Tremendous potential of its order book, increasing its product range, revenue generation of its MEP projects, and a sharper margins growth forms the basis of the investment argument for Voltas.

Investonomics

a) Order book: Voltas reported a current order book of Rs 35 billion, which is a 44% y-o-y increase and 30% q-o-q. This order book includes Rs 800 crore from domestic markets and Rs 2700 crore from international orders. The company?s domestic and international orders are executable over a period of 12-15 months and 24-36 months respectively.

b) Products, distribution : The company?s portfolio includes several new product ranges for consumers – the Vertis ?Panache?, with the DC Inverter Technology AC and a Heating-Cooling function; the Vertis ?Elan?; the Vertis ?Elite?; the new-look Vertis Gold, the flagship Vertis Plus, and, the Vertis ?Pristine?, the first Corner AC to be seen in India. Voltas announced the launch of a total of 42 new models this year. The company?s Star Rated ACs provide a power-efficient, money-saving option. The AC market, estimated to be 20 lakh units (window and split) in 2007, is growing at a robust rate of 30% per annum. With the launch of Star Rated ACs last year, Voltas gained market share and currently sells around one out of every six ACs sold in India, resulting in a 17% market share.

Voltas has an extensive distribution network of exclusive sales and service dealers in the country, in addition to being available at all leading retail and consumer electronics stores. With a stated target of achieving 20% market share, the company has put in place an aggressive distribution strategy to increase the number of channel partners from the current 2000 to about 3000 next year. Voltas is also investing around 2% of its turnover in beefing up its service infrastructure.

c) Project strengths :Voltas is a part of the international JV undertaking the MEP (Mechanical, Electrical & Public Health) of the world?s tallest high-rise building – Dubai?s Burj Tower. Its scope of MEP works covers:

Mechanical: Complete HVAC Systems on the low side, including air handling and fan coil units, heat exchangers, pumps and air distribution to the tower building.

Electrical: Complete electrical systems including incoming power service, 11 KV transformers, standby generators, auto transfer switches, power distribution switchgear, motor control centres, distribution boards, containment, and cabling.

Specialist ELV Systems: Security, fire alarm guard tour, PA system, building intercom, emergency lighting, BMS, and CCTV.

Plumbing: Drainage, waste and vent systems, including the necessary piping and distribution, fire fighting systems such as sprinkler and FM 200 protection, and LPG systems, including storage tanks and distribution.

Its other projects include the Emirates Mall, the worlds biggest mall beyond North America, Hong Kong airport, and Emirates Palace Hotel. The company through project work has a presence in 31 countries. These projects along with collaboration with Fedders International Air-conditioning Pvt Ltd (FIACPL), a subsidiary of Fedders Corporation, USA, by forming a 50:50 JV company Universal Comfort Products Ltd (UCPL), would add to the product-making skills of the company.

d) Financials : Voltas reported a topline of Rs 670 crore, growth of 16.8% y-o-y, for Q3FY08. The company?s EBIDTA margin increased by 348bps to 8.3%. It reported a PAT of Rs 47 crore, a growth of 52.6% y-o-y and 45.9% q-o-q basis. The company, in the last five years, has demonstrated a handsome performance. As of March 2007, the company has a RoCE and RONW of around 50% and 48% respectively.

It derives more than 50% of its revenues from the electromechanical segment, while the rest comes from unitary cooling and engineering.

The company

Voltas offers engineering solutions for a wide spectrum of industries in areas such as heating, ventilation and air conditioning, refrigeration, electro-mechanical projects, textile machinery, machine tools, mining and construction equipment, materials handling, water management, building management systems, indoor air quality, and chemicals.

The company?s strengths lie principally in the design and manufacture of industrial equipment; management and execution of air conditioning and public works projects; sourcing, installation and servicing of technology-based systems; and representation of global technology leaders, serving diverse industrial sectors, and applications.

Investment concerns

a) Textile impact

Although sales for this segment grew by more than 32% y-o-y, the company?s EBIT margin contracted by 292bps during the same period. This fall in margin can be attributed to increase in sales of mining and construction equipment, and slowdown of sales in textile manufacturing equipment.

Typically, mining and construction equipment have an EBIT margin of 15-20% as compared to textile manufacturing equipment, which has an EBIT margin of 25-28%. The slowdown in the textile industry is expected to continue for some more time. However, the mining industry demand is expected be robust.