Date: 3 April 2020

Price: Rs. 472

Voltas Limited is the one of the India’s largest air conditioning company. The Company is also one of the most reputed engineering solution providers specializing in project management. The Company also provides its expertise across Technology, Engineering, Construction, Cooling and Ventilation, Infrastructure Projects, Textile, Mining and Manufacturing sectors.

Voltas benefits from its strong parentage, by being a part of the Tata Group, which holds 30.30% stake in the company.

Business Segments

[1] Unitary Cooling Products

Voltas maintained market leadership position in the room AC segment with a market share of 24.3% in Q3FY20 at multi-branded outlets. Inverter ACs account for 43% of its total AC sales. Voltas now third largest air cooler market with market share of ~11%.

[2] Electro-mechanical projects & services

EMPS segment order book was up 40% YoY to Rs. 7024 Cr. during Q3. Order inflow during the quarter was at Rs. 1247 Cr. of which Rs. 1077 Cr. was from domestic orders. The Company’s international order book was at Rs. 2715 Cr. with ~ Rs. 170 Cr. order booking during the period.

[3] VoltBek

In 9MFY20, the JV sold ~2,20,000 units of consumer appliances (Washing machines, refrigerators, dishwashers and microwave). The new plant at Ahmadabad is ready to roll out home appliances like refrigerators and washing machines. The plant capacity is scalable to 2.5 million units from current 1 million units.

On 5^th March 2020, the Company announced the opening of its first manufacturing facility in India. Spread over 60 acres in Sanand, Gujarat, the factory will manufacture Home Appliances that include refrigerators and washing machines.

Financial Position

Particulars	FY15	FY16	FY17	FY18	FY19
Revenue (In Rs. Cr.)	5,183.09	5,719.81	6,032.80	6,404.38	7,124.07
Growth	–	10.36%	5.47%	6.16%	11.24%
EBITDA (In Rs. Cr.)	410.04	432.97	566.89	662.64	611.71
EBITDA Margin	7.91%	7.57%	9.40%	10.35%	8.59%
EBIT (In Rs. Cr.)	368.43	390.39	524.64	617.80	566.48
EBIT Margin	7.11%	6.83%	8.70%	9.65%	7.95%
PBT (In Rs. Cr.)	513.65	556.46	739.52	801.11	729.23
PAT (In Rs. Cr.)	384.34	387.09	517.43	572.40	507.91
PAT Margin	7.42%	6.77%	8.58%	8.94%	7.13%
EPS (In Rs.)	11.62	11.70	15.64	17.31	15.36
EPS Growth Rate	–	0.72%	33.67%	10.62%	-11.27%
Historic P/E (Closing Price of 31stMar)	27.86	32.31	32.74	35.88	40.79
Current P/E (TTM)	31.29
Shareholder funds (In Rs. Cr.)	2,102.07	2,811.08	3,306.62	3,905.21	4,109.99
Minority Interest (In Rs. Cr.)	16.05	26.68	28.52	31.74	34.75
Debt (In Rs. Cr.)	121.68	270.74	170.94	142.29	314.65
Cash (In Rs. Cr.)	251.63	185.48	331.43	283.69	321.11
Ratios
D/E	0.06	0.10	0.05	0.04	0.08
ROCE	18.31%	13.93%	16.17%	16.24%	13.72%
ROE	18.28%	13.77%	15.65%	14.66%	12.36%
Interest Coverage	17.63	27.40	35.34	55.59	18.55

Quarterly Performance

Quarterly Results	Q3 FY 2019	Q4 FY 2019	Q1 FY 2020	Q2FY 2020	Q3FY 2020	TTM	Q-o-Q %	Y-o-Y %
Revenue (In Rs. Cr.)	1,491.78	2,062.84	2,654.00	1,421.94	1,492.51	7,631.29	4.96%	0.05%
EBITDA (In Rs. Cr.)	115.67	144.31	291.21	105.88	97.55	638.95	-7.87%	-15.67%
EBITDA Margin	7.75%	7.00%	10.97%	7.45%	6.54%	8.37%
PAT (In Rs. Cr.)	80.92	139.61	165.18	106.43	86.91	498.13	-18.34%	7.40%
PAT Margin	5.42%	6.77%	6.22%	7.48%	5.82%	6.53%
EPS (In Rs.)	2.45	4.22	4.99	3.22	2.63	15.06	-18.32%	7.35%

WHAT’S DRIVING THE STOCK?

Strong Domestic Market Presence in Retail and Commercial Air Conditioner Business

The Company maintained market leadership position in the room AC segment with a market share of 24.3% in Q3 FY20. Being the market leader, the Company is likely to continue its sales when the economic activity normalises in the coming future.

Strong Balance Sheet Position

Voltas operates with strong capital structure as reflected by debt/equity ratio of 0.08 times. The Company also had a superior liquidity as reflected by cash and net worth of Rs. 4,431.10 Cr.

Forefront on Technology

Voltas has always been at the forefront of technological innovation and strives continuously to provide its customers with relevant, customer-centric, technologically superior, green and environment-friendly energy-efficient products.

On 18^th March 2020, to further increase its market share, the Company has partnered with Tata Power Delhi Distribution (Tata Power-DDL) to launch the 5-star AC scheme for its Delhi customers. Under this scheme, Tata Power-DDL consumers will be able to avail a discount of up to 50% on the purchase of Voltas’ 1.5 Ton BEE 5-star rated window or inverter split ACs.

In 2017, the Company partnered with Arcelik for the launch of its range of Voltas Beko Home Appliances.

Available at Discount | Attractive Valuation

In the last one year, the share price has fallen 24% from Rs. 624.15 to Rs. 471.25. At the current price of Rs. 471.25 (as on 1 April 2020), Voltas’ trailing 12-month PE comes to ~ 31.29 which is a 8% discount to its 5 year average PE Multiple of 33.91x. Based on this, fair value of Voltas comes to be Rs. 511.

5-year Average P/E = 33.91
	FY15	FY16	FY17	FY18	FY19
Price	323.70	378.10	512.10	620.90	626.30
EPS	11.62	11.70	15.64	17.31	15.36
P/E	27.86	32.31	32.74	35.88	40.79

Growth Outlook Amid Coronavirus

Voltas in its Q3 FY2020 con-call has highlighted that the Company’s current inventory is adequate to cover its Q4 production. The Company is also likely to witness healthy volume growth owing to pre-buying activities by dealers in anticipation of supply related issues due to lockdown in China. Further, the industry took a price hike to the extent of 5% in the last week of February to offset higher custom duty on compressor and logistics cost.

WHAT’S DRAGGING THE STOCK?

Slowdown in Consumption Activities

The Company’s generates 33% of annual sales in Q1, which is an important and strong period for cooling product companies. The complete lockdown has disrupted the entire supply chain of the UCP segment which contributes 45% of sales. In addition, the Company is likely to witness some slowdown in the consumption as well.

Subdued Order Inflow in International Project Business of The EMPS Division

Over the past five to six years, the order booking by the international project’s division has been slow on account of absence of value-accretive projects in the target geographies. This constrained the EMPS segment’s revenue growth. In the current scenario as well, the EMPS business is also likely to be hit by a delay in project execution in the Middle East and India due to lockdown situation across operating geographies.

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