- Results better‐than‐expected: Voltas reported sales ahead of estimates, with improved execution at Rs16.12bn, growth of 19.8% y-o-y. The growth surprise came from the UCP segment which grew by 34% y-o-y (~Rs7.54bn), Electro-mechanical Projects & Services (MEP) segment grew by 9.5% y-o-y (~Rs7.41bn) and Engineering Products & Services (EPS) grew by 9.6% y-o-y (~Rs1.07bn). EBITDA margins declined by 240bps y-o-y and 310 bps q-o-q at 5.5%. MEP segment reported EBIT margin of 4.5% (100bps down y-o-y), UCP segment reported EBIT margin of 8.4% (down by 290bps y-o-y) and EPS segment reported 18.2% (up by 70bps y-o-y). The other income increased by robust 87% y-o-y on account of income from investments and debentures and Rs110m exchange rate gain. Reported PAT de-grew by 40% y-o-y at Rs790m, better than the expectation of Rs642m. However, adjusted PAT grew by 6.2% y-o-y at Rs780m.
- Improved order booking: Voltas ended the year with flattish growth on order book at Rs45.74bn. The domestic market contributed Rs21.93bn (up 14% y-o-y) and export market contributed ~Rs23.81bn (down 10% y-o-y) to overall order book. The orders received in this quarter stood at ~Rs7.69bn (up 2.8x y-o-y) which includes Rs3.48bn from international market and Rs4.21bn from domestic market. 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 airport order has been finalised and soon the sub-contractors would be appointed by October (Voltas along with JV partner bid for the same). Also, there has been US$4.6bn worth infusion into ALDAR, the primary real estate developer in Abu Dhabi. Few tenders are also in the process of being funded in Qatar for the upcoming FIFA 2022 and expected to be released from Q3 onwards. In domestic markets, 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.
Outlook and Valuation: The stock is trading at 10.8x FY14E earnings. The worst might be behind us, given that the pain on Sidra project has already been accounted for and RIE is likely to break-even in FY13. The outlook on orders looks bright, given the increased reach in terms of geography in international markets and business segments in the domestic market. This should help order flow once the cycle turns. Accumulate
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- Voltas reports subdued performance but stock strong, buy for 21% upside
- Voltas Q2FY15: Strong performance-once again driven by UCP
- Q2FY15 Preview: Accumulate Thermax and Voltas
- Voltas: Domestic order book stands at Rs12 bn, buy
- Voltas FY14: Products lead growth; Projects weigh on profits
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