business

UCP business has registered growth of 18% on y-o-y basis to `228Cr as against `193Cr while its PAT has increased by 52% on y-o-y basis with increased EBIT margin. The company has increased its distribution channel by over 300 additional outlets. Going forward, we believe UCP business is set to grow by 25-30% on account of domestic consumption as there is increase in per capita income and rate of urbanization.

Current Order book

Company’s current order book stands at `4975Cr, out of which international order book stands at `3430Cr while remaining constitutes domestic’s order book worth `1545Cr which will drive company’s future earnings. Company has won order for three hospitals in the domestics market. 

Concerns

Any negative growth in IIP numbers will curtail company’s domestic growth rate in engineering segment. In UCP segment company faces stiff competition from Korean players as well as domestic players. Rupee appreciation will impact export revenue for the company. Also increased competition from local player for EMP projects in international market.

Outlook & Valuation

AT CMP `242 stock trades at 19.5x FY11E EPS and 16.4x FY12E EPS, and EV/EBITDA of 13.71x and 11.36x for FY11E and FY12E respectively. We have positive outlook on the company based on its strength towards project execution, technical expertise and innovation of new products.