MOSL: VOLTAS (Sell)-In-line results, UCP sales impacted by GST

​VOltas: In-line results, UCP sales impacted by GST

(VOLT IN, Mkt Cap USD1.4b, CMP INR541, TP INR430, 20% Downside, Sell)

• Results in line with estimate: 1QFY18 revenue grew 5% YoY to INR19.5b (est. of INR19.6b). EBIDTA rose 6% YoY to INR2.1b (est. of INR2.0b), with operating margin stable at 10.9% YoY (est. of 10.5%). Adj. net profit rose 17% YoY to INR1.9b (est. of INR1.7b), led by higher other income.
• UCP sales impacted by GST: UCP segment grew by a muted 1% YoY to INR12.1b. Room AC sales were impacted by dealer destocking (given uncertainties related input credit recovery in GST era) and unseasonal rains in south. VOLT remained the market leader, with a share of 22.2% (21.4% in 4QFY17). Despite increasing competitive intensity, VOLT has been able to maintain EBIT margin at 14.1%.
• EMP exhibits robust performance: EMP revenue grew 14% YoY to IN6.6b, led by better execution of projects in hand. Segment EBIT margin expanded 340bp YoY to 5.3%, led by execution of better-margin new orders and efficient execution. Order inflow rose 4% YoY to INR9.9b, led by order finalization in domestic segment. Order backlog stands at INR49.1b, with book-to-bill at 1.8x its TTM sales. Order backlog from Qatar was INR6b.
• Maintain Sell, revise TP to INR430: We raise estimates for FY18/19 by 4/5% to factor in better-than-expected EMP margin. We maintain our cautious view on the stock, given a) threat to margins from intensifying competition in room ACs, b) industry convergence to inverters, where VOLT has a weak share and c) rating change in January 2018.