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Margins nosedive: Voltas reported sales of Rs11bn, ahead of our estimate of
Rs10.2bn, on account of higher-than-expected sales in the MEP segment (up 8%
YoY to Rs7.6bn). However, sales for the EPS and UCP segment were 5% and
7.5%, respectively. Sales for the UCP segment were significantly impacted due to
unfavourable weather and general economic downturn caused by soaring
inflation and high interest rates. EBITDA margin was down 930bps YoY to 0.7%.
EBIT margin was severely impacted in both, MEP (down 750bps to 0.7%) and
UCP segment (down 940bps to 2.9%). Margins for the MEP segment were
impacted by cost overrun in two major Qatar projects due to squeezed timeline
on those projects. Margins for the UCP segment were impacted due to lower
volumes, higher ad spend and increased raw material prices. Adj. PAT was down
71% YoY to Rs228m.
Increased competitive intensity changing margin profile: Voltas highlighted
that lack of orders in the international market has led to severe competitive
intensity, forcing it to lower its bidding margin to ~5% (from~8%) to improve its
chances of winning orders. It also highlighted that in the UCP segment, the
number of players has increased significantly and many of the newer players
have become aggressive which could lead to margin profile of the business
coming to sub 9% levels.
Valuation and Outlook: The stock is trading at 15.5x FY12E earnings. We believe
that Voltas will continue to face headwinds in the MEP and UCP segment, both
on volume and margin front. This will continue to put pressure on working
capital and balance sheet, restricting valuation. We maintain our ’Reduce’ rating
on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Margins nosedive: Voltas reported sales of Rs11bn, ahead of our estimate of
Rs10.2bn, on account of higher-than-expected sales in the MEP segment (up 8%
YoY to Rs7.6bn). However, sales for the EPS and UCP segment were 5% and
7.5%, respectively. Sales for the UCP segment were significantly impacted due to
unfavourable weather and general economic downturn caused by soaring
inflation and high interest rates. EBITDA margin was down 930bps YoY to 0.7%.
EBIT margin was severely impacted in both, MEP (down 750bps to 0.7%) and
UCP segment (down 940bps to 2.9%). Margins for the MEP segment were
impacted by cost overrun in two major Qatar projects due to squeezed timeline
on those projects. Margins for the UCP segment were impacted due to lower
volumes, higher ad spend and increased raw material prices. Adj. PAT was down
71% YoY to Rs228m.
Increased competitive intensity changing margin profile: Voltas highlighted
that lack of orders in the international market has led to severe competitive
intensity, forcing it to lower its bidding margin to ~5% (from~8%) to improve its
chances of winning orders. It also highlighted that in the UCP segment, the
number of players has increased significantly and many of the newer players
have become aggressive which could lead to margin profile of the business
coming to sub 9% levels.
Valuation and Outlook: The stock is trading at 15.5x FY12E earnings. We believe
that Voltas will continue to face headwinds in the MEP and UCP segment, both
on volume and margin front. This will continue to put pressure on working
capital and balance sheet, restricting valuation. We maintain our ’Reduce’ rating
on the stock.
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