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Key highlights of consolidated results
• Voltas’s 3QFY11 consolidated profit before exceptional items was at Rs599mn (-13.4% yoy growth) sharply below our
estimates (Rs832mn).
• Revenues grew by 4.9% yoy to Rs10.4bn led by a sharp growth of 28% yoy in the unitary division revenues (air
conditioners, cooling products, etc) as also the engineering agency service division (+22% yoy to Rs1.4bn) led by pick
up in demand.
• However, revenues fell by 2.9% yoy in electromechanical projects in the quarter driven by slower execution of its
order backlog of Rs47bn at the end of 3QFY11, especially in international markets.
• The international revenues (53% of MEP revenues) fell by 9% yoy to Rs3.74bn as some large projects are in the
designing stage and hence the execution has been slow. On the other hand, domestic revenue growth was muted led
by slow execution in projects, where Voltas is the sub contractor in areas such as infra and industrial projects.
• EBITDA margins fell by 150bps to 7.3% during the quarter.
o EBIT margins in the electro mechanical division fell sharply by 250bps yoy to 6.4%. The sharp fall in operating
margins have been due to the losses in Voltas’s subsidiary, Rohini Industrial Electricals (RIE), wherein higher input
costs, cost overruns and entry into new areas of segment impacted margins. Consequently, RIE incurred losses of
Rs90mn in the quarter against a profit of Rs40mn in 3QFY10. Further, higher input prices impacted margins in the
domestic business sharply.
o The engineering products and services division’s EBIT margins improved sharply by 410bps yoy to 17.5% in
3QFY11 led by strong demand as also increase in commission based revenues, which now account for 27% of the
segment revenues.
o EBIT margins of the consumer segment fell by 260bps to 9.7% due to high base effect as also higher input costs and
adverse change in product mix towards window air conditioners. Going forward, the management expects some
pressure on margins led by higher input prices as also increased competitive intensity.
• Voltas had a nominal interest expense of Rs34mn in the quarter, while the other income fell by 8.1% yoy to Rs161mn.
The interest income was lower due to lower surplus cash. Voltas has investments of Rs1.26bn and cash of Rs4.3bn
(including advances from customers).
• Overall, capital employed in the business has increased led by higher inventories in the unitary cooling division in
view of rising input prices. Further, a longer time frame for certification in both domestic and international markets
has also led to a higher capital employed in the MEP business.
• Consequently, adjusted profits after tax (before extraordinary items) on consolidated basis fell by 13.4% yoy to
Rs599mn.
• Post exceptional items (profit on sale of property) Voltas has reported consolidated PAT of Rs706mn (-7% yoy).
Order backlog of Rs47bn
Voltas reported a consolidated order backlog of Rs47bn at the end of 3QFY11 (-6% yoy). The fall in the order backlog is
due to slower order intake in Rohini Industrial Electircals (RIE), which has witnessed order intake of Rs280mn against
Rs2bn in 3QFY10. However, the order intake in Voltas’s standalone business continued to be strong in both domestic and
international markets. The order inflow from international markets continues to remain buoyant and the management
expects the order inflow to pick up led by finalization of some large projects. The international order backlog accounts for
66% of the total order backlog or Rs31bn, while the balance Rs16bn is for projects in the domestic space.
Maintain Outperformer
We have downgraded our earnings estimates for FY11E and FY12E by 15% each to reflect the slower execution as also the
pressure on operating margins led by higher input prices, apart from the losses in its subsidiary, RIE. We believe the
order inflow is likely to increase over the next few quarters led by turn in activity both in domestic markets as also in
Middle East (led by government backed investments in countries such as Abu Dhabi, Qatar and Saudi Arabia), which is
being demonstrated by the pick up in order intake from 4QFY10 onwards as also the enquiries in hand. Accordingly, we
believe valuations of 15.6x FY12E consolidated earnings are attractive and maintain an Outperformer rating with a target
price of Rs205/share
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key highlights of consolidated results
• Voltas’s 3QFY11 consolidated profit before exceptional items was at Rs599mn (-13.4% yoy growth) sharply below our
estimates (Rs832mn).
• Revenues grew by 4.9% yoy to Rs10.4bn led by a sharp growth of 28% yoy in the unitary division revenues (air
conditioners, cooling products, etc) as also the engineering agency service division (+22% yoy to Rs1.4bn) led by pick
up in demand.
• However, revenues fell by 2.9% yoy in electromechanical projects in the quarter driven by slower execution of its
order backlog of Rs47bn at the end of 3QFY11, especially in international markets.
• The international revenues (53% of MEP revenues) fell by 9% yoy to Rs3.74bn as some large projects are in the
designing stage and hence the execution has been slow. On the other hand, domestic revenue growth was muted led
by slow execution in projects, where Voltas is the sub contractor in areas such as infra and industrial projects.
• EBITDA margins fell by 150bps to 7.3% during the quarter.
o EBIT margins in the electro mechanical division fell sharply by 250bps yoy to 6.4%. The sharp fall in operating
margins have been due to the losses in Voltas’s subsidiary, Rohini Industrial Electricals (RIE), wherein higher input
costs, cost overruns and entry into new areas of segment impacted margins. Consequently, RIE incurred losses of
Rs90mn in the quarter against a profit of Rs40mn in 3QFY10. Further, higher input prices impacted margins in the
domestic business sharply.
o The engineering products and services division’s EBIT margins improved sharply by 410bps yoy to 17.5% in
3QFY11 led by strong demand as also increase in commission based revenues, which now account for 27% of the
segment revenues.
o EBIT margins of the consumer segment fell by 260bps to 9.7% due to high base effect as also higher input costs and
adverse change in product mix towards window air conditioners. Going forward, the management expects some
pressure on margins led by higher input prices as also increased competitive intensity.
• Voltas had a nominal interest expense of Rs34mn in the quarter, while the other income fell by 8.1% yoy to Rs161mn.
The interest income was lower due to lower surplus cash. Voltas has investments of Rs1.26bn and cash of Rs4.3bn
(including advances from customers).
• Overall, capital employed in the business has increased led by higher inventories in the unitary cooling division in
view of rising input prices. Further, a longer time frame for certification in both domestic and international markets
has also led to a higher capital employed in the MEP business.
• Consequently, adjusted profits after tax (before extraordinary items) on consolidated basis fell by 13.4% yoy to
Rs599mn.
• Post exceptional items (profit on sale of property) Voltas has reported consolidated PAT of Rs706mn (-7% yoy).
Order backlog of Rs47bn
Voltas reported a consolidated order backlog of Rs47bn at the end of 3QFY11 (-6% yoy). The fall in the order backlog is
due to slower order intake in Rohini Industrial Electircals (RIE), which has witnessed order intake of Rs280mn against
Rs2bn in 3QFY10. However, the order intake in Voltas’s standalone business continued to be strong in both domestic and
international markets. The order inflow from international markets continues to remain buoyant and the management
expects the order inflow to pick up led by finalization of some large projects. The international order backlog accounts for
66% of the total order backlog or Rs31bn, while the balance Rs16bn is for projects in the domestic space.
Maintain Outperformer
We have downgraded our earnings estimates for FY11E and FY12E by 15% each to reflect the slower execution as also the
pressure on operating margins led by higher input prices, apart from the losses in its subsidiary, RIE. We believe the
order inflow is likely to increase over the next few quarters led by turn in activity both in domestic markets as also in
Middle East (led by government backed investments in countries such as Abu Dhabi, Qatar and Saudi Arabia), which is
being demonstrated by the pick up in order intake from 4QFY10 onwards as also the enquiries in hand. Accordingly, we
believe valuations of 15.6x FY12E consolidated earnings are attractive and maintain an Outperformer rating with a target
price of Rs205/share
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