Voltas

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Excerpts of an interview with Mr Pradeep Bakshi, MD and CEO of the Tata Group AC Company, with CNBC TV18 dated 28th August 2020:
● Generally summer months starting from March till June accounts for more than 50% of the sales in the compressor products like the air-conditioner products. Unfortunately, due to the lockdown, right from March 20 onwards until May 20, they lost out nearly 60 days of sales.
● Out of three and a half months, they lost out two months that is somewhere around 50-60% of the business was lost for the industry during these summers because of the lockdown.
● Voltas has done better than the industry while highlighting that most brands haven’t registered growth.
● During this period, the industry has been able to sell the products but most of the brands have not registered growth. However, Voltas’ business, they have done decent numbers during this period.
● In terms of volume, revenue and profitability they are way ahead of the competition and the industry.
● The industry as a whole has not been able to do a great job during Q1. Until July, August also, they have been doing sales, some numbers are clicking but there is a large pile-up of inventory in the industry.

Consensus Estimate: (Source: market screener and investing.com websites)
● The closing price of Voltas was ₹ 635/- as of 31-August-2020. It traded at 48x/ 30x/ 27x the consensus earnings estimate of ₹ 13.2/ 20.9/ 23.9 for FY21E/22E/FY23E respectively.
● The consensus price target is ₹ 659/- which trades at 28x the earnings estimate for FY23E of ₹ 23.9/-
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

Dated:- 9th August 2019

1QFY20 Results

·       Voltas reported a 24% YoY growth in consolidated revenues to Rs 26,540 mn. The revenue growth was driven by 47% YoY growth in the Unitary Cooling Products (UCP) (main revenue earning air conditioners) segment at Rs 17,488 mn. The Electro-Mechanical Projects (EMP) segment revenues declined by 5% YoY to Rs 8,241 mn and the Engineering Product Services (EPS) segment revenues declined by 4% YoY to Rs 740 mn.

·       The EBITDA margin declined by 35 bps YoY in 1QFY20 to 11% from 11.35% in 1QFY19.

·       Voltas reported EBIT margin expansion of ~60 bps YoY in UCP to 13.1%. The EBIT margins declined by ~220 bps YoY and ~230 bps YoY in EMP (8%) and EPS (32.4%) respectively.

·       Voltas reported a one-time expenditure of ~Rs 430 mn towards a Voluntary Retirement Benefits Scheme. The adjusted Consolidated PAT for 1QFY20 stood at Rs 1,941 mn v/s Rs 1,839 mn in 1QFY19. The profit share in the joint ventures including was Rs 213 mn in this quarter v/s Rs 193 mn in 4QFY19.

Management Commentary

·       Voltas continues to be the market leader in Room Air conditioner business with a market share of 24.1% for 1QFY20 (25.3% for June 2019) at Multi-Brand Outlets. The Air Conditioning industry grew by 36% YoY; Voltas grew higher than the industry YoY growth of ~47%. The inverter ACs accounted for more than 50% of the total revenues.

·       Commercial Refrigeration products and Air Coolers witnessed increased demand in the quarter. The air purifiers too received an encouraging response.

·       Management guided for UCP segment EBIT margins to remain in the range of 11-12% for FY20E.

·       In the EMP segment, the order book stood at Rs 47,560 mn, higher by ~3% YoY. The domestic order intake during 1QFY20 was Rs 4,490 mn v/s Rs 1,500 mn in 1QFY19. On the International front, Voltas continues to be cautious.

Consensus Estimate (Source: market screener website)

·       The closing price of VOLT was Rs 606/- as of 09-Aug-2019. It traded at 33x / 28 x / 24x the consensus EPS for 20E /21E /22E EPS of Rs 18.2 / 21.8 / 25.1 respectively.

· Consensus target price of Rs 630/- implies a PE of 25 x on FY22E EPS of Rs 25.1/-