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Investment Arguments
~ Pick up in Investment spend in Gulf Region benefit Voltas
~ Consistent Order book
~ Three Business Segments – different opportunities
Electromechanical Projects & Services Segment
Engineering Products & Services (EP&S) Segment
Unitary Cooling (UC) Segment
~ Valuation
Company Description
Voltas,a Tata Group company, is a global air-conditioning and
engineering services company incorporated in 1954. The
company offers engineering solutions for a wide spectrum of
industries in areas such as heating, ventilation and air
conditioning (HVAC), refrigeration, electromechanical projects,
textile machinery, machine tools, mining and construction
equipment, materials handling, water management, building
management systems, indoor air quality and chemicals. The
operations have been organised into three independent businessspecific
clusters, electromechanical projects & services,
engineering products & services and unitary cooling products.
The Company’s subsidiaries include Simto Investment Company
Ltd., Auto Aircon (India) Ltd., Metrovol FZE, VIL Overseas
Enterprises B.V., Voice Antilles N.V., Weathermaker Ltd., Saudi
Ensas Company for Engineering Services W.L.L., Rohini
Industrial Electricals Ltd., Universal Comfort Products Ltd., Agro
Foods Punjab Ltd. and Westerwork Engineers Ltd.
Pick up in Investment spend in Gulf Region benefit Voltas
Gulf Region (which contribute +60% of Voltas revenues) are
seeing initial signs of pick-up in investment spends. Key markets
witnessing pick-up include (1) UAE – Projects tendered worth
USD 53.7 bn (2) Qatar - USD 11.4 bn (3) Saudi Arabia - USD
76.1 bn. This is likely to benefit Voltas, a key player in the Gulf
region , particularly Qatar & UAE. Voltas has also taken initiatives
to increase presence in Saudi Arabia, Oman, Singapore and
Hong Kong– to benefit from strong construction activity therein.
Consistent Order book
The company has been able to maintain its order book level
around INR50bn, the rate of execution has reasonably slowed
down to 14% from highs of 22-25% seen in the same period last
year. Primary reasons cited by the company for the same are
delays in execution due to design changes of larger orders and
delays in certifications for closure of projects. Both these aspects
are not only impacting revenue growth, but also leading to higher
costs and increased working capital stress in the business
thereby impacting overall return on these projects. The order
flows from the international business slowing down, the company
has now started focusing on the domestic market. Voltas has
bagged some marquee orders like the Chennai Metro Project and
Formula One racing circuit at Noida, UP. Domestic projects are
shorter terms projects (12-18 months) as compared to
international projects (24-36 months). Also, for international
projects, major components and equipments are bought outs from
USA and Europe due to the intensity and size involved, whereas
in the domestic markets, the company manufactures and installs
equipments of its own. Domestic projects offer better margins by
100bps as compared by international projects (5-6%).
Three Business Segments – different opportunities
Voltas comfortably placed in the domestic market - Both MEP and
UCP Given its long track record in the Gulf Region, we believe
that Voltas is best placed amongst its peers to cash-in on the
domestic HVAC industry progression towards integrated MEP and
effectively address the ensuing Rs529 bn MEP opportunity.
Further, the management expects strong demand from hospitals,
education, infrastructure & small retail; and revival in commercial
real estate, large retail and ITES, over the next few quarters.
The operations have been organized into three independent
business-specific clusters, electromechanical projects & services,
engineering products & services and unitary cooling products.
Electromechanical Projects & Services Segment
This segment contributes 60% to the topline and bottomline and is
primarily the projects segment of the company. Historically major
revenue for the segment has been contributed by the Middle East
region comprising of Dubai, Abu Dhabi, Qatar, Bahrain,
Singapore and Hong Kong. Post the meltdown in Dubai, company
has moved its focus to Abu Dhabi, Qatar and Oman. Due to the
regional issues coupled with global meltdown, the MENA region
has witnessed significant pressure on real estate activity. Various
projects in the past have gone for rebidding to sharp drop in
commodity prices. The region has witnessed significant
competition with various local and global companies vying for real
estate, infrastructure and construction projects. One has also
witnessed significant delays in starting and completing projects
due to various reasons such as delays in certifications and
changes in design.
Engineering Products & Services (EP&S) Segment
This business comprises of 3-4 key areas as under:
- Selling agents of textile machinery including sole selling agents
of LMW.
- Trading and/or commission based sales of construction and
mining equipments.
- Manufacture and sale of forklift trucks – this business would now
be demerged to a new JV to KION where Voltas will have only a
26% stake. Voltas would however manufacture the forklift trucks
for this JV out of their facility in Thane, Maharashtra. Voltas has
received sum of INR1.1bn for the transfer of this business to
KION.
Unitary Cooling (UC) Segment
The unitary cooling segment (in its new form) comprises of 5
major products namely commercial ACs, water coolers, water
dispensers, split AC and window ACs. The company has its
Uttarakhand.
Company has been able to maintain its No3 position in the AC
market and no price wars have been witnessed owing to the
summers and significant expansion in market demand across
window as well as Split ACs. April 2011 has witnessed low
volume growth due to lesser intensity of summers in the month
However, significant pickup has been witnessed in the segment in
May 2011 due to the growing intensity of the summers.
Valuation
At CMP, Voltas is trading at 13X FY12E and 12X FY13E
consolidated earnings of Rs11.96 and Rs12.90 per share
respectively which is on lower side of its 5 years median PE. We
believe current valuations fully factor all concerns like delay in
execution. We initiate with buy reco for a target price of Rs. 191 in
12 months.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment Arguments
~ Pick up in Investment spend in Gulf Region benefit Voltas
~ Consistent Order book
~ Three Business Segments – different opportunities
Electromechanical Projects & Services Segment
Engineering Products & Services (EP&S) Segment
Unitary Cooling (UC) Segment
~ Valuation
Company Description
Voltas,a Tata Group company, is a global air-conditioning and
engineering services company incorporated in 1954. The
company offers engineering solutions for a wide spectrum of
industries in areas such as heating, ventilation and air
conditioning (HVAC), refrigeration, electromechanical projects,
textile machinery, machine tools, mining and construction
equipment, materials handling, water management, building
management systems, indoor air quality and chemicals. The
operations have been organised into three independent businessspecific
clusters, electromechanical projects & services,
engineering products & services and unitary cooling products.
The Company’s subsidiaries include Simto Investment Company
Ltd., Auto Aircon (India) Ltd., Metrovol FZE, VIL Overseas
Enterprises B.V., Voice Antilles N.V., Weathermaker Ltd., Saudi
Ensas Company for Engineering Services W.L.L., Rohini
Industrial Electricals Ltd., Universal Comfort Products Ltd., Agro
Foods Punjab Ltd. and Westerwork Engineers Ltd.
Pick up in Investment spend in Gulf Region benefit Voltas
Gulf Region (which contribute +60% of Voltas revenues) are
seeing initial signs of pick-up in investment spends. Key markets
witnessing pick-up include (1) UAE – Projects tendered worth
USD 53.7 bn (2) Qatar - USD 11.4 bn (3) Saudi Arabia - USD
76.1 bn. This is likely to benefit Voltas, a key player in the Gulf
region , particularly Qatar & UAE. Voltas has also taken initiatives
to increase presence in Saudi Arabia, Oman, Singapore and
Hong Kong– to benefit from strong construction activity therein.
Consistent Order book
The company has been able to maintain its order book level
around INR50bn, the rate of execution has reasonably slowed
down to 14% from highs of 22-25% seen in the same period last
year. Primary reasons cited by the company for the same are
delays in execution due to design changes of larger orders and
delays in certifications for closure of projects. Both these aspects
are not only impacting revenue growth, but also leading to higher
costs and increased working capital stress in the business
thereby impacting overall return on these projects. The order
flows from the international business slowing down, the company
has now started focusing on the domestic market. Voltas has
bagged some marquee orders like the Chennai Metro Project and
Formula One racing circuit at Noida, UP. Domestic projects are
shorter terms projects (12-18 months) as compared to
international projects (24-36 months). Also, for international
projects, major components and equipments are bought outs from
USA and Europe due to the intensity and size involved, whereas
in the domestic markets, the company manufactures and installs
equipments of its own. Domestic projects offer better margins by
100bps as compared by international projects (5-6%).
Three Business Segments – different opportunities
Voltas comfortably placed in the domestic market - Both MEP and
UCP Given its long track record in the Gulf Region, we believe
that Voltas is best placed amongst its peers to cash-in on the
domestic HVAC industry progression towards integrated MEP and
effectively address the ensuing Rs529 bn MEP opportunity.
Further, the management expects strong demand from hospitals,
education, infrastructure & small retail; and revival in commercial
real estate, large retail and ITES, over the next few quarters.
The operations have been organized into three independent
business-specific clusters, electromechanical projects & services,
engineering products & services and unitary cooling products.
Electromechanical Projects & Services Segment
This segment contributes 60% to the topline and bottomline and is
primarily the projects segment of the company. Historically major
revenue for the segment has been contributed by the Middle East
region comprising of Dubai, Abu Dhabi, Qatar, Bahrain,
Singapore and Hong Kong. Post the meltdown in Dubai, company
has moved its focus to Abu Dhabi, Qatar and Oman. Due to the
regional issues coupled with global meltdown, the MENA region
has witnessed significant pressure on real estate activity. Various
projects in the past have gone for rebidding to sharp drop in
commodity prices. The region has witnessed significant
competition with various local and global companies vying for real
estate, infrastructure and construction projects. One has also
witnessed significant delays in starting and completing projects
due to various reasons such as delays in certifications and
changes in design.
Engineering Products & Services (EP&S) Segment
This business comprises of 3-4 key areas as under:
- Selling agents of textile machinery including sole selling agents
of LMW.
- Trading and/or commission based sales of construction and
mining equipments.
- Manufacture and sale of forklift trucks – this business would now
be demerged to a new JV to KION where Voltas will have only a
26% stake. Voltas would however manufacture the forklift trucks
for this JV out of their facility in Thane, Maharashtra. Voltas has
received sum of INR1.1bn for the transfer of this business to
KION.
Unitary Cooling (UC) Segment
The unitary cooling segment (in its new form) comprises of 5
major products namely commercial ACs, water coolers, water
dispensers, split AC and window ACs. The company has its
Uttarakhand.
Company has been able to maintain its No3 position in the AC
market and no price wars have been witnessed owing to the
summers and significant expansion in market demand across
window as well as Split ACs. April 2011 has witnessed low
volume growth due to lesser intensity of summers in the month
However, significant pickup has been witnessed in the segment in
May 2011 due to the growing intensity of the summers.
Valuation
At CMP, Voltas is trading at 13X FY12E and 12X FY13E
consolidated earnings of Rs11.96 and Rs12.90 per share
respectively which is on lower side of its 5 years median PE. We
believe current valuations fully factor all concerns like delay in
execution. We initiate with buy reco for a target price of Rs. 191 in
12 months.
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