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Cautiously optimistic on the outlook
International business reach has increased significantly; now has a presence in seven countries with strong focus on Saudi
Arabia and Oman and increasing focus on Singapore and Hong Kong. Management also highlighted that while
competition is intensifying in the Middle East, the environment in Saudi Arabia remains fairly benign.
In the domestic market, Voltas is focusing on increasing the scope of its products and services. From being primarily an
HVAC supplier, the company is now aiming to provide a full range of MEP services. We believe this transition should
allow Voltas to continue to grow above market over the next few years.
Demand in the commercial property segment has softened significantly, but industrial and power segment remains strong.
Order growth in domestic market remains strong y-o-y, whereas order growth in international markets has softened.
Management remains cautiously optimistic on the overall demand outlook.
In terms of business segments, management highlighted that EBIT margins in Segment 1 should soon be back to c9-10%.
Segment 2 is entering a 4-year upcycle and seeing strong demand from textile machinery and metal-handling segments.
The growth rate in Segment 3 should stabilize now at c25-30% compared to c50-55% growth seen over the last few years.
However, management expects Voltas to continue to win market share in this segment.
Valuation and risks
We apply a target PE of 20x (a mid-cycle PE) to FY12e EPS of INR12.8 to arrive at a target price of INR255. The stock is
currently trading at PE of 15.2x FY11e earnings (historical band 15-25x).
Higher than estimated order inflows and better margins are upside risks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Cautiously optimistic on the outlook
International business reach has increased significantly; now has a presence in seven countries with strong focus on Saudi
Arabia and Oman and increasing focus on Singapore and Hong Kong. Management also highlighted that while
competition is intensifying in the Middle East, the environment in Saudi Arabia remains fairly benign.
In the domestic market, Voltas is focusing on increasing the scope of its products and services. From being primarily an
HVAC supplier, the company is now aiming to provide a full range of MEP services. We believe this transition should
allow Voltas to continue to grow above market over the next few years.
Demand in the commercial property segment has softened significantly, but industrial and power segment remains strong.
Order growth in domestic market remains strong y-o-y, whereas order growth in international markets has softened.
Management remains cautiously optimistic on the overall demand outlook.
In terms of business segments, management highlighted that EBIT margins in Segment 1 should soon be back to c9-10%.
Segment 2 is entering a 4-year upcycle and seeing strong demand from textile machinery and metal-handling segments.
The growth rate in Segment 3 should stabilize now at c25-30% compared to c50-55% growth seen over the last few years.
However, management expects Voltas to continue to win market share in this segment.
Valuation and risks
We apply a target PE of 20x (a mid-cycle PE) to FY12e EPS of INR12.8 to arrive at a target price of INR255. The stock is
currently trading at PE of 15.2x FY11e earnings (historical band 15-25x).
Higher than estimated order inflows and better margins are upside risks.
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