1. Voltas stock rated Buy by Edelweiss, says company well prepared to tap new opportunities

Voltas stock rated Buy by Edelweiss, says company well prepared to tap new opportunities

Our recent interaction with Voltas’ (VOLT) top management instills confidence in VOLT’s long-term growth prospects. Key highlights:

By: | Updated: December 2, 2017 1:39 AM
voltas, edelweiss, new opportunities, VOLT, European market As VOLT targets new -7 bn white goods market, apart from ACs, management is planning to commence manufacturing over 16-18 months with a comprehensive SKU range.

Our recent interaction with Voltas’ (VOLT) top management instills confidence in VOLT’s long-term growth prospects. Key highlights: (i) targeting significant market share in the JV business (white goods) over  3-5 years leveraging its strong 14K plus touch points in cooling business, which will be enhanced to 20K; (ii) strong distribution ramp up will help up its competitive ante vs peers (especially MNCs) in large retail stores; and (iii) low penetration in AC, refrigerators & washing machines augurs well for VOLT’s target category (mid-segment). We retain our optimism on VOLT as the target market catapults to Rs 705 bn (AC+white goods) by FY20E from current Rs 150 bn (in ACs). This is envisaged to trigger significant ramp-up in white goods revenue, generating significant shareholder returns post FY19. Maintain Buy with revised TP of Rs 700 (Rs 620 earlier) maintaining 20% premium to sector PE of 35, which stands re-rated given strong 35/18% FCF/EPS CAGR over FY17-19E.

Well geared to tackle new business challenges: As VOLT targets new $5-7 bn white goods market, apart from ACs, management is planning to commence manufacturing over 16-18 months with a comprehensive SKU range. We believe, the company’s deep insights in target consumer segment will help it draw a prudent strategy in new segments, which are 2-3x larger in size currently.
Strong products to complement distribution franchise: Given strong product positioning of Arcelik in the European market, management expects the JV to have a strong product portfolio.

Outlook & valuations: From being a single-product company (market leader in AC) to a multi-product (launch of 4 products with the VOLT-Arcelik JV), we believe VOLT is well placed to leverage its strong distribution network to capitalise on this new opportunity. Maintain’BUY/SO’.

 

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