Voltas (VOLT IN, INR 127, Hold)
We met the management of Voltas (VOLT) to get an update on its businesses. The company indicated that tough times persist in EMPS on account of delays in project finalisation. Its Sidra project is now expected to be completed by June 2013 while the Abu Dhabi Airport project award is likely by Q4FY13. Silver lining comes from the UCP segment which has posted strong growth, improvement in market share and cost pass through on back of two price hikes. Maintain ‘HOLD’ with TP of INR120.
Sidra delayed by 3 months; EMPS facing project finalisation delays
The Sidra project is likely to face a further three months’ delay and expected to be completed by June 2013, which is likely to add time related costs. Incremental orders in Middle East continue to face finalisation delays. The Abu Dhabi Airport order is now expected to be awarded in Q4FY13. VOLT has enhanced focus on domestic market to counter Middle East slowdown. Government’s recent reforms push is likely to help revive infra projects. VOLT estimates Rohini Electricals to breakeven by FY13 end.
UCP expected to shine; tough macros continue to dent EPS units
With two price hikes (in January and July) totalling 6-7%, VOLT is well placed in terms of passing on the increased input costs. While the competitive intensity remains high in AC business, the company has maintained its leadership position—market share improved to 20.6% (18.4% earlier). The company continues to face uncertainty / macro headwinds in its EPS segment, which we believe is likely to suppress growth.
Outlook and valuations: Challenging; maintain ‘HOLD’
The business environment remains challenging for VOLT as international projects face finalisation delays. It is looking at the domestic market to counter international slowdown. UCP is expected to pick up even as competitive intensity remains high. The EPS segment is likely to face headwinds due to tough macro environment. The stock is trading at 14.6x and 13.3x FY13E and FY14E earnings, respectively. We maintain ‘HOLD/ Sector Performer’ recommendation/rating with a target price of INR120.
Regards,
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