Q3FY20 result highlights
Conf call highlights: (1) Strong 35% RAC growth in 9MFY20 (268k units sold) led by low base, strong distribution, market share gains and advertising campaigns (2) Coronavirus impact is expected to be minimal as have inventory till Mar-20; China factories likely to re-open by 3rd week of Feb-20; 15-20days to reach India; evaluating alternate sources in Korea, Indonesia, etc (3) Competitive intensity has increased with price wars; Voltas has not taken any price cuts and will balance mkt share vs margins; maintain UCPL margin guidance of 11-12% on sustainable basis; (4) EESL order (Delhi; order for 50K units) and Tata Power (Mumbai) scheme is ramping up gradually; (5) Domestic inflow led by Mumbai metro & water projects; (6) VoltBek factory commissioned with 1mn unit capacity to be gradually ramped up to 2.5mn units.
Impact on financials: FY20/21E EPS cut by 2% each to Rs16.9/21.2
Valuations & view
After a weak FY19, demand has bounced sharply in 9MFY20, which Voltas has been able to leverage with market share gains despite competitive intensity. Accordingly, we believe demand and thereby margins are likely to rebound over FY20-21 led by Voltas’ scale and cost efficiencies. Concurrently, recent order wins in EMP provides visibility to uptick in revenues with stable margins. Hence, we believe valuations at 32x FY21E earnings are attractive considering the long term structural story on RAC, free cash generation and strong balance sheet. 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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