Voltas: Result sharply below estimates on cost overrun :Nomura research,

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Voltas’ 2QFY12 results were significantly lower than expectations
primarily due to 1) cost overrun in 2 key projects in Qatar that impacted
margins in the EMP segment; and 2) lower-than-expected sales in the
unitary cooling products segment. Overall sales growth, though, was
largely as per expectations. While we await management commentary
on sustainable business margins in the EMP segment, we continue to
see Voltas as attractively priced (trading at 10.5x FY13F EPS) as we
think the bulk of the bad news is already factored in. We believe the cost
overrun in the Qatar projects is the result of a conservative accounting
policy and is not reflective of sustainable business margins.
Key highlights of the result:
 Net sales at Rs11bn against our estimate of Rs10.7bn, while EBITDA
at Rs2.7bn against our estimate of Rs7.8bn.
 EBITDA margin declined 550bps largely due to the Qatar cost overrun
and a drop in sales volume of unitary cooling products.
 Even though EMP sales increased by 8% y-y, EBIT margin declined to
1% due to cost overruns in a couple of projects in Qatar.
 Revenue from Engineering Products and Services declined 5% y-y
(but not comparable due to business re-structuring). Sequentially,
however, revenues grew 23.6% in this segment (like-to-like
comparison).
 The unitary cooling products segment remains under strain with
revenue off 8% y-y and EBIT margin dropping to 3% from 12% y-y.
The press release attributes this to mild weather conditions and
continued slowdown in consumption across the country.