We met Voltas’ management. Below are the key takeaways:
Valuations and view
The UCPL segment is seeing early signs of a bounce back on back of upcoming summer season led by the uptick in South. Voltas is well positioned with a ~23% market share to capitalise on the growth on back of its scale benefits, deeper reach, higher focus on inverters and cost efficiencies. On the other hand, focus on process improvements, better commercial terms and profitable orders have helped reap benefits, as EMP margins have improved to 7%+. The stock is trading at 31.5x FY20E and 26.4x FY21E earnings. We believe the long-term structural story on RAC penetration, earnings uptick (21% earnings CAGR over FY19-21E), free cash generation and strong balance sheet (Rs20bn+ cash) will keep valuations rich. Maintain Outperformer.
Voltas is an air conditioning company based in India. Co. offers engineering solutions for industries in areas such as heating, ventilation and air conditioning, refrigeration, electro-mechanical projects, textile machinery, mining and construction equipment, water management & treatment, cold chain solutions, building management systems, and indoor air quality. Co. is principally active in the management and execution of electro-mechanical projects and the installation and servicing of diverse technology-based systems. Co.'s operations are organized along three business segments: Electro-Mechanical Projects & Services; Engineering Products & Services; and Unitary Cooling Products.
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