1QFY2017 Result Update | Construction & Eng.
August 4, 2016
Voltas
BUY
CMP
`349
Performance Highlights
Target Price
`407
Quarterly highlights - Consolidated
Investment Period
12 Months
Y/E March (` cr)
1QFY17
1QFY16
% chg (yoy)
Gross Sales
1,845
1,561
18.2
Stock Info
EBITDA
189
128
47.6
Sector
Construction & Eng.
Market Cap (` cr)
11,531
Adj. PAT
157
103
52.8
Source: Company, Angel Research;
Net debt (` cr)
63
Beta
1.4
Voltas reported a strong set of numbers for 1QFY2017. Top-line at `1,845cr is
52 Week High / Low
376/211
higher than our expectation and up 18.2% yoy, led by strong UCP segment sales.
Avg. Daily Volume
1,911,833
UCP segment impressed us with 28.9% yoy increase in revenue to `1,196cr (65%
Face Value (`)
1
of overall 1QFY2017 revenues). EBITDA margins for the quarter expanded by
BSE Sensex
27,714
204bps yoy at 10.3%. With most of the legacy projects nearing completion, the
Nifty
8,551
EMP segment reported 1.9% EBIT margin, against 1.5% in corresponding quarter
Reuters Code
VOLT.BO
of previous year. Better than expected UCP segment sales coupled with higher
Bloomberg Code
[email protected]
other income helped the company report a PAT of `158cr, up 53.7% on yoy basis.
On adjusting for ~`1cr of exceptional item, Adj. PAT grew 52.8% yoy to `157cr.
Shareholding Pattern (%)
Another positive is strong order inflows of `1,083cr for the quarter. Order Book
Promoters
30.3
for EMP segment as of 1QFY2017-end stands at `4,417cr (order book [OB] to
MF / Banks / Indian Fls
28.1
LTM ratio of 1.6x).
FII / NRIs / OCBs
20.5
Indian Public / Others
21.1
Valuation: We expect Voltas to report a strong 13.3% top-line and
18.1%
bottom-line CAGR during FY2016-18E, respectively. On considering the case for
improvement in all of its business segments’ performances, we expect improved
Abs. (%)
3m 1yr 3yr
profitability and better investment return ratios for the company, going forward.
Sensex
9.7
(1.8)
44.5
We assign Voltas 25.0x PE multiple to our FY2018E EPS estimate of `16.3/share
Voltas
20.3
7.3
365.9
and arrive at price target of `407. This reflects 17% upside potential from the
stock’s current market price. Accordingly, we continue to maintain BUY rating on
the stock.
3-Year Daily Price Chart
400
350
Key Financials (Consolidated)
300
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E
FY18E
250
Net Sales
5,531
5,266
5,183
5,857
6,511
7,514
200
% chg
6.7
(4.8)
(1.6)
13.0
11.2
15.4
150
100
Net Profit
208
245
384
386
427
538
50
% chg
28.2
18.1
56.6
0.3
10.8
26.0
0
EBITDA (%)
4.4
5.0
7.9
7.5
7.9
8.7
EPS (`)
6.3
7.4
11.6
11.7
12.9
16.3
P/E (x)
55.5
47.0
30.0
29.9
27.0
21.4
Source: Company, Angel Research
P/BV (x)
7.1
6.3
5.5
4.8
4.3
3.7
Adj. RoE (%)
12.8
14.2
19.6
17.1
16.7
18.5
RoCE (%)
19.3
22.4
36.4
42.2
46.4
52.7
Yellapu Santosh
EV/Sales (x)
2.1
2.2
2.2
2.0
1.8
1.5
022 - 3935 7800 Ext: 6811
EV/EBITDA (x)
46.9
43.3
27.8
26.5
22.3
17.6
[email protected]
Source: Company, Angel Research; Note: CMP as of August 3, 2016; It needs to be noted
that yoy growth for FY2017E is not comparable as FY2016 continues to be reported under
Indian GAAP.
Please refer to important disclosures at the end of this report
1
Voltas | 1QFY2017 Result Update
Exhibit 1: Quarterly Performance (Consolidated)
Particulars (` cr)
1QFY17
1QFY16
% chg (yoy)
Gross Sales
1,845
1,561
18.2
Total Expenditure
1,656
1,433
15.5
Excise Duty
5
6
(11.5)
Cost of materials consumed
994
934
6.4
Purchase of stock-in-trade
323
192
68.8
Employee benefits Expense
163
149
9.2
Other Expenses
171
153
11.9
EBITDA
189
128
47.6
EBIDTA %
10.3
8.2
Depreciation
7
6
11.0
EBIT
183
122
49.3
Interest and Financial Charges
5
3
44.0
Other Income
46
28
65.2
PBT before Exceptional Items
224
147
52.5
Exceptional Items
1
0
PBT
225
147
53.1
Tax
65
45
% of PBT
28.9
30.8
PAT from Ord. activities
160
102
57.1
Share of profit/ (loss) of associate
(0)
2
nmf
Minority interest in (profit)/ loss
(2)
(1)
PAT
158
103
53.7
Other Comprehensive Income
26
(5)
nmf
Total Comprehensive Income
184
98
88.3
Adj. PAT
157
103
52.8
Adj. PAT %
8.5
6.6
Dil. EPS
4.76
3.10
53.5
Source: Company, Angel Research; Note: nmf- Not meaningful;*Reported as per Ind AS, FY2016
numbers & other remaining quarters continue to be reported as per Indian GAAP; It needs to be
noted that yoy growth for FY2017E is not comparable as FY2016 continues to be reported under
Indian GAAP
Strong UCP segment execution leads to strong 1Q sales
Voltas reported better than expected top-line numbers mainly driven by strong
execution across their EMP & and sales across their UCP segment. Voltas reported
18.2% yoy gross sales growth to `1,845cr.
UCP segment impressed us with 28.9% yoy increase in gross sales to `1,196cr
(65% of 1QFY2017 revenues). UCP segment benefitted from strong AC sales as
well as strong traction seen across their Air Cooler sales. Voltas sold ~50,000 Air
Coolers in 1FY2017 (vs. ~70,000 units in FY2016). Voltas has been able to retain
its numero-uno position commanding ~22% share in Multi-brand outlet sales in
1QFY2017.
Also, EMP and EPS segments reported better than expected gross sales numbers at
`580cr and `69cr, respectively.
August 4, 2016
2
Voltas | 1QFY2017 Result Update
EBITDA margin expands yoy to 10.3%
Higher than expected contribution from UCP segment led to surprise on EBITDA
margin front at 10.3% for 1QFY2017. Voltas reported 204bps yoy EBITDA margin
expansion to 10.3%. The company reported 6.4% yoy increase in raw material
costs, lower than the yoy gross sales growth, thereby contributing to the EBITDA
margin expansion.
With most of the EMP segment legacy projects having completed, this segment
reported 1.9% EBIT margin, against 1.5% margin in 1QFY2016. Despites strong
AC sales, 68.8% yoy increase in purchase of stock-in-trade, led to restricted UCP
segment EBIT margin expansion to 14.9% in 1QFY2017 (vs 12.2% in 1QFY2016).
Adj.PAT margin expands to 8.5%
Better than expected sales at UCP segment, coupled with higher other income
helped the company report Core business PAT of `158cr, which is up 53.7% on
yoy basis. Reported PAT numbers also benefitted on account of higher other
income, which increased 65.2% yoy to `46cr (reflecting impact of increased
current investments and cash balance). On adjusting for ~`1cr of exceptional
item, Adj. PAT grew 52.8% yoy to `157cr.
On considering impact of comprehensive other income (includes `26cr of gain on
revaluation of longer term equity investments) total comprehensive income grew
88.3% yoy to `184cr.
Order Book grows 12.9% yoy to `4,417cr
Voltas reported 12.9% yoy increase in its Order book to `4,417cr (OB to LTM ratio
of 1.6x), reflecting `1,083cr of Order wins during 1QFY2017. Amongst the
projects won during the quarter, key ones include (1) `530cr order for MEP works
of a Mall in Qatar, and (2) `201cr order for MEP works of a Commercial Building
in Qatar.
August 4, 2016
3
Voltas | 1QFY2017 Result Update
Valuation
At the current market price of `349, the stock is trading at FY2017E and FY2018E
P/E of 27.0x and 21.4x, respectively. With 7th pay commission to be implemented,
inflation under control, rate cut cycle expected to continue, coupled with Voltas’
strong positioning in Air Conditioning market, we believe that the company should
continue to report strong growth in UCP segment, going forward.
In FY2016, UCP segment contributed ~67% of consol. EBIT. Also, completion of
low margin EMP projects and increased contribution of high margin projects
indicate that EBIT margins of EMP segment would improve from 1.4% in FY2016 to
5.0% in FY2018E. On the whole, we expect Voltas to report a top-line and
bottom-line CAGR of 13.3% and 18.1% during FY2016-18E, respectively. Our
growth assumption captures (a) pick-up in international award activity, which
should lead to top-line growth as well as EMP segment EBIT margin expansion,
and (b) continued growth in domestic AC sales, with Voltas being able to retain its
‘numero uno’ status. Noticeably in the last few years, the EBIT mix of Voltas has
shifted from being heavily dependent on the EMP segment to a now dominant
share of the UCP segment. Contribution of UCP segment in consol. EBIT has
increased from 32% in FY2011 to 67% in FY2016. We expect the same to be over
61% levels during FY2016-18E. Considering the shift in the consol. EBIT mix,
positive cues, and case for improvement in the business segments’ performances,
we expect scope for improved profitability and better investment return ratios,
going forward. We assign Voltas 25.0x PE multiple to our FY2018E EPS estimate of
`16.3/share and arrive at a price target of `407. Given the upside from current
levels, we maintain Buy rating on the stock.
August 4, 2016
4
Voltas | 1QFY2017 Result Update
Investment Arguments
Growth in UCP segment to continue: Voltas has maintained 20%+ market share in
the domestic air-conditioning market despite stiff competition from MNC players.
Its ‘numero uno’ position is owing to its (1) wide distribution network (10,000-
11,000 touch-points), (2) wide portfolio of 65+ models, (3) strong post-sale
support (including 5-year warranty on compressor), and (4) strong advertising
focus with the company being among top 5 media spenders in the AC segment.
With economic indicators turning favorable, the company’s competitive positioning
should help the UCP segment report a 19.5% top-line and 16.6% EBIT CAGR,
respectively, during FY2016-18E.
Gradual recovery in the EMP business: Voltas’ EMP business was adversely affected
due to weak awarding environment, slow execution and cost over-runs. In the run-
up to the Qatar World Cup 2022 and Dubai Expo 2020, we expect international
awarding activity to gradually catch-up from FY2017E onwards. Surge in order
book should translate to uptick in execution (we expect 10.7% top-line CAGR
during FY2016-18E). With legacy projects almost completed and contribution of
high margin projects kicking-in, we expect the segment’s margins to expand from
1.4% in FY2016 to 5.0% in FY2018E.
Balance Sheet strength: Voltas pursues an asset light business model and in the
due course of business it resorts to outsourcing and strategic tie-ups, thereby
enabling it to control its operating costs and generate high profitability. As a result,
we expect Voltas to revert to it its earlier trend of higher RoEs. Given the asset light
business model, the company has been generating strong cash flows (it generated
`1,029cr of cash flows from business during FY2013-16). As of 4QFY2016-end,
Voltas is a debt free company (on net basis), with cash & liquid investment balance
of `863.8cr.
Risks & Concerns
AC sales contributed ~50% of FY2016 consolidated revenues. Given that
Voltas is present only in the AC business across the entire Consumer Durables
space, loss of major market share could act as a risk to our estimates. Any
such development could lead to lower than expected EBIT contribution to the
consol. profits and our estimates.
Revenues from the EPS segment are based on agreement for supplying Textile,
Mining & Construction equipment. Any termination of such agreements shall
impact our forecasted revenues for the segment.
Most of the long term international projects are fixed price contracts and in the
due course of its business, Voltas also imports. Any adverse currency
fluctuations may impact the raw material pricing as well as margins.
Cancellation of Qatar World Cup 2022 or Expo 2020 could affect our EMP
segment assumptions.
August 4, 2016
5
Voltas | 1QFY2017 Result Update
Profit & Loss Statement (Consolidated)
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E FY18E
Net Sales
5,531
5,266
5,183
5,857
6,511
7,514
% Chg
6.7
(4.8)
(1.6)
13.0
11.2
15.4
Total Expenditure
5,287
5,000
4,773
5,421
5,995
6,859
Cost of RM Consumed
4,167
3,854
3,597
4,126
4,568
5,242
Employee benefits Expense
633
595
590
670
746
845
Other Expenses
487
551
586
625
681
771
EBITDA
244
266
410
437
516
655
% Chg
(27.5)
8.9
54.4
6.6
18.1
26.9
EBIDTA %
4.4
5.0
7.9
7.5
7.9
8.7
Depreciation
28
25
28
28
31
33
EBIT
216
241
382
409
485
622
% Chg
(28.6)
11.4
58.7
7.1
18.5
28.3
Interest and Fin. Charges
38
23
23
15
15
9
Other Income
90
100
109
118
131
142
PBT
268
318
467
511
600
755
Exceptional Items
12
22
46
41
0
0
Prior Period Adjustments
0
0
0
0
0
0
Tax
73
94
128
160
174
219
% of PBT
27.2
29.6
27.3
31.3
29.0
29.0
PAT from ordinary activities
207
246
386
392
426
536
Share of Profit / (loss of
Associate) & Minority Interest
1
(0)
(2)
(7)
1
3
in (profit)/ loss
PAT
208
245
384
386
427
538
% Chg
28.2
18.1
56.6
0.3
10.8
26.0
PAT %
3.8
4.7
7.4
6.6
6.6
7.2
Diluted EPS
6.3
7.4
11.6
11.7
12.9
16.3
% Chg
28.2
18.1
56.6
0.3
10.8
26.0
Note: 1QFY2016 & 1QFY2017 numbers are reported as per Ind AS, FY2016 numbers & other
quarters continue to be reported as per Indian GAAP.
August 4, 2016
6
Voltas | 1QFY2017 Result Update
Balance Sheet (Consolidated)
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E
FY18E
Sources of Funds
Equity Capital
33
33
33
33
33
33
Reserves & Surplus Total
1,593
1,786
2,069
2,362
2,675
3,064
Networth
1,626
1,819
2,102
2,395
2,708
3,097
Total Debt
261
263
122
260
155
100
Minority Interest
12
14
16
26
26
26
Long-term Liabilities &
120
122
130
156
166
180
Provision
Total Liabilities
2,019
2,218
2,370
2,837
3,055
3,402
Application of Funds
Gross Block
406
459
455
508
534
560
Accumulated
195
251
266
294
325
358
Depreciation
Net Block
211
209
189
215
209
202
Capital WIP
0
2
4
8
6
7
Goodwill
89
80
80
72
72
72
Investments
407
732
1,094
1,526
1,609
1,844
Deferred Tax Assets
24
26
37
53
53
53
Inventories
978
901
867
893
1,013
1,190
Sundry Debtors
1,362
1,335
1,339
1,307
1,538
1,765
Cash and Bank Balance
350
282
252
197
186
131
Loans & Advances &
1,041
1,027
922
1,167
1,174
1,338
Oth. Current Assets
Current Liabilities
2,548
2,527
2,519
2,762
2,969
3,375
Net Current Assets
1,183
1,018
861
802
942
1,048
Other Assets
104
152
105
162
165
176
Total Assets
2,019
2,218
2,370
2,837
3,055
3,402
Note: 1QFY2016 & 1QFY2017 numbers are reported as per Ind AS, FY2016 numbers & other
quarters continue to be reported as per Indian GAAP.
August 4, 2016
7
Voltas | 1QFY2017 Result Update
Cash Flow Statement (Consolidated)
Y/E March (` cr)
FY13
FY14
FY15
FY16
FY17E FY18E
Profit before tax
243
257
434
511
600
755
Depreciation
22
19
22
28
31
33
Other Adjustments
(147)
(40)
(248)
47
(75)
(83)
Change in Working Capital
21
164
83
(26)
(144)
(159)
Interest & Fin. Charges (net)
17
8
10
11
10
5
Direct taxes paid
(92)
(74)
(80)
(160)
(174)
(219)
Cash Flow from Operations
64
334
221
411
249
332
(Inc)/ Dec in Fixed Assets
8
(20)
210
(57)
(23)
(27)
(Inc)/ Dec in Invest. & Int. recd.
36
(273)
(269)
(432)
(3)
(145)
Cash Flow from Investing
44
(292)
(59)
(489)
(26)
(173)
Inc./ (Dec.) in Borrowings
34
(19)
(140)
138
(105)
(55)
Issue/ (Buy Back) of Equity
0
0
0
0
0
0
Dividend Paid (Incl. Tax)
(61)
(57)
(64)
(92)
(114)
(150)
Finance Cost
(26)
(17)
(16)
(15)
(15)
(9)
Cash Flow from Financing
(53)
(93)
(221)
30
(234)
(214)
Inc./(Dec.) in Cash
54
(51)
(59)
(47)
(11)
(55)
Opening Cash balances
200
255
203
144
97
86
Closing Cash balances
255
203
144
97
86
31
Note: 1QFY2016 & 1QFY2017 numbers are reported as per Ind AS, FY2016 numbers & other
quarters continue to be reported as per Indian GAAP.
August 4, 2016
8
Voltas | 1QFY2017 Result Update
Key Ratios
Y/E March
FY13
FY14
FY15
FY16
FY17E FY18E
Valuation Ratio (x)
P/E (on FDEPS)
55.5
47.0
30.0
29.9
27.0
21.4
P/CEPS
48.9
42.7
28.0
27.9
25.1
20.2
Dividend yield (%)
0.5%
0.5%
0.6%
0.7%
0.9%
1.1%
EV/Sales
2.1
2.2
2.2
2.0
1.8
1.5
EV/EBITDA
46.9
43.3
27.8
26.5
22.3
17.6
EV / Total Assets
5.7
5.2
4.8
4.1
3.8
3.4
Per Share Data (`)
EPS (Diluted)
6.3
7.4
11.6
11.7
12.9
16.3
Cash EPS
7.1
8.2
12.5
12.5
13.9
17.3
DPS
1.9
1.9
2.3
2.4
3.0
3.9
Book Value
49.1
55.0
63.5
72.4
81.9
93.6
Returns (%)
RoCE (Pre-tax)
19.3
22.4
36.4
42.2
46.4
52.7
Angel RoIC (Pre-tax)
16.2
16.4
22.1
19.8
21.5
23.9
RoE
12.8
14.2
19.6
17.1
16.7
18.5
Turnover ratios (x)
Asset Turnover (Gross Block) (x)
13.6
12.2
11.3
12.2
12.5
13.7
Inventory / Sales (days)
65
65
62
55
53
54
Receivables (days)
90
93
94
82
80
80
Payables (days)
113
116
112
102
100
95
NWC days
41
43
45
35
33
38
Leverage Ratios (x)
Net D/E ratio (x)
(0.1)
(0.0)
(0.1)
0.0
(0.0)
(0.0)
Interest Coverage Ratio (x)
8.0
15.1
21.1
34.4
41.0
81.1
Note: 1QFY2016 & 1QFY2017 numbers are reported as per Ind AS, FY2016 numbers & other
quarters continue to be reported as per Indian GAAP.
August 4, 2016
9
Voltas | 1QFY2017 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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Disclosure of Interest Statement
Voltas
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives
No
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
August 4, 2016
10