Voltas (VOLT IN, INR 109, Hold) We met the senior management of Voltas ::Edelweiss PDF link

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Voltas (VOLT IN, INR 109, Hold)

We met the senior management of Voltas (VOLT) today. The company indicated that tough times persist across segments. In the international EMPS business, while few pockets like Dubai are seeing some revival in order flows, other larger areas continue to face delays in project finalisation. Owing to extended winter, volumes and margins in the UCP business are expected to remain under pressure during Q4FY12. We maintain ‘HOLD’ with target price at INR112.

Paucity of new orders in EMPS; Rohini breakeven postponed

After spike in order inflow in Q3FY12, VOLT faces delays in new orders from its international business even as the order pipeline remains strong over the next 2-3 years. To combat increased competition, VOLT has started to bid in consortium (for larger projects), thus improving its chances of bagging orders at stable margins. Domestic business, though small, is better margin with increased focus on water business. Rohini Electricals’ breakeven is postponed by a year to end-FY13.

Extended winter cools revenues in UCP; macros affect EPS

In UCP, while Q4FY12 is expected to be impacted due to extended winter, the company is unlikely to offer discounts towards inventory liquidation. UCP, however, could spring surprise in case of an extended summer. VOLT continues to face uncertainty / macro headwinds in its EPS segments, which we believe is likely to suppress growth.

Outlook and valuations: Challenging times; maintain ‘HOLD’

Business environment remains challenging across the three segments. International EMPS business faces delays in project awards even as competition remains strong, affecting margin. Domestic EMPS margins are a tad higher. UCP margin will remain under pressure due to competition. We marginally raise our earnings for FY13E and FY14E by 6% as we raise EMPS margin. The stock is trading at 10.5x its FY13 earnings. We believe most of the negatives are factored in at current level and maintain ‘HOLD/ Sector Performer’ with target price of INR112 (earlier INR105).

  Voltas - Headwinds persist; visit note; Hold