Domestic business remains weak and looks unlikely to improve given the poor macro conditions. However, management said it had learned from its past mistakes in the Middle East projects business, and this could help the company to recover, albeit at a slow pace. While margins are likely to stay low (5-7%), moving into execution of fresh orders will help reduce the earnings drag (Voltas is negotiating new orders in the Middle East). Hence, while we have cut our EPS forecasts by 13% over FY13-16 and are 22-23% below consensus.
We retain neutral rating with a target price of R74, down 13%. We retain our target PE of 10.9x (1 SD below the long-term mean). Our revised outlook of limited prospects for EPS downgrades suggests stock is unlikely to trade meaningfully below its current valuation.