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We met the management of Voltas. The outlook for new orders continues to be
weak. The cost overrun on Qatar project could surprise on negative side. UCP margin
to be under pressure due to competitive pressure and low volumes. Maintain
REDUCE.
MEP segment pain to continue: The outlook on domestic orders continues to be
grim as enquires levels have dropped since Q2 and the drop is across sector. The
management does not expect the outlook to improve for the next 2 quarters as
far as domestic MEP is concerned. On international front the order pipe line
continues to be limited as few only few countries s like Abu Dhabi , Saudi and
Qatar are the awarding leading to very high competitive intensity in those
markets driving down the margin profile of orders to 3-4%.
The cost overrun in the Qatar project continues to be ahead of estimate due to
change in scope of project and shirked timeline of the project. We believe cost
over run on this project will continues to spring negative surprise and impact the
earnings for the next 3 quarters as well. Apart from lack of advance due to weak
order flows ,the shirked timelines for the Qatar project have put sever stress on
the balance sheet (NWC days increased to 45days in H1FY12 from 26days in
H1Fy11)and the working capital cycle is likely to deteriorate further Qatar
project gets closed over the next 3 quarters.
UCP volumes continue to be weak: The company highlighted that volume
continue to be weak even during Diwali season. The AC market has dropped -25-
28%YTD in FY12 resulting in inventory pile up in the industry. We believe
inventory pile up will lead to discount by players, heightened competition
(specially from Japanese players) and deprecating rupee will lead to pressure on
margin over the next few quarter till volumes pick up
Outlook: The stock is trading at 9.6x FY13E earnings. We have downgraded our
estimates for FY12 & FY13 by 4% and 8% respectively to factor in muted order flow
outlook and margin pressure in both UCP and MEP segment. We believe the weak
outlook on order flow and uncertainty surrounding loss on account of Qatar order
could throw further negative surprises and will act as a huge overhang on the stock.
We maintain REDUCE.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We met the management of Voltas. The outlook for new orders continues to be
weak. The cost overrun on Qatar project could surprise on negative side. UCP margin
to be under pressure due to competitive pressure and low volumes. Maintain
REDUCE.
MEP segment pain to continue: The outlook on domestic orders continues to be
grim as enquires levels have dropped since Q2 and the drop is across sector. The
management does not expect the outlook to improve for the next 2 quarters as
far as domestic MEP is concerned. On international front the order pipe line
continues to be limited as few only few countries s like Abu Dhabi , Saudi and
Qatar are the awarding leading to very high competitive intensity in those
markets driving down the margin profile of orders to 3-4%.
The cost overrun in the Qatar project continues to be ahead of estimate due to
change in scope of project and shirked timeline of the project. We believe cost
over run on this project will continues to spring negative surprise and impact the
earnings for the next 3 quarters as well. Apart from lack of advance due to weak
order flows ,the shirked timelines for the Qatar project have put sever stress on
the balance sheet (NWC days increased to 45days in H1FY12 from 26days in
H1Fy11)and the working capital cycle is likely to deteriorate further Qatar
project gets closed over the next 3 quarters.
UCP volumes continue to be weak: The company highlighted that volume
continue to be weak even during Diwali season. The AC market has dropped -25-
28%YTD in FY12 resulting in inventory pile up in the industry. We believe
inventory pile up will lead to discount by players, heightened competition
(specially from Japanese players) and deprecating rupee will lead to pressure on
margin over the next few quarter till volumes pick up
Outlook: The stock is trading at 9.6x FY13E earnings. We have downgraded our
estimates for FY12 & FY13 by 4% and 8% respectively to factor in muted order flow
outlook and margin pressure in both UCP and MEP segment. We believe the weak
outlook on order flow and uncertainty surrounding loss on account of Qatar order
could throw further negative surprises and will act as a huge overhang on the stock.
We maintain REDUCE.
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