Voltas Rating: Buy; results were well ahead of estimates

Growth visibility high for ACs; FY21-23 EPS up 9-10%; TP up to Rs 1274; ‘Buy’ retained

Written by Nomura

February 22, 2021 04:15 IST

Overall, we raise revenue estimates by +4%/9%/13% and EPS by ~9-10% for FY21-23F.

VOLT’s Q3FY21 revenue/Ebitda at Rs 20/1.5 bn came in significantly ahead of our forecasts (Rs 17/1.1 bn) and Bloomberg consensus (Rs 16.6/1.1 bn). AC business was strong with revenue growth/Ebit margin at 40% y-y/12.5%, well ahead of peers. VOLT’s share remained stable at 26% in 9MFY21 (24.2% in FY20) while it achieved leadership in inverter ACs with 21.8% share in Dec 2020. The project business reported 26% y-y revenue growth (Ebit margin 3.2%) and order book increased further to Rs 72.5 bn.

Management commentary: Healthy momentum continued in ACs in Q4, and price hikes of 5-6% in Jan 2021 are sufficient to protect margins. Beko billing points increased to 1000+ and there is significant demand pull from trade.

Production linked incentive (PLI) scheme envisages incremental production of Rs 1.7 trn and Rs 644 bn of exports, mainly ACs, over a five-year period with 4-6% incentive. This can aid VOLT’s Ebit by >7% and has strong potential for exports for ACs from India, as well. For VOLT’s room AC business, we now forecast revenue to decline 12% y-o-y in FY21F (-16% earlier) and maintain 53%/20% y-o-y growth for FY22/23F. Overall, we raise revenue estimates by +4%/9%/13% and EPS by ~9-10% for FY21-23F.

Valuation: SOTP-based TP of Rs 1,274 (Rs 1,110 earlier)— We raise our target PE for the UCP business to 50x (45x earlier), led by market-share gains and upside potential from the PLI scheme. We maintain 13x/15x target P/E for project/service business and Rs 127 for VoltBek (based on DCF). The stock is currently trading at 30.5x FY23F EPS (adjusted for Beko), which in our view is attractive. Reiterate Buy.

This article was first uploaded on February twenty-two, twenty twenty-one, at fifteen minutes past four in the morning.