Project revenues/margins continued to be impacted in FY14, led by tepid pace of project execution and profits not being booked in new projects bagged with higher margins as they are yet to achieve 25% margin recognition threshold. Sidra project is 95% complete now; and the management stated that margins on new projects are in excess of 5% range.
Also, ~65-65% of the MEP order book comprises new projects, where the execution period is ~15-18 months.
Unitary cooling business reported robust performance in FY14 with 12% revenue growth in FY14, and margins at 12.3% (up 330 bps y-o-y), and maintained its market leadership position with 20% market share.
Margins were being supported by scale economies, improved product quality (leading to lower warranty provisions), better product mix (with split ACs contributing 73-74% of sales) and operational efficiency. Margins going forward are expected at low double digit vs the earlier expectations of ~9%.
4QFY14 order book at R3,600 crore; book-to-bill at 1.3x: Order book at the end of 4QFY14 was at Rs 3,600 crore against Rs 3,700 crore at the end of 4QFY13. Book-to-bill stood at 1.3x. Focus continues to be on bagging orders with Ebit margin in excess of 5%.
Overall sentiment across domestic operations (44% of order book) awaits macro push. Outlook for GCC nations is set to improve, as first-stage tendering activity for mega capex related to FIFA World Cup has started. Voltas trades at 20x FY16E EPS of INR10.3 and 16.2x FY17E EPS of INR12.7. Maintain ‘buy’.
Motilal Oswal Fin Services