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Voltas
Disappointment continues
After a lacklustre FY11, the focus shifts to FY12 growth, which we think could be
at risk unless order inflows and execution pick up in the next couple of quarters.
The macro environment remains challenging. The valuation of the core business
is still expensive, in our view, and we maintain a Sell rating.
Disappointment in engineering segment continues in 4Q
Voltasís 4Q11 earnings were below our forecast. Consolidated sales for the quarter rose
13% yoy to Rs16.8bn, while EBITDA margins fell 266bp yoy to 7.5%. However, adjusted for
one-offs, profit fell 36% yoy to Rs806m. The engineering segment disappointed again, with
revenue flat yoy and PBIT margins falling 184bp yoy, continuing the downward trend in
segment margin over the past four quarters. However, the other two segments registered a
strong performance in the quarter: Engineering services had sales of Rs1.74bn (up 45.2%
yoy), although the PBIT margin fell to 13.9% (down 594bp yoy); sales in cooling products
grew 29% yoy to Rs5.5bn, while the PBIT margin was up 22bp yoy to 10.6%
Order inflows remain key for FY12 growth, but we expect execution to improve
The core engineering segment reported an order backlog of Rs49bn (up 4% yoy and qoq).
Order inflow for the engineering segment came in at Rs11.4bn (down 32% yoy). We believe
strong order inflows over the next couple of quarters are important if the core engineering
business is to grow in FY12 and FY13. While margins in this segment will likely improve with
improving project execution as orders won in the previous year are executed, and as legacy
orders from the Rohini Electricals acquisition end, we see headwinds in the form of rising
commodity prices and the risk of slower project execution.
Core engineering business looks expensive on our estimates; we maintain a Sell
Performance of the core engineering business remained lacklustre in FY11. We reduce our
earnings forecasts 5-6% for FY12-13, assuming pressure on margins ahead. However, this
has a limited impact as we introduce our FY14 forecasts and roll forward our DCF, which
takes our target price to Rs145. We acknowledge Voltasís balance sheet strength and
management quality, which we think is better than that of sector peers. However,
deconstructing the companyís business on FY12F earnings, the core engineering MEP
business is trading at 17x PE
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Voltas
Disappointment continues
After a lacklustre FY11, the focus shifts to FY12 growth, which we think could be
at risk unless order inflows and execution pick up in the next couple of quarters.
The macro environment remains challenging. The valuation of the core business
is still expensive, in our view, and we maintain a Sell rating.
Disappointment in engineering segment continues in 4Q
Voltasís 4Q11 earnings were below our forecast. Consolidated sales for the quarter rose
13% yoy to Rs16.8bn, while EBITDA margins fell 266bp yoy to 7.5%. However, adjusted for
one-offs, profit fell 36% yoy to Rs806m. The engineering segment disappointed again, with
revenue flat yoy and PBIT margins falling 184bp yoy, continuing the downward trend in
segment margin over the past four quarters. However, the other two segments registered a
strong performance in the quarter: Engineering services had sales of Rs1.74bn (up 45.2%
yoy), although the PBIT margin fell to 13.9% (down 594bp yoy); sales in cooling products
grew 29% yoy to Rs5.5bn, while the PBIT margin was up 22bp yoy to 10.6%
Order inflows remain key for FY12 growth, but we expect execution to improve
The core engineering segment reported an order backlog of Rs49bn (up 4% yoy and qoq).
Order inflow for the engineering segment came in at Rs11.4bn (down 32% yoy). We believe
strong order inflows over the next couple of quarters are important if the core engineering
business is to grow in FY12 and FY13. While margins in this segment will likely improve with
improving project execution as orders won in the previous year are executed, and as legacy
orders from the Rohini Electricals acquisition end, we see headwinds in the form of rising
commodity prices and the risk of slower project execution.
Core engineering business looks expensive on our estimates; we maintain a Sell
Performance of the core engineering business remained lacklustre in FY11. We reduce our
earnings forecasts 5-6% for FY12-13, assuming pressure on margins ahead. However, this
has a limited impact as we introduce our FY14 forecasts and roll forward our DCF, which
takes our target price to Rs145. We acknowledge Voltasís balance sheet strength and
management quality, which we think is better than that of sector peers. However,
deconstructing the companyís business on FY12F earnings, the core engineering MEP
business is trading at 17x PE
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