Voltas

Buy

Weak Q4: FY20 appears more sanguine; Maintain Buy CMP ` 573
Q4 was a weak quarter in both RAC and projects business. We believe FY20
should be a normal year on the back of Q1FY20, which is expected to be Target / Upside ` 690 / 20%
good on the back of good summer- a fact corroborated by competitors and BSE Sensex 37,394
channel checks. While project business suffered due to quarterly quirks, it NSE Nifty 11,279
was decent on a FY basis. With FY20 expected to be normal, we expect
balance sheet, currently expanded due to working capital, to improve as Scrip Details
well. We continue to like the structural penetration story of ACs and Equity / FV ` 331mn / ` 1
believe Voltas is the best way to play this. We maintain our Buy valuing it
at 29x for FY21E with a TP of ` 690. Market Cap ` 192bn
US$ 3bn
Q4 number lower than estimates; working capital expands on inventory
Revenues remained flat at ` 20,628mn during the quarter, while EBITDA 52-week High/Low ` 642/` 476
declined by 43% YoY to ` 1,443mn in Q4. EBITDA margins sharply Avg. Volume (no) 1,661,960
decreased by 536bps YoY to 7%, sequentially de-grew by 76bps. PAT down
by 27% YoY to ` 1,417mn, after adjusting `193mn for loss of JV, PAT de- NSE Symbol VOLTAS
grew by 17% YoY to `1611 in Q4. UCP segment revenues came at ` Bloomberg Code VOLT IN
9,976mn v/s ` 10,645mn, represented a YoY de-growth of 6% in Q4 where
margins contracted by 680bps YoY to 10.4%. EMP segment revenue grew Shareholding Pattern Mar'19(%)
by 12% YoY to ` 9,760mn with EBIT margin at 4.5%, de-grew by 310bps Promoters 30.3
Result Update

YoY. Order book stood at ` 50bn as compared to ` 51bn in FY18. Working MF/Banks/FIs 23.4
capital was higher mainly due to UCP inventory days increasing 35 days.
FIIs 14.8
Improved market share in FY19 and sanguine outlook for FY20
Company’s RAC growth was flat for Q4 and FY19, while industry de-grew Public / Others 31.5
by 3%. Despite an erratic summer which led to a bad year and higher
inventory at channels, company could increase its market share from 22.1 Valuation (x)
to 23.9% (yoy) in FY19. Q1FY20 outlook is positive and FY20 should be FY19A FY20E FY21E
normal year- a fact corroborated by competitors and channel checks., P/E 37.4 28.4 24.5
VOLT maintained the margins for full year at 10-11% for UCP and 7-8% for
EMP in FY20. Pricing actions wholly depend on competitive intensity as EV/EBITDA 29.4 22.7 20.6
stated by the management. ROE (%) 12.8 16.1 17.2
Remains our preferred RAC pick. Maintain Buy RoACE (%) 14.5 16.3 17.2
The weak Q4 has led us to slightly decrease our EBITDA/PAT estimate for
FY20 by 4%/3%, though we retain our topline estimates. We continue to
like the structural penetration story of ACs and believe Voltas is the best Estimates (` mn)
way to play this. We maintain our Buy valuing it at 29x for FY21E with a TP FY19A FY20E FY21E
of ` 690. Revenue 71,241 80,423 92,912
EBITDA 6,117 7,721 8,362
Q4FY19 Result (` Mn)
PAT 5,139 6,763 7,827
Particulars Q4FY19 Q4FY18 YoY (%) Q3FY19 QoQ (%)
EPS (`) 15.5 20.4 23.6
Revenue 20,628 20,484 0.7 14,918 38.3
Total Expense 19,185 17,952 6.9 13,761 39.4
EBITDA 1,443 2,532 (43.0) 1,157 24.8
Depreciation 59 61 (2.3) 62 (3.7)
EBIT 1,384 2,471 (44.0) 1,095 26.4
Other Income 572 438 30.6 548 4.4 VP Research: Vinod Chari
Interest 106 43 144.9 132 (19.7) Tel: +91 22 40969779
EBT 1,849 2,852 (44.0) 1,393 32.8 E-mail: vinodc@dolatcapital.com
Tax 239 900 (73.5) 304 (21.6)
RPAT 1,417 1,942 (27.0) 781 81.5
Associate: Monali Jain, CA
APAT 1,417 1,942 (27.0) 899 57.7 Tel: +91 22 40969722
(bps) (bps) E-mail: monalij@dolatcapital.com
Gross Margin (%) 23.5 26.7 (326) 26.9 (344)
EBITDA Margin (%) 7.0 12.4 (536) 7.8 (76)
NPM (%) 6.9 9.5 (261) 5.2 164
Tax Rate (%) 12.9 31.6 (1865) 21.8 (894)
EBIT Margin (%) 6.7 12.1 (535) 7.3 (63)

May 13, 2019

 Segmental Performance (` Mn)
Segmental Q4FY19 Q4FY18 YoY(%) Q3FY19 QoQ(%) FY19 FY18 Chg (%)
Revenue
Electro mechanical projects 9,760 8,735 12 8,752 12 36,191 28,452 27
Engineering products and services 784 834 (6) 832 (6) 3,116 3,099 1
Unitary Cooling Products and Comfort and 9,976 10,645 (6) 5,259 90 31,556 32,261 (2)
commercial use
Less: Inter segmental Revenue 0 2 10 5 (100) 13 10 36
Total 20,520 20,213 2 14,839 38 70,849 63,803 11
EBIT
Electro mechanical projects 441 665 (34) 692 (36) 2,773 1,854 50
Engineering products and services 274 249 10 219 25 1,051 992 6
Unitary Cooling Products and Comfort and 1,037 1,830 (43) 447 132 3,254 4,748 (31)
commercial use
EBIT Margin (%)

Electro mechanical projects 5 8 (310) 8 (43) 8 7 115

Engineering products and services 35 30 512 26 33 34 32 171
Unitary Cooling Products and Comfort and 10 17 (680) 8 22 10 15 (441)
commercial use
Segment Capital employed
Electro mechanical projects 9,303 6,977 33 9,182 1 33,373 28,540 17
Engineering products and services 654 679 (4) 551 19 2,571 2,675 (4)
Unitary Cooling Products and Comfort and 5,556 2,499 122 7,751 (28) 23,693 8,346 184
commercial use
Un allocable 25,935 29,215 (11) 22,210 17 101,247 107,956 (6)
Source: DART, Company

Variance from our Estimates (%)

Particulars Q4FY19 Q4FY19E Var (%)
Sales 20,628 21,082 (2)
EBITDA 1,443 2,424 (40)
EBITDA margins 7.0 11.5 (450)
PAT 1,417 1,963 (28)
Pat margins 6.9 9.3 (244)
EPS 4.3 6.0 (29)
Source: DART, Company

Change in Estimates (%)

(` Mn) FY20E FY21E
Earlier New Var (%) Earlier New Var (%)
Sales 80,179 80,423 0 92,727 92,912 0
EBITDA 8,018 7,721 (4) 8,410 8,362 (1)
PAT 6,969 6,763 (3) 7,789 7,826 0
EPS (`) 21.1 20.4 (3) 23.5 23.7 1
Source: DART, Company

May 13, 2019 2

 Sales and QoQ growth (%) EBITDA and QoQ growth (%)
25 100 3,000 250()
80 2,500 200
20 60
2,000 150
15 40 100
20 1,500
10 0 50
1,000 0
5 (20)
(40) 500 (50)
0 (60) 0 (100)
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19

Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Sales(`in Bn) LHS QoQ (%) RHS EBITDA (` In Mn) LHS QoQ (%) RHS

Source: DART, Company Source: DART, Company

Trend in Margin (%) Net profit and QoQ growth (%)

16 2,500 12
14 2,000 10
12 8
10 1,500
6
8 1,000
4
6
500 2
4
2 0 0
Q1FY17
Q4FY16

Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19

EBITDA margin Net Profit margin Net Profit(`. In Mn) LHS QoQ (%) RHS

Source: DART, Company Source: DART, Company

Segmental EBIT margins (%) Order Book and Order inflow (` in mn)
50 20 60,000
40 15 50,000
30
10 40,000
20
10 5 30,000

0 0 20,000
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19

10,000

0
Electro Mechanical projects and services FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19
Engineering products and services
Untlity cooling business (LHS) Order inflow Order Book

Source: DART, Company Source: DART, Company

May 13, 2019 3

 Profit and Loss Account
(` Mn) FY18A FY19A FY20E FY21E
Revenue 64,044 71,241 80,423 92,912
Total Expense 57,417 65,124 72,703 84,549
COGS 45,675 52,622 58,629 67,825
Employees Cost 5,867 6,419 7,238 8,362
Other expenses 5,875 6,083 6,836 8,362
EBIDTA 6,626 6,117 7,721 8,362
Depreciation 244 240 293 310
EBIT 6,383 5,877 7,428 8,052
Interest 119 330 382 266
Other Income 1,741 1,863 2,413 3,159
Exc. / E.O. items 6 (118) 0 0
EBT 8,011 7,292 9,459 10,945
Tax 2,270 1,635 2,696 3,119
RPAT 5,779 5,139 6,763 7,827
Minority Interest (38) 518 0 0
Profit/Loss share of associates 0 0 0 1
APAT 5,779 5,139 6,763 7,828

Balance Sheet
(` Mn) FY18A FY19A FY20E FY21E
Sources of Funds
Equity Capital 331 331 331 331
Minority Interest 317 348 348 348
Reserves & Surplus 38,721 40,769 42,429 47,973
Net Worth 39,052 41,100 42,760 48,304
Total Debt 1,423 3,147 2,011 2,416
Net Deferred Tax Liability (46) (992) (992) (992)
Total Capital Employed 40,747 43,602 44,126 50,075

Applications of Funds
Net Block 2,972 3,430 3,145 3,305
CWIP 41 157 157 157
Investments 22,660 11,502 12,002 12,502
Current Assets, Loans & Advances 47,246 59,072 64,680 74,899
Inventories 8,130 10,907 11,288 13,059
Receivables 15,703 18,032 19,169 21,764
Cash and Bank Balances 2,837 3,211 2,309 1,862
Loans and Advances 48 116 164 190
Other Current Assets 15,652 14,450 15,392 17,668

Less: Current Liabilities & Provisions 32,182 30,560 35,858 40,787

Payables 21,774 23,745 26,492 30,577
Other Current Liabilities 10,408 6,815 9,366 10,211

Net Current Assets 15,065 28,512 28,822 34,111

Total Assets 40,747 43,601 44,126 50,075
E – Estimates

May 13, 2019 4

 Important Ratios
Particulars FY18A FY19A FY20E FY21E
(A) Margins (%)
Gross Profit Margin 28.7 26.1 27.1 27.0
EBIDTA Margin 10.3 8.6 9.6 9.0
EBIT Margin 10.0 8.2 9.2 8.7
Tax rate 28.3 22.4 28.5 28.5
Net Profit Margin 9.0 7.2 8.4 8.4
(B) As Percentage of Net Sales (%)
COGS 71.3 73.9 72.9 73.0
Employee 9.2 9.0 9.0 9.0
Other 9.2 8.5 8.5 9.0
(C) Measure of Financial Status
Gross Debt / Equity 0.0 0.1 0.0 0.1
Interest Coverage 53.5 17.8 19.4 30.3
Inventory days 46 56 51 51
Debtors days 89 92 87 86
Average Cost of Debt 7.6 14.4 14.8 12.0
Payable days 124 122 120 120
Working Capital days 86 146 131 134
FA T/O 21.6 20.8 25.6 28.1
(D) Measures of Investment
AEPS (`) 17.5 15.5 20.4 23.6
CEPS (`) 18.2 16.2 21.3 24.6
DPS (`) 4.2 4.0 5.7 6.9
Dividend Payout (%) 24.1 25.7 28.1 29.2
BVPS (`) 118.0 124.2 129.2 145.9
RoANW (%) 16.0 12.8 16.1 17.2
RoACE (%) 15.5 14.5 16.3 17.2
RoAIC (%) 18.4 15.0 18.1 17.9
(E) Valuation Ratios
CMP (`) 580 580 580 580
P/E 33.2 37.4 28.4 24.5
Mcap (` Mn) 191,997 191,997 191,997 191,997
MCap/ Sales 3.0 2.7 2.4 2.1
EV 185,706 179,575 175,341 172,194
EV/Sales 2.9 2.5 2.2 1.9
EV/EBITDA 28.0 29.4 22.7 20.6
P/BV 4.9 4.7 4.5 4.0
Dividend Yield (%) 0.7 0.7 1.0 1.2
(F) Growth Rate (%)
Revenue 6.2 11.2 12.9 15.5
EBITDA 16.9 (7.7) 26.2 8.3
EBIT 17.7 (7.9) 26.4 8.4
PBT 8.3 (9.0) 29.7 15.7
APAT 11.2 (11.1) 31.6 15.7
EPS 11.2 (11.1) 31.6 15.7

Cash Flow
(` Mn) FY18A FY19A FY20E FY21E
CFO 4,604 754 11,128 7,113
CFI (5,109) 2,863 (4,507) (4,970)
CFF (1,800) 71 (3,420) (2,143)
FCFF 6,180 (3,055) 7,784 6,507
Opening Cash 3,313 2,836 3,205 2,309
Closing Cash 2,836 3,205 2,309 1,862
E – Estimates

May 13, 2019 5

 DART RATING MATRIX
Total Return Expectation (12 Months)
Buy > 20%
Accumulate 10 to 20%
Reduce 0 to 10%
Sell < 0%

Rating and Target Price History

Month Rating TP (`) Price (`)

(`)
VOLT Target Price Mar-18 Buy 693 625
760
May-18 Buy 650 544
700 Aug-18 Buy 750 621
Nov-18 Buy 668 523
640
Feb-19 Buy 668 522
580

520

460
Jul-18
Nov-17
Dec-17
Jan-18

Jun-18

Aug-18
Sep-18

Nov-18
Dec-18
Jan-19
Feb-18
Mar-18
Apr-18

Oct-18

Feb-19
Mar-19
May-18

Apr-19
May-19

*Price as on recommendation date

DART Team
Purvag Shah Managing Director purvag@dolatcapital.com +9122 4096 9747

Amit Khurana, CFA Head of Equities amit@dolatcapital.com +9122 4096 9745

CONTACT DETAILS

Equity Sales Designation E-mail Direct Lines

Dinesh Bajaj VP - Equity Sales dineshb@dolatcapital.com +9122 4096 9709
Kartik Sadagopan VP - Equity Sales kartiks@dolatcapital.com +9122 4096 9762
Kapil Yadav VP - Equity Sales kapil@dolatcapital.com +9122 4096 9735
Ashwani Kandoi AVP – Equity Sales ashwanik@dolatcapital.com +9122 4096 9725
Lekha Nahar Manager – Equity Sales lekhan@dolatcapital.com +9122 4096 9740
Equity Trading Designation E-mail
P. Sridhar SVP and Head of Sales Trading sridhar@dolatcapital.com +9122 4096 9728
Chandrakant Ware VP - Sales Trading chandrakant@dolatcapital.com +9122 4096 9707
Shirish Thakkar VP - Head Domestic Derivatives Sales Trading shirisht@dolatcapital.com +9122 4096 9702
Kartik Mehta Asia Head Derivatives kartikm@dolatcapital.com +9122 4096 9715
Bhavin Mehta VP - Derivatives Strategist bhavinm@dolatcapital.com +9122 4096 9705

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