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Voltas Ltd declared its Q1FY12 results which remained much below our
estimates. Consolidated net sales during Q1FY12 reported a de‐growth of
4.1% at Rs 13,457.5 mn on y‐o‐y basis. Overall increase in expenditure which
happened due to cost overruns in certain projects in Qatar and increased
depreciation as well as interest cost resulted in muted performance on
EBITDA & PAT levels.
EBITDA margins declined by 100 bps at 8.1 % with a drop of 15% in EBITDA
at Rs 1088.9 mn. Due to change in the depreciation policy of charging the
depreciation over life of the project as against the earlier method of charging
on a SLM basis , depreciation cost increased by 106% at Rs 103 mn . Interest
cost for the quarter rose by 61% due to increased interest cost and increase in
the capital employed in the project business and unitary cooling products
segment. Due to this PAT after minority interest excluding the exceptional
items of Rs 814.7 mn reported a de‐growth of 46% at Rs 503.3 mn with a
decline of 290 bps in the PAT margins.
Key Highlights
Project business dampens Q1FY12 performance: During Q1FY12 the
project business de‐ grew by 2.3% on y‐o‐y basis at Rs 6,768.8 mn on net
revenues. However 2 projects at Qatar resulted in significant increase in
the raw material cost and labour and cost over runs due to complextity in
execution dragged the EBIT margins to 4.6% a decline of 390 bps. EBIT
for the segment de‐grew by 47% at Rs 309.8 mn.
Muted order inflows and declining order book: During Q1FY12 the
consolidated order book of Rs 45,530 declined by 9% on y‐o‐y basis. It
declined by 7% on q‐o‐q basis. The ongoing political unrest going on in
the MENA region and intense competition has resulted in international
order inflows drying up. Also the intense competition is putting pressure
on the margins and will continue to do in future for another few quarters.
However the consolidated order book for the domestic markets has
grown by 28% at Rs 19,190 mn on a y‐o‐y basis. Rohini’s standalone
order book stood at Rs 2,280 mn with better margins. Also the company
is witnessing traction in its water business though which is currently of a
very miniscule amount.
Outlook & Valuation
Uncertain political conditions in international markets, increasing interest
rates, complexities resulting in execution delays and cost overruns, increasing
competition and longer duration for project approvals are negatively
impacting the company’s revenue visibility and profitability in near term.
At the CMP of Rs 134 the stock is trading at 16.1x and 13.0x its FY12E and
FY13E earnings of Rs 8.3 & 10.3 respectively. We downgrade our earlier “buy”
recommendation to “accumulate” with a revised target price of Rs 155. The
target price of Rs 155 translates into a potential return of 15%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Voltas Ltd declared its Q1FY12 results which remained much below our
estimates. Consolidated net sales during Q1FY12 reported a de‐growth of
4.1% at Rs 13,457.5 mn on y‐o‐y basis. Overall increase in expenditure which
happened due to cost overruns in certain projects in Qatar and increased
depreciation as well as interest cost resulted in muted performance on
EBITDA & PAT levels.
EBITDA margins declined by 100 bps at 8.1 % with a drop of 15% in EBITDA
at Rs 1088.9 mn. Due to change in the depreciation policy of charging the
depreciation over life of the project as against the earlier method of charging
on a SLM basis , depreciation cost increased by 106% at Rs 103 mn . Interest
cost for the quarter rose by 61% due to increased interest cost and increase in
the capital employed in the project business and unitary cooling products
segment. Due to this PAT after minority interest excluding the exceptional
items of Rs 814.7 mn reported a de‐growth of 46% at Rs 503.3 mn with a
decline of 290 bps in the PAT margins.
Key Highlights
Project business dampens Q1FY12 performance: During Q1FY12 the
project business de‐ grew by 2.3% on y‐o‐y basis at Rs 6,768.8 mn on net
revenues. However 2 projects at Qatar resulted in significant increase in
the raw material cost and labour and cost over runs due to complextity in
execution dragged the EBIT margins to 4.6% a decline of 390 bps. EBIT
for the segment de‐grew by 47% at Rs 309.8 mn.
Muted order inflows and declining order book: During Q1FY12 the
consolidated order book of Rs 45,530 declined by 9% on y‐o‐y basis. It
declined by 7% on q‐o‐q basis. The ongoing political unrest going on in
the MENA region and intense competition has resulted in international
order inflows drying up. Also the intense competition is putting pressure
on the margins and will continue to do in future for another few quarters.
However the consolidated order book for the domestic markets has
grown by 28% at Rs 19,190 mn on a y‐o‐y basis. Rohini’s standalone
order book stood at Rs 2,280 mn with better margins. Also the company
is witnessing traction in its water business though which is currently of a
very miniscule amount.
Outlook & Valuation
Uncertain political conditions in international markets, increasing interest
rates, complexities resulting in execution delays and cost overruns, increasing
competition and longer duration for project approvals are negatively
impacting the company’s revenue visibility and profitability in near term.
At the CMP of Rs 134 the stock is trading at 16.1x and 13.0x its FY12E and
FY13E earnings of Rs 8.3 & 10.3 respectively. We downgrade our earlier “buy”
recommendation to “accumulate” with a revised target price of Rs 155. The
target price of Rs 155 translates into a potential return of 15%.
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