1QFY19 Result Update Voltas 13 August 218 Reuters: VOLT.BO; Bloomberg: VOLT IN EMPS Shines, UCP Proves Its Mettle Again Voltas reported consolidated revenues of Rs21.5bn for 1QFY19, up 11% YoY and 5%/6% above our/consensus estimate, respectively. Unitary cooling product (UCP) segment s revenues were down 2% YoY at Rs11.9bn (56% of total sales) while EBIT margin fell 16bps YoY to 12.5%. UCP segment s performance was healthy considering the 11% YoY decline in the industry during the unfavourable summer season. EMPS segment posted strong revenue growth and margins led by large projects attaining revenue-booking threshold, better quality orders and effective execution. EMPS revenues jumped 31% YoY to Rs8.7bn (41% of total sales) with an eight-year high EBIT margin of 1.2%, up 49bps YoY (FY18 margin was 6.5%). Consolidated EBITDA rose 17% YoY to Rs2.4bn, translating to an EBITDA margin of 11.3%, up 6bps YoY. EBITDA was 18%/16% above our/consensus estimate, respectively. Affected by lower other income (down 52% YoY at Rs282mn), PAT was flat YoY at Rs1.8bn, 6% above our estimate and in line with consensus estimate. The management expects sustainable margin of 7%-8% in EMPS segment and 12%-13% in UCP segment. We have increased our earnings estimates for FY19/FY2 by 4%/8%, respectively. We have retained Accumulate rating on Voltas with a revised SOTP-based target price of Rs65 (from Rs6 earlier). On FY2E EPS, we have assigned P/E of 37x to UCP segment and 15x to project business. UCP segment stays healthy despite an unfavourable summer season: While UCP segment s revenues were down 2% YoY at Rs11.9bn, its performance was healthy considering the 11% YoY decline in industry because of unseasonal rains in the summer season. While secondary sales of Voltas grew 6% YoY in 1QFY19, the excess inventory is likely to get liquidated in the next two months during the festive season (capital employed at Rs1.9bn versus Rs526mn YoY). With a better product range, extended warranties and increased market penetration through 15, retail touch points, Voltas sustained its leadership position and increased its market share to 23.5% in 1QFY19 compared to 22.1% in FY18. Voltas scaled up its inverter air-conditioner (AC) portfolio, by offering highest SKUs in the industry, leading to the share of inverter ACs rising to 5% of split AC sales of Voltas. However, in secondary sales of inverter ACs, the share of Voltas is still lower at 4% compared to industry average of 5%. Commercial refrigeration products witnessed an uptick in demand owing to corporate client addition, channel expansion and new product introduction. Air-cooler industry, including Voltas, witnessed a higher decline in sales than in ACs as the window for sale is much smaller. While Voltas went for price hike in UCP segment, it was insufficient to compensate for commodity price rise, Indian rupee depreciation and high competitive intensity leading to decline in EBIT margin by 16bps YoY to 12.5%. To control costs, Voltas is investing in moulds to manufacture indoor units while it is also looking for alternative suppliers to source controllers. The Voltas- Beko joint venture aims to launch consumer durable products during the festive season. EMPS segment outperforms: The EMPS segment posted a strong 31% YoY rise in revenues to Rs8.7bn (41% of total sales) in 1QFY19. EBIT margin rose 49bps YoY to 1.2%, an eight-year high. Large projects attaining revenue-booking threshold, better quality orders and effective execution led to superior performance. Order inflow in 1QFY19 stood at Rs4bn (Rs2.5bn international and Rs1.5bn domestic). Voltas is focusing on government-funded projects in sectors like urban infrastructure, electrical distribution and water treatment in the domestic market. The EMPS segment is likely to sustain healthy execution driven by robust order book of Rs46.2bn (Rs27bn domestic and Rs19bn international). Outlook: We expect Voltas to post 16% earnings CAGR over FY18-FY2E. A capex-light balance sheet, strong cash flow, healthy return ratios (RoCE/RoIC of 19%/71% in FY2E), low working capital requirement and strong long-term growth prospects of the white goods sector will support its valuation. NBIE Values your patronage- Vote for The Team in the Asia Money poll 218. Click Here ACCUMULATE Sector: Capital Goods CMP: Rs62 Target Price: Rs65 Upside: 5% Chirag Muchhala Research Analyst chirag.muchhala@nirmalbang.com +91-22-6273 892 Key Data Current Shares O/S (mn) 33.9 Mkt Cap (Rsbn/US$bn) 25.5/3. 52 Wk H / L (Rs) 675/493 Daily Vol. (3M NSE Avg.) 1,678,414 Price Performance (%) 1 M 6 M 1 Yr Voltas 16.3 4.6 19.4 Nifty Index 4.4 9.3 16.4 Source: Bloomberg Y/E March (Rsmn) (consolidated) 1QFY18 4QFY18 1QFY19 YoY (%) QoQ (%) Revenues 19,446 2,484 21,481 1.5 4.9 Raw material costs 13,947 15,11 15,626 12. 4.1 Employee costs 1,478 1,434 1,431 (3.2) (.2) Other expenses 1,938 1,57 1,992 2.8 32.2 Total expenditure 17,363 17,952 19,49 9.7 6.1 EBITDA 2,83 2,532 2,432 16.7 (3.9) EBITDA margin (%) 1.7 12.4 11.3 - - Interest costs 35 43 27 (22.9) (37.1) Depreciation 61 61 59 (2.9) (2.1) Other income 59 438 282 (52.1) (35.6) PBT 2,576 2,865 2,627 2. (8.3) Tax 727 9 762 4.8 (15.3) Extra-ordinary items 2 (14) - - - Minority interest 23 15 31 - - Profit from associates 1 (1) 5 - - Adjusted PAT 1,836 1,94 1,839.2 (5.2) Adjusted PAT margin (%) 9.4 9.5 8.6 - - EPS (Rs) 5.6 5.9 5.6.2 (5.2) Source: Company, Nirmal Bang Research
1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 4QFY18 1QFY19 Exhibit 1: Financial summary (consolidated) Y/E March (Rsmn) FY16 FY17 FY18 FY19E FY2E Revenues 57,198 6,328 64,44 71,998 82,738 EBITDA 4,33 5,669 6,626 7,47 9,139 Adjusted net profit 3,72 5,212 5,828 6,445 7,788 Adjusted EPS (Rs) 11.2 15.8 17.6 19.5 23.5 EPS growth (%) 7.4 4.8 11.8 1.6 2.8 EBITDA margin (%) 7.6 9.4 1.3 1.4 11. P/E (x) 55.4 39.3 35.2 31.8 26.3 P/BV (x) 7.3 6.2 5.3 4.8 4.3 EV/EBITDA (x) 47.6 35.9 3.7 26.9 21.7 Dividend yield (%).4.6.6.9 1. RoCE (%) 15.2 16.4 16.8 16.9 18.8 RoIC (%) 44.1 6. 68.7 67.7 7.8 Source: Company, Nirmal Bang Research Exhibit 2: Segment-wise snapshot (consolidated) Y/E March 1QFY18 4QFY18 1QFY19 YoY (%) QoQ (%) FY17 FY18 YoY (%) Revenues (Rsmn) Electro-mechanical projects 6,68 8,735 8,664 31.1 (.8) 26,55 28,452 7.2 Engineering products 94 834 772 (14.6) (7.5) 3,318 3,99 (6.6) Unitary cooling products 12,117 1,645 11,911 (1.7) 11.9 3,469 32,261 5.9 Revenue mix (%) Electro-mechanical projects 33.7 43.2 4.6 - - 44. 47.2 - Engineering products 4.6 4.1 3.6 - - 5.5 5.1 - Unitary cooling products 61.7 52.7 55.8 - - 5.5 53.5 - EBIT (Rsmn) Electro-mechanical projects 352 665 881 15.2 32.5 849 1,854 118.3 Engineering products 257 249 268 4. 7.5 956 992 3.8 Unitary cooling products 1,76 1,83 1,493 (12.5) (18.5) 4,43 4,749 7.9 EBIT margin (%) Electro-mechanical projects 5.3 7.6 1.2 - - 3.2 6.5 - Engineering products 28.5 29.8 34.7 - - 28.8 32. - Unitary cooling products 14.1 17.2 12.5 - - 14.5 14.7 - Source: Company, Nirmal Bang Research Exhibit 3: EMPS trend in order inflow and backlog (Rsbn) 14 12 1 8 6 4 2 (Rsbn) 6 5 4 3 2 1 Order intake (LHS) Order backlog (RHS) Source: Company, Nirmal Bang Research 2 Voltas
Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Apr-15 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18 Aug-18 Exhibit 4: Actual performance versus our estimates, Bloomberg consensus estimates 1QFY19 (Rsmn) Actual Our estimate Deviation (%) Bloomberg cons. est. Deviation (%) Revenues 21,481 2,369 5.5 2,146 6.6 EBITDA 2,432 2,53 18.5 2,93 16.2 PAT 1,839 1,736 5.9 1,819 1.1 Source: Company, Bloomberg, Nirmal Bang Research Exhibit 5: Change in our estimates (Rsmn) Old New Deviation (%) Y/E March FY19E FY2E FY19E FY2E FY19E FY2E Revenues 7,239 8,139 71,998 82,738 2.5 3.2 EBITDA 6,951 8,162 7,47 9,139 7.5 12. PAT 6,178 7,194 6,445 7,788 4.3 8.3 Source: Company, Nirmal Bang Research Exhibit 6: P/E charts (x) 4 35 3 25 2 15 1 5 (Rs) 8 7 6 5 4 3 2 1 Stock price 15x 2x 25x 3x 35x Source: Bombay Stock Exchange, Nirmal Bang Research 3 Voltas
Financial statements (consolidated) Exhibit 7: Income statement Exhibit 3: Exhibit 8: Cash flow Y/E March (Rsmn) FY16 FY17 FY18 FY19E FY2E Y/E March (Rsmn) FY16 FY17 FY18 FY19E FY2E Revenues 57,198 6,328 64,44 71,998 82,738 EBIT 4,66 5,424 6,383 7,27 8,857 % growth 1.4 5.5 6.2 12.4 14.9 (Inc.)/dec. in working capital (537) 533 (1,496) (1,118) (2,129) Raw material costs 4,871 42,359 45,675 51,478 59,323 Cash flow from operations 3,529 5,957 4,887 6,9 6,727 Staff costs 6,351 6,184 5,867 6,696 7,446 Other income 1,367 2,12 1,741 1,85 2,5 Other overheads 5,646 6,116 5,875 6,354 6,83 Depreciation 264 245 244 263 282 Total expenditure 52,869 54,659 57,417 64,528 73,599 Tax paid (-) (1,696) (2,4) (2,27) (2,56) (3,29) EBITDA 4,33 5,669 6,626 7,47 9,139 Profit from associates 122 (168) 93 - - % growth 5.6 3.9 16.9 12.7 22.3 Net cash from operations 3,587 6,15 4,695 5,696 6,31 EBITDA margin (%) 7.6 9.4 1.3 1.4 11. Capital expenditure (-) (294) (13) (256) (5) (5) Other income 1,367 2,12 1,741 1,85 2,5 Net cash after capex 3,293 6,137 4,439 5,196 5,531 Interest costs 158 16 119 16 9 Interest paid (-) (158) (16) (119) (16) (9) Depreciation 264 245 244 263 282 Dividends paid (-) (1,12) (1,55) (1,72) (2,365) (2,795) Profit before tax 5,275 7,384 8,5 8,952 1,817 Inc./(dec.) in total borrowings 1,491 (998) (287) (2) (2) Tax 1,696 2,4 2,27 2,56 3,29 (Inc.)/dec. in investments (8,89) (3,388) (4,848) - - Net profit 3,58 5,38 5,735 6,445 7,788 Minority interest 16 18 32 - - Profit from associates 122 (168) 93 - - Cash from financial activities (8,49) (6,33) (6,941) (2,671) (3,85) Extra-ordinary items 289 11 6 - - Others 4,535 1,355 2,25 - - Reported net profit 3,991 5,223 5,834 6,445 7,788 Opening cash balance 2,516 1,855 3,314 2,837 5,362 Adjusted net profit 3,72 5,212 5,828 6,445 7,788 Closing cash balance 1,855 3,314 2,837 5,362 7,87 Adjusted PAT margin (%) 6.5 8.6 9.1 9. 9.4 Change in cash balance (662) 1,46 (477) 2,525 2,445 Adjusted EPS (Rs) 11.2 15.8 17.6 19.5 23.5 Source: Company, Nirmal Bang Research % growth 7.4 4.8 11.8 1.6 2.8 Source: Company, Nirmal Bang Research Exhibit 9: Balance sheet Y/E March (Rsmn) FY16 FY17 FY18 FY19E FY2E Share capital 331 331 331 331 331 Reserves 27,78 32,735 38,721 42,81 47,794 Net worth 28,111 33,66 39,52 43,132 48,125 Minority interest 267 285 317 317 317 Total loans 2,77 1,79 1,423 1,223 1,23 Total liabilities 31,85 35,61 4,792 44,672 49,465 Net block 1,952 1,728 1,75 1,983 2,21 Capital work-in-progress 13 6 41 - - Goodwill 89 815 82 82 82 Investments 19,748 23,135 27,983 27,983 27,983 Inventories 7,247 9,7 8,13 9,54 11,22 Debtors 13,672 14,541 15,73 16,4 18,229 Cash 1,855 3,314 2,837 5,362 7,87 Other current assets 13,89 11,882 15,7 14,76 17,176 Total current assets 35,863 38,88 42,37 46,26 54,234 Creditors 17,488 19,946 21,764 21,294 23,526 Other current liabilities & provisions 1,122 9,682 1,48 1,891 12,292 Total current liabilities 27,61 29,628 32,172 32,185 35,819 Net current assets 8,253 9,18 1,198 13,841 18,416 Deferred tax assets (net) 311 198 46 46 46 Total assets 31,85 35,61 4,792 44,672 49,465 Source: Company, Nirmal Bang Research Exhibit 4: Exhibit 1: Key ratios Y/E March FY16 FY17 FY18 FY19E FY2E Per share (Rs) Adjusted EPS 11.2 15.8 17.6 19.5 23.5 Book value 85. 1. 118.1 13.4 145.5 Valuation (x) P/E 55.4 39.3 35.2 31.8 26.3 P/BV 7.3 6.2 5.3 4.8 4.3 EV/EBITDA 47.6 35.9 3.7 26.9 21.7 EV/sales 3.6 3.4 3.2 2.8 2.4 Return ratios (%) RoCE 15.2 16.4 16.8 16.9 18.8 RoE 15.8 16.9 15.9 15.7 17.1 RoIC 44.1 6. 68.7 67.7 7.8 Profitability ratios (%) EBITDA margin 7.6 9.4 1.3 1.4 11. EBIT margin 7.1 9. 1. 1. 1.7 PAT margin 6.5 8.6 9.1 9. 9.4 Turnover ratios Total asset turnover ratio (x) 2.1 1.8 1.7 1.7 1.8 Debtor days 86 85 86 88 86 Inventory days 51 49 49 51 52 Creditor days 147 161 167 16 155 Solvency ratios (x) Debt-equity.1.5.4.3.2 Source: Company, Nirmal Bang Research 4 Voltas
Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Apr-18 Jun-18 Aug-18 Rating track Date Rating Market price (Rs) Target price (Rs) 23 October 213 Buy 85 18 7 November 213 Buy 91 18 13 November 213 Buy 88 18 26 November 213 Buy 93 18 5 February 214 Buy 18 14 5 June 214 Hold 25 223 1 July 214 Accumulate 2 223 18 August 214 Accumulate 221 253 9 October 214 Accumulate 238 253 18 November 214 Buy 279 326 9 January 215 Buy 244 326 16 February 215 Buy 256 322 15 April 215 Buy 33 322 26 May 215 Accumulate 325 343 8 July 215 Accumulate 319 343 17 August 215 Accumulate 315 32 12 October 215 Accumulate 277 32 1 November 215 Accumulate 276 39 8 January 216 Accumulate 297 39 16 February 216 Buy 238 31 12 April 216 Buy 278 31 2 May 216 Accumulate 323 322 16 June 216 Accumulate 325 322 12 July 216 Accumulate 318 322 4 August 216 Accumulate 344 354 13 October 216 Accumulate 38 354 21 November 216 Accumulate 293 325 23 December 216 Accumulate 39 325 1 January 217 Accumulate 344 325 14 February 217 Accumulate 338 361 17 February 217 Accumulate 345 365 7 April 217 Accumulate 41 365 26 May 217 Accumulate 475 495 6 July 217 Accumulate 47 495 7 August 217 Accumulate 54 525 9 October 217 Accumulate 52 525 9 January 218 Accumulate 648 61 12 February 218 Accumulate 593 635 6 April 218 Accumulate 631 635 18 May 218 Accumulate 583 6 1 July 218 Accumulate 534 6 13 August 218 Accumulate 62 65 Rating chart 8 7 6 5 4 3 2 1 Not Covered Covered 5 Voltas
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