Voltas impacted by demonetisation, but trend of improving profitability to continue: Jefferies

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Published: February 16, 2017 4:37:19 AM

Demonetisation has impacted Voltas’ Unitary Cooling Products, i.e., primarily air-conditioner segment.

Demonetisation has impacted Voltas’ Unitary Cooling Products, i.e., primarily air-conditioner segment.

However, revenues were lower only by 5% y-o-y v/s our expectations of 20% decline. Electromechanical projects segment has positively surprised with EBIT margins of 3.9% v/s 1% q-o-q and -0.6% y-o-y.

Management, in its press release, highlighted that short-term impact of demonetisation has weakened consumer and business sentiment. Segment revenues came in 5% lower y-o-y, with EBIT margins lower by 110 bps y-o-y at 10.6%.

Q3FY17 saw the impact of demonetisation. However, revenues declined lower than our expectations of 20% y-o-y.

Our industry interactions currently suggest Q4 is seeing normalisation post demonetisation and also pick-up in inquiries in line with seasonal trends.

Voltas management has been consciously focusing on profitability v/s revenue growth in this segment. Order book has risen by 15% y-o-y to R42 billion. Margins came in at 3.9% v/s -0.6% y-o-y and 1.0% q-o-q.

This has clearly contributed to the EBITDA beat v/s expectations.

Given the lumpy nature of this business and as low margin legacy orders have been gradually executed, we believe next 12-18 months will see this improving profitability trend continue.

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