Retain ‘outperform’ on Voltas and raise target price to R340, as we roll forward to September 2015. we value the company’s consumer business at 28x P/E, the construction business at 22x P/E and the agency business at 15x to arrive at the price target.
While Voltas’ stock has outperformed Nifty by 121% over the past 12 months, We believe the strength of its consumer business is still under-appreciated, given the valuation gap versus consumer discretionary firms. Management has indicated that the company evaluates opportunities to enter into newer white-goods segments from time to time, although there appears to be no such plan at the moment. The company now commands a 22.3% market share in the retail air-conditioner segment.
Voltas’ lagging projects business is likely to turn around over the next few quarters. Management’s guidance that Voltas’ legacy orders are likely to be liquidated over the next 2-3 quarters reinforces our belief. Further, we note that the share of the legacy order book now stands at R250 crore (less than 7% of the total order book). Management indicated that all new orders are being bid at an ebit margin of at least 5%. We believe these orders should start reflecting in margins from FY16.
By Standard Chartered