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Mr. BN Garudachar, GM - Corporate Communications & Investor Relations
and Mr. Utsav Shah, CFO - Central F&C Services shared their outlook on
Voltas Ltd.
Key highlights
n The international order book of Rs29 bn is expected to be executed over 14-15 months,
while the domestic order book of Rs20 bn has an execution timeline of 12-13 months.
n International order book profitability to remain under pressure. Expect operating margins
of 7-8% in FY12E owing to (1) client-led changes (both advancement and delay) in
project completion schedules and (2) intense pricing competition.
n Voltas' medical research project in Qatar, valued at Rs 9bn, is now showing satisfactory
progress after some initial delays. .
n Currently, Voltas is not keen on aggressively pursuing opportunities in Dubai, which is
witnessing a revival in investment spends.
n Expect domestic order book accretion to be subdued in H1FY12E - largely owing to
slow finalization of government orders.
n Voltas indicated increasing contribution of MEP orders in its domestic order book -
driving up the average order size.
n Rohini Industrial Electricals (RIE) to break-even in FY12E at EBIT level (FY11 loss -
Rs3.1 bn) and contribute positively from FY13E. Its unexecuted order book stands at
Rs2.0 bn, largely comprising of legacy orders. All expected cost-overruns are already
accounted for in FY11 itself.
n Voltas highlighted continuing demand momentum for its Engineering Products &
Services (EPS) division and expects operating margins of about 18%.
n In view of a subdued Q1FY12, Cooling Products division revenues expected to grow at
15-17% in FY12E (EMKAY estimates at 19%) with operating margins at 8.5-9.0%. But,
barring FY12E, demand drivers for the segment remain strong given the increasing
acceptance of air conditioners (ACs) & preference for high end split ACs
n Increase in debtor days in FY11 (by 10 days to 85 days) is attributed to higher
contribution of MEP projects, which enjoy additional 30 days credit as compared to
HVAC projects. Voltas expects to maintain its debtor days in FY12E at current levels.
Attractive valuations, Retain BUY rating
We believe that the de-rating in Voltas' 1-year forward PER since Nov'10 (down from 20.3X
to 14.2X FY12E) fully factors all concerns wrt order book accretion and execution. We
believe that risk to valuations is limited to the extent of downgrade in earnings. However,
we do not expect any significant downgrades to our FY12E earnings of Rs11.2 (post two
successive rounds of downgrades) - the only caveat being, profitable and timely execution
of the Qatar project. With better visibility for FY12E and low probability of negative earning
surprises, we retain our BUY rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Mr. BN Garudachar, GM - Corporate Communications & Investor Relations
and Mr. Utsav Shah, CFO - Central F&C Services shared their outlook on
Voltas Ltd.
Key highlights
n The international order book of Rs29 bn is expected to be executed over 14-15 months,
while the domestic order book of Rs20 bn has an execution timeline of 12-13 months.
n International order book profitability to remain under pressure. Expect operating margins
of 7-8% in FY12E owing to (1) client-led changes (both advancement and delay) in
project completion schedules and (2) intense pricing competition.
n Voltas' medical research project in Qatar, valued at Rs 9bn, is now showing satisfactory
progress after some initial delays. .
n Currently, Voltas is not keen on aggressively pursuing opportunities in Dubai, which is
witnessing a revival in investment spends.
n Expect domestic order book accretion to be subdued in H1FY12E - largely owing to
slow finalization of government orders.
n Voltas indicated increasing contribution of MEP orders in its domestic order book -
driving up the average order size.
n Rohini Industrial Electricals (RIE) to break-even in FY12E at EBIT level (FY11 loss -
Rs3.1 bn) and contribute positively from FY13E. Its unexecuted order book stands at
Rs2.0 bn, largely comprising of legacy orders. All expected cost-overruns are already
accounted for in FY11 itself.
n Voltas highlighted continuing demand momentum for its Engineering Products &
Services (EPS) division and expects operating margins of about 18%.
n In view of a subdued Q1FY12, Cooling Products division revenues expected to grow at
15-17% in FY12E (EMKAY estimates at 19%) with operating margins at 8.5-9.0%. But,
barring FY12E, demand drivers for the segment remain strong given the increasing
acceptance of air conditioners (ACs) & preference for high end split ACs
n Increase in debtor days in FY11 (by 10 days to 85 days) is attributed to higher
contribution of MEP projects, which enjoy additional 30 days credit as compared to
HVAC projects. Voltas expects to maintain its debtor days in FY12E at current levels.
Attractive valuations, Retain BUY rating
We believe that the de-rating in Voltas' 1-year forward PER since Nov'10 (down from 20.3X
to 14.2X FY12E) fully factors all concerns wrt order book accretion and execution. We
believe that risk to valuations is limited to the extent of downgrade in earnings. However,
we do not expect any significant downgrades to our FY12E earnings of Rs11.2 (post two
successive rounds of downgrades) - the only caveat being, profitable and timely execution
of the Qatar project. With better visibility for FY12E and low probability of negative earning
surprises, we retain our BUY rating.
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