Voltas: Building On Strengths
Voltas: Building On Strengths
Voltas: Building On Strengths
Building on strengths
February 26, 2018 We recently met Voltas’ management and came back confident about the
medium/long‐term opportunities for the company. Management highlighted that
Kunal Sheth (a) the Carillion bankruptcy is not another Sidra‐like episode in the making as the
kunalsheth@plindia.com main contractor is the major partner is a local well‐to‐do business house and the
Visit Update
+91‐22‐66322257 customer is also keen to complete the project at a fast pace, (b) strong margin
performance in the MEP segment is an outcome of prudent risk management and
Shreyans Jain
discipline of taking good quality orders which Voltas has maintained over the last
shreyansjain@plindia.com
+91‐22‐66322256
few years and (c) the company continues to see improved traction in order pipeline
in the MEP segment, both in domestic and overseas markets.
Rating Accumulate
Price Rs581 Management also highlighted some pre‐buying in Q3FY18 in the Room AC segment
Target Price Rs702 and channel‐sitting on some inventory which they will have to liquidate before Mar
Implied Upside 20.8% 18; hence, a strong summer will be as important as Q4FY18 sales. Late February
Sensex 33,820
trends are suggesting improving primary sales.
Nifty 10,383
Voltas continued to sustain its No. 1 position in the Room AC market (at Multi‐
(Prices as on February 23, 2018)
Brand outlets) with a market share of 23.7% (was 23% in Q2). Management is
confident that the AC business can grow at 12‐15% CAGR in volume terms over the
Trading data next few years. Share of invertors stands at 17% of Room AC sales (5% ~12 months
Market Cap. (Rs bn) 192.0 back). Voltas continued to maintain that while inverter market is a growing market
Shares o/s (m) 330.7 and Voltas will have a fair share of inverters, it will continue to equally focus on
3M Avg. Daily value (Rs m) 849.2 Window and Fixed speed ACs, which still are 75% of Room AC market.
Major shareholders
Promoters 30.64% Launch of products from Arcelik JV is expected in H2CY18 as the company will
Foreign 19.99% ready their product basket with the right products in terms of quality and variety.
Domestic Inst. 28.72% We remain positive on Voltas over medium‐to‐long term, given the improving
Public & Other 20.65% margin profile of fresh orders, strong consumer business franchise and structural
Stock Performance growth in Room AC segment, given the low penetration, healthy balance sheet and
(%) 1M 6M 12M cash flow. We maintain ‘Accumulate’ with revised TP of Rs702.
Absolute (7.1) 10.6 63.6
Key financials (Y/e March)
2017 2018 2019E 2020E
Relative (1.6) 2.6 46.4
Revenues (Rs m) 60,328 69,109 78,942 90,992
How we differ from Consensus
Growth (%) 5.5 14.6 14.2 15.3
EPS (Rs) PL Cons. % Diff.
EBITDA (Rs m) 5,791 6,704 7,736 8,917
2019 18.9 20.2 ‐6.5
PAT (Rs m) 5,296 5,779 6,241 7,208
2020 21.8 23.4 ‐6.8
EPS (Rs) 16.0 17.5 18.9 21.8
Growth (%) 50.7 9.1 8.0 15.5
Price Performance (RIC: VOLT.BO, BB: VOLT IN) Net DPS (Rs) 4.0 4.3 4.7 5.6
(Rs)
800 Profitability & Valuation 2017 2018 2019E 2020E
700
EBITDA margin (%) 9.6 9.7 9.8 9.8
600
500 RoE (%) 18.5 16.5 15.9 16.4
400 RoCE (%) 17.4 15.9 15.8 16.2
300
EV / sales (x) 3.2 2.7 2.4 2.0
200
100 EV / EBITDA (x) 32.9 28.2 24.0 20.6
0 PE (x) 36.3 33.2 30.8 26.6
Dec‐17
Jun‐17
Oct‐17
Apr‐17
Feb‐17
Feb‐18
Aug‐17
Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that
the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to important disclosures and disclaimers at the end of the report
Voltas
Carillion PLC issue not another Sidra: Carillion PLC, a UK Contractor, one of the
JV partners of the main contractors in the Dubai and Oman projects, had filed
for liquidation. However, the management does not foresee a material risk to its
dues under these contracts but may experience some delays in receiving
certifications and payments. Both these projects are moving and execution is
not hampered. Voltas also received certification for work approved even after
bankruptcy was filed. Voltas’ management believes the issue is not another
Sidra as the main contractor who is majority partner is a local well‐to‐do
business house and customer is also keen to complete project at a fast pace. The
worst case scenario would lead to a loss of Rs1.2bn. Voltas has not made any
provision as it does not foresee any material risk.
MEP business – Focus on profitability: Voltas has significantly revamped order
procurement and commercial support systems to ensure better quality order
book and is confident of ~6% EBIT margin in the MEP segment. Better project
selection, execution and cost management have led to improvement in
performance. Situation in GCC countries indicates a slow pick‐up in economic
activities, mainly tied to the upcoming Mega Events in the geography. Project
spend relating to Expo 2020 has now started picking up with projects being
awarded to main contractors. Voltas has adopted a cautious approach towards
suitably risk mitigated order booking looking at the political instability in Qatar.
Qatar now forms 20% of the International order book.
Voltas’ strategy to focus on Government projects and continuous efforts to pick
up good quality work has held the domestic business well. It sees further
opportunities in the recent announcements by the Govt. on Infrastructure and
Electrification projects. Key areas like Metro, Rural Infra, Water etc. continues
to see traction in domestic market. Out of total order book, ~1/3rd is rural
electrification, 1/3rd is urban infra and 1/3rd is HVAC.
February 26, 2018 2
Voltas
Voltas has launched India’s first Window AC with Inverter Technology which will
be competitively priced. The company witnessed a 50% growth in the air cooler
sales as the shift from the unorganized to organized sector has been growing
and it is now 4th in the segment. Volumes are much better than last year with a
turnover of Rs1bn. Profitability from the Air Cooler segment will be more when
they scale up in 2‐3 years.
New Consumer JV: As regards the JV with Arcelik, it is expected to begin
operations by H2CY18. Post allotment of land which is expected soon, it will take
18‐24 months to set up the manufacturing facility. It will be a pan‐India launch
and probably will have more than 1 SKUs and will be present across all the
categories at competitive prices. The sourcing would be done from Arcelik
abroad and will be launched all over India. The current market size of consumer
durable market in India is ~Rs350bn (20mn units). The industry is expected to
grow at 10‐12% per annum. Voltas expects to reach market share of 10% in a
reasonable time frame.
February 26, 2018 3
Voltas
Income Statement (Rs m) Balance Sheet Abstract (Rs m)
Y/e March 2017 2018
2019E 2020E Y/e March 2017 2018 2019E 2020E
Net Revenue 60,328 69,109
78,942 90,992 Shareholder's Funds 33,173 37,034 41,419 46,600
Raw Material Expenses 42,359 49,759 56,839 65,514 Total Debt 1,709 — — —
Gross Profit 17,969 19,351 22,104 25,478 Other Liabilities 285 314 345 380
Employee Cost 6,184 7,187 7,500 8,826 Total Liabilities 35,168 37,348 41,765 46,980
Other Expenses 5,994 5,460 6,868 7,734 Net Fixed Assets 2,190 2,184 2,170 2,140
EBITDA 5,791 6,704 7,736 8,917 Goodwill 815 826 826 826
Depr. & Amortization 245 300 315 330 Investments 22,679 22,679 22,679 22,679
Net Interest 160 — — — Net Current Assets 9,124 11,298 15,729 20,974
Other Income 1,998 1,795 1,894 2,088 Cash & Equivalents 3,314 3,070 6,296 8,288
Profit before Tax 7,384 8,199 9,315 10,676 Other Current Assets 35,437 39,517 45,125 53,885
Total Tax 2,089 2,460 3,074 3,468 Current Liabilities 29,628 31,290 35,692 41,199
Profit after Tax 5,296 5,739 6,241 7,208 Other Assets 361 361 361 361
Ex‐Od items / Min. Int. — 40 — — Total Assets 35,168 37,348 41,765 46,979
Adj. PAT 5,296 5,779 6,241 7,208
Avg. Shares O/S (m) 330.7 330.7 330.7 330.7
EPS (Rs.) 16.0 17.5 18.9 21.8
Cash Flow Abstract (Rs m) Quarterly Financials (Rs m)
Y/e March 2017 2018 2019E 2020E Y/e March Q4FY17 Q1FY18 Q2FY18 Q3FY18
C/F from Operations 4,830 3,621 5,351 4,447 Net Revenue 20,351 19,446 10,367 13,747
C/F from Investing (738) (294) (300) (300) EBITDA 2,219 2,123 857 1,186
C/F from Financing (2,110) (3,388) (1,826) (2,155) % of revenue 10.9 10.9 8.3 8.6
Inc. / Dec. in Cash 1,982 (61) 3,226 1,992 Depr. & Amortization 56 61 61 61
Opening Cash 1,699 3,132 3,070 6,296 Net Interest 58 35 22 19
Closing Cash 3,132 3,070 6,296 8,288 Other Income 386 550 512 170
FCFF 5,650 3,361 5,050 3,985 Profit before Tax 2,493 2,596 1,287 1,277
FCFE 4,759 1,652 5,050 3,985 Total Tax 496 727 343 301
Profit after Tax 1,991 1,836 954 1,004
Adj. PAT 1,989 1,816 954 1,004
Source: Company Data, PL Research.
Key Financial Metrics
Y/e March 2017 2018 2019E 2020E
Growth
Revenue (%) 5.5 14.6 14.2 15.3
EBITDA (%) 33.8 15.8 15.4 15.3
PAT (%) 50.7 9.1 8.0 15.5
EPS (%) 50.7 9.1 8.0 15.5
Profitability
EBITDA Margin (%) 9.6 9.7 9.8 9.8
PAT Margin (%) 8.8 8.4 7.9 7.9
RoCE (%) 17.4 15.9 15.8 16.2
RoE (%) 18.5 16.5 15.9 16.4
Balance Sheet
Net Debt : Equity — (0.1) (0.2) (0.2)
Net Wrkng Cap. (days) (6) (5) (5) 4
Valuation
PER (x) 36.3 33.2 30.8 26.6
P / B (x) 5.8 5.2 4.6 4.1
EV / EBITDA (x) 32.9 28.2 24.0 20.6
EV / Sales (x) 3.2 2.7 2.4 2.0
Earnings Quality
Eff. Tax Rate 28.3 30.0 33.0 32.5
Other Inc / PBT 27.1 21.9 20.3 19.6
Eff. Depr. Rate (%) 4.3 5.0 5.0 5.0
FCFE / PAT 89.9 28.6 80.9 55.3
Source: Company Data, PL Research.
February 26, 2018 4
Voltas
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Rating Distribution of Research Coverage PL’s Recommendation Nomenclature
Reduce : Underperformance to Sensex over 12‐months
30% Sell : Over 15% underperformance to Sensex over 12‐months
20% Trading Buy : Over 10% absolute upside in 1‐month
11.7%
10% Trading Sell : Over 10% absolute decline in 1‐month
0.0% Not Rated (NR) : No specific call on the stock
0%
BUY Accumulate Reduce Sell Under Review (UR) : Rating likely to change shortly
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Date: 2018.02.26 15:07:18 +05'30'