Voltas’ Q4FY15 Ebitda came in 43% above expectations. Strong unitary cooling segment margins, primarily air-conditioners (AC), drove this. MEP margins continue its gradual recovery. Voltas’ entry into air-coolers, where it will leverage on its existing AC distribution strength, provides a strong growth avenue. We have raised our FY16-17e EPS by 4-5% and maintain buy with a revised target price of R375.
Voltas will foray into the R2,000 crore air-coolers industry in India. This segment could provide positive earnings surprise scope over the next 12-24 months, esp. given the superior margin profile of 15%+ levels versus current annual AC margins of 12-14%. Every 5% market share gain in air-coolers at 15% margin could add 3-5% to EPS expectations.
Voltas’ has maintained its leadership position at 21% share without margin compromise. Interestingly, Voltas’ ACs versus comparable peers, are not materially more expensive and are better priced in some tonnage and energy efficient segments.
Voltas’ MEP segment has seen its margins come in at 0.7% versus -2.0% y-o-y. As lower margin orders gradually complete execution, we believe H2FY16e will see margins trending closer to 5%.
Voltas is a good play on consumer and investment themes in India, as FY16-17e should see more normalised levels in MEP.
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