MOSL: VOLTAS (Neutral)-Results impacted by below-expected UCP performance

Voltas: Results impacted by below-expected UCP performance

(VolT IN, Mkt Cap USD2.3b, CMP INR583, TP INR620, 6% Upside, Neutral)

• Results below expectations: Sales were muted YoY at INR20.5b (our estimate: INR23.6b). EBITDA rose 14% YoY to INR2.5b (our estimate: INR2.9b), with the margin of 12.4% (+150bp YoY) coming in line with our est. of 12.4%. PAT stood at INR1.9b (-3.1% YoY) v/s our estimate of INR2.1b. For FY18, sales stood at INR64.0b (+6% YoY), EBIDTA at INR6.6b (+14.4% YoY) and PAT at INR5.7b (+12% YoY).
• UCP sales decline 2% YoY, EBIT margin at 17.2%: Room air conditioner sales declined 2% YoY (+6-7% YoY on LTL basis) v/s our estimate of 15% growth. This can be ascribed to pre-buying by dealers in 3QFY18 prior to the implementation of the new energy ratings for ACs from Jan'18. Market share stood at 22.1% (+70bp YoY and -160bp QoQ). Margin stood at 17.2% in 4QFY18 (down 60bp YoY on LTL basis based on our calculation).
• EMP revenue up 5% YoY; margin at 7.6%: Sales of INR8.7b (+5% YoY) were below our estimate of INR9.3b; however, margin expanded 190bp YoY to 7.6% (est.: 5.9%) due to the focus on profitable orders and good execution in domestic/overseas jobs. Orders stood at INR12.3b (+23% YoY), with the order book at INR50.6b.

Key concall highlights: A) Inverter room AC sales share at 20% in 3QFY18 and 30% in 4QFY18 for VOLT; industry market share of 40%. B) VOLT had YTD market share of 22.1% (+70bp YoY) at multi-brand outlets (23.7% in 3QFY18). Its secondary sales grew 14.5% in FY18, while industry grew by 11%. C) Air coolers sales rose 38% to 2,07,000 units in FY18 from 170,000 units in FY17