Sales were below estimates due to miss in all segments (especially EMP). But EPS beat on higher other income and exceptionally strong EPS EBIT margins. EMP revenue declined 15% y-y owning to slower-than-expected progress in certain projects. EPS revenues fell 22% y-y; however, stronger margins (+510bps y-y) largely offset any bottom-line impact. UCP revenue growth at 13% y-y is weaker than estimated 30% with EBIT margins ~100bps lower than estimate.
However decline in receivable and inventory highlight strong FCF generation with the company now net cash in 1HFY17 against a net debt position in FY16. Sales at Rs 9.8 billion (-6% y-y) were 14%/17% below consensus/our estimates. Ebitda at Rs 0.69 billion (+6% y-y) came in 3%/10% below consensus/our estimates. PAT at Rs 0.72 billion (+7% y-y) was 19%/2% ahead of consensus/our estimates on higher other income.
The FCF increase is positive despite disappointing headline numbers. We await further commentary from management on sustainability of room AC volume growth and margins, especially in context of recent demonetisation of high denomination currency notes.
Voltas has turned from a net debt level of 626 million at end-FY16 to a net cash position of R170 million at 1HFY17 highlighting R800 million of FCF generation. Conversion of earnings into cash generation is a key positive in our view.