MOSL: VOLTAS (Buy)-UCP going strong-EMP joins the party
VOLTAS: UCP going strong; EMP joins the party
(VOLT IN, Mkt Cap USD3.1b, CMP INR667, TP INR785, 18% Upside, Buy)
** In-line earnings: Consol. Revenues were flat YoY at INR14.2b (5% miss), which can be attributable to the miss on revenue in Electro Mechanical Projects (EMP). EBITDA margin declined 20bp YoY to 7.4% (v/s est. 7.8%). On account of higher other income (+57.6% YoY), PBT (before share of JV) grew 16% YoY to INR1.7b (9% beat). BEKO's JV losses were at INR100m (v/s est. INR110m). Adjusted for the exceptional loss of INR43m (VRS related post tax), PAT was up 7% YoY at INR1.1b (in-line).
** 1H performance: Consol. revenue/EBITDA/PBT grew 14.2%/12.9%/20.5%.
** UCP segment going strong: Revenue grew 19% to INR5.3b (in-line). PBIT margin expanded 250bp YoY to 8.8% (v/s est. 8%). In the Room AC business, YTD, Voltas has grown 42% v/s industry's secondary sales growth of 33%. Further, market share for Voltas in the Room AC segment stands at 24.4% YTD v/s 24.1% for 1QFY20. Management expects strong momentum in the AC business to continue in 2HFY20. We have built in 13.8% YoY growth in the UCP segment for 2HFY20, which is easily doable, in our view. Our confidence is based on (a) our expectation of inventory build-up at dealer level going into the summer season. Company level inventory is down from last year levels, and hence, channel refilling should aid growth; and (b) the next two quarters (4QFY20 in particular) having a favorable base. For FY21, we have built in some cushion to our UCP growth expectation to 12% from 15% earlier.
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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