Voltas :Reiterate Buy; TP raised to INR301 Strong consumer franchise in domestic room AC segment, but EMP segment is a drag: Nomura Research

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Voltas Ltd- ICICI Securities Fundamental Top Picks for 2015

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Voltas Ltd.|Q2FY15 Result Update :: IndiaNivesh

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Leader in cooling products.. Voltas :: ICICI Securities, pdf link

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Leader in cooling products..
Voltas is a leading air conditioning company in India and operating mainly
into the three business segments namely Electro Mechanical Projects and
services (EMPS, contributes ~52% in FY14 topline), Engineering Products
& Services (EPS, contributes ~9% in FY14 topline) and Unitary Cooling
Products for comfort & commercial use (UCP, contributes ~39% in FY14
topline). Voltas has migrated from initial HVAC (Heat, Ventilation and air
conditioning) projects to wide scope of services called MEP projects
(includes both domestic and international). MEP projects are
encompassing Mechanical, Electrical and Public health of which HVAC is
a sub category of Mechanical. Under EPS segment, it provides mining &
construction equipments (M&CE) and textiles machineries to the
respective industries. The products offered under M&CE are Shovels,
dumpers, loaders, crushers & screening plants, and textiles machines
includes spinning, knitting and weaving machines respectively. Voltas is
India’s largest room air conditioner manufacturers with market share over
20% in FY14 with over 9000 touch points in India.



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Technicals: Coromandel, Bharti Airtel, Hyderabad Ind, GSPL, Wipro, Voltas :: Business Line

 

Query Corner:Gruh Finance, Elecon Engineering, Voltas, RPower, Kalindee Rail:: Business Line

Voltas: Valuations turn unattractive :: Kotak Sec,

Voltas: Valuations turn unattractive; receding earnings outlook prompts
downgrade
` EMP (domestic and international) business scenario further worsens
` UCP leadership position strengthened; but industry growth sedate
` Valuation argument loses sheen with outperformance; downgrade to
REDUCE

Voltas - Lying low for now; visit note; Hold:: EDEL

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.

Voltas:: Prabhudas Lilladher MID-CAP top pick

Some green shoots in ordering environment: The quarter with flattish
growth on order book at Rs45.74bn. The domestic market contributed Rs
21.93bn (~up by 14% YoY) and Export market contributed ~Rs 23.81bn
(down by 10% YoY) to overall order book. The orders received in this
quarter stood at ~Rs7.69bn (up by 2.8x YoY). The company has started to
see some green shoots in markets like Saudi Arabia, Abu Dhabi and Muscat
and Qatar. In Abu Dhabi, the main contractor for the airport order has
been formalized and soon the sub-contractors would be appointed by
October. Also, there has been US$4.6 billion worth infusion into ALDAR,
the primary real estate developer in Abu Dhabi. Also few tenders are in
the process of being funded in Qatar for the upcoming FIFA 2022 and are
expected to be released from Q3 onwards. In domestic markets, the
growth continued due to increased focus on urban infrastructure and
industry like metals and automotives, and the expansion of scope of work
on existing projects, such as the Chennai Metro.
Gaining market share in UCP: Voltas saw 15% volume growth in Airconditioners
ahead of Industry which reported de-growth of 5%. Our
overall growth has been supported by a strong advertising campaign based
on well researched consumer insights, culminating in the “all-weather”
proposition. The extended summer and delayed onset of monsoon also
helped volumes. Voltas has emerged as the market leader in the Room AC
segment in May 2012 across multi-brand outlets with an 18.3% share
(independently reported by GfK Nielsen) which was further improved to
19.1% in June – widening the earlier lead of 60 bps over the nearest
competitor in May to 280 bps in June.
Outlook and Valuation: The stock is trading at 11.1x FY14E earnings. We
believe that the worst might be behind us, given the pain on Sidra project
already been accounted for and RIE’s likely to break even in FY13. The
outlook on orders look bright given the increased reach in terms of
geography in international markets and business segments in the domestic
market.. We believe that a lot of pessimism related to order flow is in the
price and hence, downside seems to be limited.

Capital Goods Sector Update --Learning to live with uncertainty!!!: Prabhudas Lilladher,

Capital goods index has outperformed the broader index by ~5% over the last three
months. Government off-late has been making lot of positive noises which hasn’t
been backed by concrete action. RBI’s ability to act has been hindered by
government inaction on the fiscal front and high inflation, while government
perceives rate cut as a way to boost growth. Recent downgrade of GDP estimate for
FY13 and risk of rating downgrade has added to the uncertainty. So India Inc.
continues to live with an uncertain outlook albeit with a hope of revival for the time
being (as it has been for last several quarters). We might be closing in but it’s still
tough to call the bottom yet.

VOLTAS Headwinds persist :Edelweiss

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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 12.0x 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 (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.

VOLTAS Still in the woods :: Edelweiss

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During Q3FY12, Voltas (VOLT) reported a loss of INR1.2bn due to cost
escalation in one of its international projects (Sidra Hospital). Adjusting
for this, together with income from property sale, PAT is at INR612mn, up
2% YoY. Revenue grew 12% on the back of execution pickup in EMPS and
volume growth in UCP segments. EBITDA grew 10% to INR874mn as
margin dipped 10bps YoY to 7.5% (up 510bps QoQ). Order book improved
8% to INR51bn as domestic backlog surged 22%. Inflows grew 93% to
9.6bn. On the back of improved order inflow and margin expansion in
FY12, we raise our earnings for FY12E by 20%. We maintain ‘HOLD’ with
target price of INR 105.
Cost escalation drags down earnings; order inflow better
VOLT’s revenue grew 12% YoY to INR11.6bn. It reported loss of INR1.2bn due to onetime
charge on account of cost escalation in its Sidra Hospital project. Adjusting for the
cost escalation and income from property sales, earnings grew 2.4% to INR612mn
EBITDA grew 10% as margin dipped 10bps YoY to 7.5% (up 510bps sequentially). While
EBIT margin in EMPS improved 90bps to 7.3%, it dipped 360bps to 6.1% in UCP. Margin
in UCP were strained due to: (1) Competitive intensity, (2) inventory liquidation and (3)
increased costs of imports. Going forward, EMPS margin is likely to be under pressure
owing to: (1) Lack of sufficient new orders and (2) high competitive intensity. Order
book improved 8% to INR51bn as domestic backlog surged 22% to INR19bn. Order
inflows during the quarter grew 93% to INR9.6bn led by international geographies at
INR5.6bn.
Outlook and valuations: Challenging; maintain ‘HOLD’
Business environment remains challenging for VOLT across the three segments. New
projects are hard to come in EMPS given the slowdown and excessive competition
(which are likely to keep margin under pressure). UCP margin will remain under
pressure due to competition from Japanese players. On the back of improved order
inflow and margin expansion in FY12, we raise our earnings for FY12E by 20%. On our
revised EPS of INR 8.0 and INR 8.4, the stock is trading at 11.9x and 11.3x respectively.
We maintain ‘HOLD’ recommendation as we move to ‘Sector Performer’ with target
price of INR 105 (Earlier 83).

PDF link - GSK Pharma, voltas, India strategy:: Kotak Securities

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http://www.kotaksecurities.com/pdf/indiadaily/indiadaily17022012.pdf


Results
GlaxoSmithkline Pharmaceuticals: Lower margin leads to PAT miss

Results, Change in Reco
Voltas: Upgrade on cash flows, inflows and recovery even as challenges remain


Strategy
Strategy: Another ho-hum quarter; expectations of earnings upgrade cycle
premature

PDF link - Time technoplast, Voltas:: Kotak Sec,

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http://www.kotaksecurities.com/pdf/dmb/MorningInsight17022012.pdf


TIME TECHNOPLAST (TTL)
RECOMMENDATION: BUY
TARGET  PRICE:  RS.58
CONS. FY13E P/E:8.3X


VOLTAS LTD
RECOMMENDATION: ACCUMULATE
TARGET  PRICE:  RS.122
FY13E P/E: 12.2X

Technicals: RPower, Voltas, IFCI , L & T Finance, Cummins, Alstom, Kalindee Rail, Gujarat Reclaim ::Business Line

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Please advise me on the long-term outlook of Reliance Power.

J. Senthan

Reliance Power (Rs 105.3): In September 2011, we had reviewed Reliance Power and written that investors could hold this stock as long as it traded above Rs 70. The stock bottomed after testing this support fleetingly in December, and is currently attempting to move higher. The stock has psychological resistance at Rs 100 and it is also the level it made in the recent peak of last November.

Move above Rs 100 can take the stock higher to Rs 127 or Rs 156 in the months ahead. Investors who are not in the stock for the long haul can hold with stop at Rs 65 and exit at either of these hurdles.

The long-term trend decider stays at Rs 200. Inability to move beyond this hurdle will result in the stock vacillating in the band between Rs 70 and Rs 200. Subsequent targets are Rs 230 and Rs 264.

Accumulate VOLTAS :: TARGET PRICE: RS.91 ::Kotak Sec

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VOLTAS LTD
PRICE: RS.79 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.91 FY13E P/E: 11.1X
q Voltas' Central Airconditioning projects business would continue to witness
diminished margins in the near future due to higher cost involved
in expediting the execution of Sidra Medical project in Qatar.
q The central Air conditioning projects industry (MEP) continues to witness
difficult market conditions due to dull commercial real estate activity
both in india and abroad. Material cost pressure have also remained at
elevated levels.
q We maintain ACCUMULATE with a revised target price of Rs.91 based on
DCF.
Key highlights
Electromechanical Projects Segment (59% of revenues)
n The order intake (Central Airconditioning projects) in the domestic market has
been healthy and the current order book also provides a revenue visibility of 14
months. However, the company indicated that since the past two months, enquiries
for orders have shrunk appreciably. This may signal that order intake from
indian geography could potentially slacken in the coming months.
n Given the slack enquiry levels combined with the general oversupply in commercial
real estate, outlook for domestic orders is likely to remain subdued for
atleast the next six months.
n The company's project business in the Middle East continues to witness diminished
profitability due to the Sidra Medical and Reseach Center. This is a large
project for a 700 bed hospital and research center from the government of
Qatar.
n Voltas won this project in early 2010, however, the project activity remained
sluggish in the initial months. Subsequently, Voltas was asked to expedite this
project for which it had to employ additional resources in terms of manpower
and materials. That it had exhausted its quota for indian labour also worked
against the company as it had to recruit local labour to complete the project.
This imposed additional cost burden on the company.
n The company also indicated that this was a design and build job and it had to
make frequent modifications to its designs (the mgmt. indicated that a project of
such magnitude has several drawings/designs running into thousands), which also
added to the cost incurred.
n So far as the execution of this order is concerned, the initial order value stood at
Rs 9000 mn (dynamic figure depending on costs fluctuation). Out of which, the
company has executed 40% of the work even as the balance job is planned to
be executed over the next three quarters.
n The management expects that continuing mismatch between costs incurred vs
anticipated would weigh upon the profitability of this segment in the coming
quarters.

Voltas Not the bottom yet!:: Prabhudas Lilladher,

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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.

52-week flop: Voltas :: Business Line

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Falling revenues in the cooling and the electromechanical projects segment and margin pressure on increased competition in these segments saw the stock of Voltas plunging by over 60 per cent in the last one year. For the first half of FY-12, the company's sales dropped 0.8 per cent and operating profit fell by 51 per cent.

The electro-mechanical projects (EMP) segment which contributes 55 per cent to overall revenues of Voltas saw a five percent increase in revenues in the six months ending September 2011. However, profit at the operating level plunged 76 per cent on an eight percentage point decline in margins due to cost overruns at its projects in Qatar.

There is stiff competition between EMP players in West Asia. Going ahead too, there is expectation of margin pressures and slower order flows. The unitary cooling products business which gives the company an exposure to consumer business has also put up a dismal performance in the last few quarters. For the six months of FY-12, the segment reported a six per cent drop in sales and a 23 per cent drop in profits.

Profits margins came under pressure as the company had to liquidate the inventory in the warehouse by offering discounts. Extended winter in the North and the resultant drop in demand saw inventory accumulation.

Voltas -No respite, maintain ‘Reduce’ ::Prabhudas Lilladher

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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.