Voltas- Results below expectations; Kotak Sec

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Voltas (VOLT)
Industrials
Results below expectations; EMP segment leads disappointment. Voltas reported
disappointing results at revenue (15% below estimates) as well as margin (90 bps
below estimate) level. The disappointment was led by the EMP segment which reported
an 8% revenue decline and lower-than-expected margins. The UCP and Engg products
segments also reported relatively sedate numbers. Order inflows of Rs17 bn in 1HFY11
is just about keeping pace with our full-year estimate of Rs37 bn. Retain REDUCE.


Results far below expectations on revenue as well as margin front
Voltas reported 2QFY11 consolidated revenues of Rs10.6 bn, down 3% yoy and significantly (15%)
below our estimate. Margins contracted by 140 bps yoy on the back of high raw material expenses
as a percentage of sales. The revenue and margin disappointment led to a net PAT of Rs784 mn,
down 15% yoy and about 21% below our estimate.
EMP segment leads the disappointment on both fronts; other segments remain sedate as well
􀁠 EMP segment leads disappointment on both revenue and margins: EMP segment
reported an 8% yoy revenue decline versus our expectation of a 10% growth. EBIT margin at
8% was also below our estimate of 9%. The sedate quarter was attributed to execution delays
of large projects caused by various external factors as well as certain one-time adjustments.
􀁠 UCP disappoints on revenue; margins improvement ahead of expectations: UCP segment
also reported disappointing growth (at 16% versus estimated 30%). Margin at 12.3% was
ahead of our estimate of 9.5% (and up from 9.5% in 2QFY10).
􀁠 Engineering products and services; revenue growth below par: The segment reported 8%
yoy revenue growth versus our expectation of 20% growth. Margin improved significantly to
21% versus 18.3% last year but was below our expectation of 23% (1QFY11 level).
Order inflow just about keeps pace with full-year estimate; backlog flat on a qoq basis
Voltas reported an order backlog of Rs49.75 bn, flat on a qoq basis. This implies order inflow of
Rs7 bn during the quarter and Rs17 bn in 1HFY11. Hence, Voltas is just about keeping pace with
our full-year order inflow expectations of Rs37 bn in FY2011E.
Reiterate REDUCE with a target price of Rs225/share; retain estimates
We retain our estimates of Rs11.8 and Rs13.5 for FY2011E and FY2012E, respectively. Reiterate
REDUCE with a target price of Rs225 based on (1) limited upside to target price, (2) potential
headwind of margin pressure and (3) slow pick-up in execution of new projects.