MOSL: VOLTAS (Neutral)-Underperformance on most fronts-UCP reeling under cost pressure
Voltas: Underperformance on most fronts; UCP reeling under cost pressure
(VOLT IN, Mkt Cap USD2.7b, CMP INR580, TP INR595, 2% Upside, Neutral)
- Earnings disappointment attributable to margin miss: Sales came in muted at INR20.6b, implying a 7% miss to our estimate, primarily attributable to a 6% decline in UCP revenue. EBITDA margin came in at 7% (our estimate: 11.3%), driving a 42% miss in EBITDA. UCP margin contracted to 10.4% from 17.2% in the year-ago period, as VOLT opted to address the high inventory issue. PAT declined 28% to INR1.4b (21% miss).
- UCP margin guidance of 11% suggests competitive pressure: Management guided for a sustainable UCP margin of 11% versus 13-14% over FY15-18. In our view, high competitive intensity is restricting price hike actions, as VOLT looks to secure its leadership position (market share expanded to 23.9% v/s 22.1% last year). Capital employed in the segment increased to INR5.6b from INR2.5b in 4QFY18 on account of higher inventory in the system. Inventory has now been liquidated and primary sales have seen revival in 1QFY20. Voltas Beko JV has launched a basket of products, including 39 SKUs of refrigerators, 17 SKUs of washing machines.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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