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Key Takeaways
Environment challenging; increased project size in construction a positive
Despite concerns in the near term, the domestic MEP business is showing good
traction. The increasing size of construction projects in the domestic market
(especially in IT parks) is also boosting order inflows.
Voltas (VOLT) has a domestic order book of ~INR19.5b as at 1QFY12 end, however,
margins remain compressed because MEP projects now being finalized through
main contractors. Incremental orders are also witnessing margin pressure due to
increasing competitive intensity.
In the international space, competitive intensity is increasing resulting in pressure
on margins. The two large projects in Qatar (~INR15b in order book), are facing
margin pressure due to accelerated execution. The orders should be completed by
mid-FY13. VOLT expects long term EBIT margin of 7% for the international business.
VOLT plans to bid for large projects in partnership with other strong players and the
company also entered into two new joint ventures (administrative partner to facilitate
local ordering process in the Middle East) in the Kingdom of Saudi Arabia and Oman,
and in the Far East which should help boost order intake in the region.
The management reiterated that RIE would break even in FY12. Most of the low/nil
margin legacy orders are complete and new orders have adequate margins.
EMP segment: Healthy growth in Textile Machinery; Mining & Equipment
constrained by regulatory environment
Management highlighted that many mills that had procured raw material at high
prices face a cash loss situation. VOLT has a healthy order book, but this needs to
be watched for changing business sentiment.
The mining and construction equipment business is challenged, as several client
companies are facing delays in obtaining environment and forest clearances.
Gains share in unitary cooling, though market getting increasingly fragmented
The market is increasingly getting fragmented, with the top 3 players accounting for
60% of the market v/s 65% a few months ago. However, VOLT gained market share
in recent quarters and has now number 2 position (after LG) in the domestic market.
According to management margin pressures are unavoidable in the segment. The
industry as a whole faces the problem of high inventory levels which could result in
higher discounting to liquidate unsold stock. VOLT expects its inventory to liquidate
by the end of December 2011.
Valuation and view
The stock trades at 12x FY12E consensus earnings. With 10-12% growth in core
earnings likely, VOLT is attractively priced. Success in a few large contracts in India
or the Middle East will be the key catalyst. We do not have a rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Environment challenging; increased project size in construction a positive
Despite concerns in the near term, the domestic MEP business is showing good
traction. The increasing size of construction projects in the domestic market
(especially in IT parks) is also boosting order inflows.
Voltas (VOLT) has a domestic order book of ~INR19.5b as at 1QFY12 end, however,
margins remain compressed because MEP projects now being finalized through
main contractors. Incremental orders are also witnessing margin pressure due to
increasing competitive intensity.
In the international space, competitive intensity is increasing resulting in pressure
on margins. The two large projects in Qatar (~INR15b in order book), are facing
margin pressure due to accelerated execution. The orders should be completed by
mid-FY13. VOLT expects long term EBIT margin of 7% for the international business.
VOLT plans to bid for large projects in partnership with other strong players and the
company also entered into two new joint ventures (administrative partner to facilitate
local ordering process in the Middle East) in the Kingdom of Saudi Arabia and Oman,
and in the Far East which should help boost order intake in the region.
The management reiterated that RIE would break even in FY12. Most of the low/nil
margin legacy orders are complete and new orders have adequate margins.
EMP segment: Healthy growth in Textile Machinery; Mining & Equipment
constrained by regulatory environment
Management highlighted that many mills that had procured raw material at high
prices face a cash loss situation. VOLT has a healthy order book, but this needs to
be watched for changing business sentiment.
The mining and construction equipment business is challenged, as several client
companies are facing delays in obtaining environment and forest clearances.
Gains share in unitary cooling, though market getting increasingly fragmented
The market is increasingly getting fragmented, with the top 3 players accounting for
60% of the market v/s 65% a few months ago. However, VOLT gained market share
in recent quarters and has now number 2 position (after LG) in the domestic market.
According to management margin pressures are unavoidable in the segment. The
industry as a whole faces the problem of high inventory levels which could result in
higher discounting to liquidate unsold stock. VOLT expects its inventory to liquidate
by the end of December 2011.
Valuation and view
The stock trades at 12x FY12E consensus earnings. With 10-12% growth in core
earnings likely, VOLT is attractively priced. Success in a few large contracts in India
or the Middle East will be the key catalyst. We do not have a rating on the stock.
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