Result Update Voltas Buy Softness seen in AC industry in Q4 has also got spilt over into Q1FY19, with unseasonal showers and lower temperatures playing spoilsport. The next seasonally important quarter is Q4FY19, almost three quarters away. While FY19 is likely to be weak, we continue to like the structural penetration story of ACs and believe Voltas is the best way to play this. We maintain our Buy rating with a target price of ` 65. Q4 was below expectations; Q1 outlook not sanguine too Revenues remained flat at `,484mn in Q4 and grew by 6% YoY at ` 64bn in FY18.EBITDA went up by 15% YoY at ` 2,532mn in Q4, and grew by 17% YoY at ` 6,626mn for the full year. EBITDA margins increased by 161bps YoY at 12.4% for the quarter and up by 1bps YoY at.3% for FY18.Net profits remained flat for the quarter at ` 1,942mn and grew by 11% YoY at `.5779mn in FY18. Unitary cooling segment revenue grew by 7% YoY (after adjusting excise) at `,645 in the quarter, and up by 6% YoY at ` 32bn for FY18. Order inflow in ` 6bn for domestic as well as for international. Current total order book stood at ` 5bn in FY18 v/s ` 43bn in FY17. Similarly, Q1 outlook for the industry is not very positive because of the unseasonal showers witnessed in major parts of the country in May. Inverter ACs-driving the market In total AC market company s share was 19.7% in which has now increased to 22.1% in. Voltas grew higher than the industry for ACs. Inverter ACs contributed % in total sales for FY18, and 3% in. Unitary segment EBIT margins have improved to 17% and company is confident in sustaining the margins at 12-13% level. Voltas s is increasing focus inverter and split ACs. In near future Voltas is thinking of price hike for ACs due to the higher import cost of compressors from China. Voltas is the best way to play the AC structural story We expect Voltas to maintain its leadership in RAC segment and we also don t expect it to lag in inverter ACs. It s JV with Arcelik to launch durables in FY19 will provide a further fillip to growth in the consumer business. It also offers a dual play where apart from the consumer business, the projects business will benefit from the capex cycle. We maintain our Buy rating on the stock with a TP of ` 65(from `693) as we roll back multiples to 3x from 33x earlier. Result (` Mn) Particulars Q4FY17 YoY (%) QoQ (%) Operating Income,484,583 (.5) 13,747 49. Cost of material 5,356,318 (48.1) 7,88 (31.4) consumed Purchase of stock,569 3,8 176.6 1,375 668.7 Staff cost 1,434 1,485 (3.4) 1,53 (4.6) Other Expenses 1,57 2,35 (26.) 1,427 5.6 EBITDA 2,532 2,212 14.5 1,142 121.7 Other Income 438 394 11.3 215 4.1 Depreciation 61 56 8. 61 - Interest 43 58 (24.8) 19 129.6 Tax 9 496 81.5 31 198.7 Net Profit 1,942 1,998 (2.8) 1,4 93.3 bps bps Raw Material Cost 73.3 72.2 113 7.4 29 Staff Cost 7. 7.2 (21).9 (393) Other Expenses 7.4 9.9 (253).4 (33) EBITDA (%) 12.4.7 161 8.3 45 PBT (%) 13.9 12.2 169 9.5 437 NPM (%) 9.5 9.7 (23) 7.3 217 May 21, 18 CMP ` 538 Target / Upside ` 65/21% BSE Sensex 34,683 NSE Nifty,526 Scrip Details Equity / FV Market Cap ` 331mn/`1/- `178bn USD 3bn 52-week High/Low ` 675/44 Avg. Volume (no) 2,132,412 NSE Symbol Bloomberg Code Shareholding Pattern Mar 18 (%) VOLTAS VOLT.IN Promoters 3.3 MF/Banks/FIs 19.2 FIIs 19.8 Public / Others 3.8 Valuation (x) FY18 FY19E FYE P/E 3.8 27.7 24.6 EV/EBITDA 26.6 22.9 19.8 ROE 16. 16.5 17.2 ROCE 21.5 22.6 23.5 Estimates (` mn) FY18 FY19E FYE Net Sales 64,44 7,278 78,832 EBITDA 6,626 7,379 8,277 PAT 5,779 6,434 7,224 EPS (`) 17.5 19.5 21.8 Sr. Analyst: Vinod Chari Tel: +9122 496 9776 E-mail: vinodc@dolatcapital.com Associate: Monali Jain, CA Tel: +9122 496 9722 E-mail: monalij@dolatcapital.com
25 15 5 Sales and QoQ growth EBITDA and QoQ growth (%) Sales(`in Bn) LHS QoQ (%) RHS 8 6 4 () (4) (6) 3, 2,5 2, 1,5 1, 5 EBITDA (` In Mn) LHS QoQ (%) RHS 25() 15 5 (5) () 16 14 12 8 6 4 2 Trend in Margin (%) EBITDA margin Net Profit margin Net profit and QoQ growth 2,5 12 2, 8 1,5 6 1, 4 5 2 Net Profit(`. In Mn) LHS QoQ (%) RHS 5 4 3 () Segmental EBIT margin Trend (%) Electro Mechanical projects and services Engineering products and services Untlity cooling business Order book (` mn) 35, 3, 25,, 15,, 5, FY12 FY13 FY14 FY15 FY16 FY17 F18 Domestic order book International order book May 21, 18 2
Income Statement (` mn) Particulars Mar17 Mar18 Mar19E MarE Net Sales 6,328 64,44 7,278 78,832 Total Expenditure 54,659 57,417 62,899 7,555 Cost of materials consumed 42,359 45,675 48,843 54,788 Employee Benefits Exp 6,184 5,867 6,676 7,489 Other Expenses 6,116 5,875 7,379 8,277 Other Income 2,1 1,741 2,8 2,365 EBIDTA (Excl. OI) 5,669 6,626 7,379 8,277 EBIDTA (Incl. OI) 7,789 8,368 9,488,642 Interest 16 119 176 197 Depreciation 244 244 249 271 Profit Before Tax 7,395 8,11 9,62,175 Tax 2,4 2,27 2,628 2,951 Net Profit 5,199 5,779 6,434 7,224 Balance Sheet (` mn) Particulars Mar17 Mar18 Mar19E MarE Sources of Funds Equity Capital 331 331 331 331 Other Reserves 32,735 38,721 38,475 44,748 Net Worth 33,66 39,52 38,85 45,79 Secured Loans - - - - Loan Funds 1,79 1,423 1,757 1,971 Deferred Tax Liability (198) (46) (46) (46) Total Capital Employed 34,863 4,746 4,834 47,321 Applications of Funds Gross Block 4,63 5,73 5,543 6,13 Less: Accu. Depreciation 2,784 3,28 3,277 3,548 Net Block 2,999 2,972 2,989 3,189 Capital Work in Progress 6 41 41 41 Investments 22,679 27,536 26,155 26,655 Current Assets, Loans & Advances Inventories 9,7 8,13 8,857 9,935 Sundry Debtors 14,541 15,73 16,366 18,358 Cash and Bank Balance 3,314 2,837,822 16,96 Loans and Advances 35 48 146 164 sub total 38,88 42,37 47,784 57,557 Less: Current Liabilities & Provisions Current Liabilities 26,945 29,443 33,457 37,126 Provisions 2,685 2,442 2,678 2,995 sub total 29,63 31,885 36,135 4,121 Net Current Assets 9,178,485 11,649 17,436 Total Assets 34,863 4,746 4,834 47,321 E Estimates Cash Flow (` mn) Particulars Mar17 Mar18 Mar19E MarE Profit before tax 5,425 6,383 7,13 8,7 Depreciation & w.o. 244 244 249 271 Net Interest Exp 2,1 1,741 2,8 2,365 Direct taxes paid (2,4) (2,27) (2,628) (2,951) Change in Working Capital 535 (1,784) 6,821 (513) (A) CF from Opt. Activities 7,735 6,7 8,4 7,43 Capex (1,284) (251) (267) (47) Free Cash Flow 6,451 5,819 7,773 6,573 (B) CF from Invt. Activities (4,55) (5,9) 1,114 (97) Inc./(Dec.) in Debt (998) (287) 334 214 Interest exp. net (16) (119) (176) (197) Dividend Paid (Incl. Tax) (9) (1,323) (951) (951) (C) CF from Financing (2,59) (1,729) (793) (934) Net Change in Cash 1,169 (48) 7,985 5,274 Opening Cash balances 2,145 3,317 2,837,822 Closing Cash balances 3,314 2,837,822 16,96 Important Ratios Particulars Mar17 Mar18 Mar19E MarE (A) Measures of Performance (%) EBIDTA Margin (excl. O.I.) 9.4.3.5.5 Interest / Sales.3.2.3.3 Tax/PBT 12.6 12.9 13.3 13.3 Net Profit Margin 8.6 9. 9.2 9.2 (B) As Percentage of Net Sales Raw Material 7.2 71.3 69.5 69.5 Employee Expenses.3 9.2 9.5 9.5 Other Expenses.1 9.2.5.5 (C) Measures of Financial Status Debt / Equity (x).1... Interest Coverage (x) 48.6 7.2 54. 54. Average Cost of Debt (%) 7.3 7.6 11.1.6 Debtors Period (days) 88 89 85 85 Closing stock (days) 55 46 46 46 Inventory Turnover Ratio (x) 6.7 7.9 7.9 7.9 Fixed Assets Turnover (x) 13.1 12.6 12.7 13.1 W.C. Turnover (x) 6.6 6.1 6. 4.5 Non-Cash WC (` Mn) 5,864 7,648 827 1,34 (D) Measures of Investment EPS (`) (excl EO) 15.8 17.5 19.5 21.8 CEPS (`) 16.5 18.2.2 22.7 DPS (`) 2.5 4. 2.5 2.5 Dividend Payout (%) 15.6 22.9 12.9 11.4 Profit Ploughback (%) 84.4 77.1 87.1 88.6 Book Value (`). 118.1 117.3 136.3 RoANW (%) 17. 16. 16.5 17.2 RoACE (%) 23. 21.5 22.6 23.5 RoAIC (%) 25.1 23.4 27.2 33.9 (E) Valuation Ratios CMP (`) 538 538 538 538 P/E (x) 34.2 3.8 27.7 24.6 Market Cap. (` Mn.) 177,945 177,945 177,945 177,945 MCap/ Sales (x) 2.9 2.8 2.5 2.3 EV (` Mn.) 176,34 176,531 168,88 163,819 EV/Sales (x) 2.9 2.8 2.4 2.1 EV/EBDITA (x) 31.1 26.6 22.9 19.8 P/BV (x) 34.2 3.8 27.7 24.6 Dividend Yield (%).5.7.5.5 E Estimates May 21, 18 3
DART RATING MATRIX Total Return Expectation (12 Months) Buy > % Accumulate to % Reduce to % Sell < % Rating and Target Price History 75 Month Rating TP (`) Price (`)* 7 65 Mar 18 Buy 693 587 6 55 5 45 * As on Recommendation Date 4 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Voltas Target DART Team Purvag Shah Managing Director purvag@dolatcapital.com +9122 496 9747 Amit Khurana, CFA Head of Equities amit@dolatcapital.com +9122 496 9745 CONTACT DETAILS Equity Sales Designation E-mail Direct Lines Dinesh Bajaj VP - Equity Sales dineshb@dolatcapital.com +9122 496 979 Kartik Sadagopan VP - Equity Sales kartiks@dolatcapital.com +9122 496 9762 Kapil Yadav VP - Equity Sales kapil@dolatcapital.com +9122 496 9735 Derivatives Strategist Designation E-mail Bhavin Mehta VP - Derivatives Strategist bhavinm@dolatcapital.com +9122 496 975 Equity Trading Designation E-mail P. Sridhar VP and Head of Sales Trading sridhar@dolatcapital.com +9122 496 9728 Chandrakant Ware AVP - Equity Sales Trading chandrakant@dolatcapital.com +9122 496 977 Derivatives Trading Designation E-mail Shirish Thakkar AVP - Derivatives shirisht@dolatcapital.com +9122 496 972 Hardik Mehta Sales Trader hardikm@dolatcapital.com +9122 496 9748 Dolat Capital Market Private Limited., Rajabahadur Mansion, 1st Floor, Ambalal Doshi Marg, Fort, Mumbai - 4 1
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