COMPANY BACKGROUND AND BUSINESS MODEL
Voltas Ltd., is a Tata Group company having presence in the air cooling product space as well as in electromechanical projects in both India & Middle East. Over the years, Voltas has built a strong brand through innovation and climbed up in market share in its products business. The project business, over the last 3 years or so, bore the brunt of the global slowdown leading to delays, increase in legacy costs as well as cash crunch. Since then, Voltas has written down majority of the impact of legacy projects. The management is now focused on projects where there is certainty of completion and a regular payment schedule. We believe the change of winds in the economic scenario in India coupled with company's Vision 2020 of Driving value through smart engineering? will lead the company to register higher growth in the coming 2 to 3 years.
Voltas is a market leader in the room air conditioner space. Innovation has helped the brand create a product differentiator and helped improve the product mix in favour better profitability. Air-cooler business initiative to add to the growth of the company in the coming years. The projects business has seen the ups and downs of the global business cycles. We expect demonetisation to impact the demand in the coming quarter, but expect it to fade away by the time peak season sets in and pent up demand trickles in. Investment in smart cities, metros and IT/ITeS are great business opportunities for Voltas. On the international business front the company is now prioritizing projects where timelines are fixed, margins are above the 4-5% threshold level and payments are faster. At the CMP of Rs326/- the stock trades at 25x its TTM EPS of Rs13.0/-. We believe while the coming quarters will be challenging but the pent-up demand from the postponement of purchase by consumer on account of demonetisation, healthy peak season demand & revival in EMP business augurs well for the company. Hence we are POSITIVE on the stock.
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