Voltas February 13, 2013
!
Weak results: Voltas reported flat sales for the quarter at Rs11.5bn (PLe: Rs10.6bn). The MEP segment reported sales de-growth of 3.3% YoY to Rs7.9bn. Sale for the UCP segment came in lower at Rs2.3bn, up 2% YoY. EBITDA margin came in at 2.4%, down 275bps YoY. EBIT for the MEP segment stood at 0.75%, down 655bps YoY largely due to sales from Sidra project being booked at cost and delay in clearance/certification in few international projects and execution of low margin orders. EBIT margin for the UCP segment also came in lower at 6.2% (largely due to lower volume and higher advertising cost). Adj. PAT stood at Rs378m down 42% YoY (PLe: Rs436m). Reported PAT stood at Rs760m; however, the company reported an exceptional item of ~Rs560m relating to profit on sale of investments.
!
Improved inflow for the quarter‐focus shifting back to profitability: Order inflow for the quarter stood at ~Rs8bn (up 2.2xQoQ and down 16% YoY). Order inflow for the quarter largely came from domestic market and mainly from the Industrial segment and IT/ITES sector. Order book at the end of the quarter stood at Rs42bn (down 18% YoY). The company highlighted that the margin in few of the projects in international markets have come down to unsustainable levels and does not make sense to pick-up orders at such low margins. (Case in point being Abu Dhabi airport MEP package which was initially priced at AED3bn was finally awarded at a price of AED2bn). The company highlighted that it is not aggressively chasing orders with low margin and decided to stick with projects offering decent margins and better cash flows.
Kunal Sheth
[email protected] +91-22-66322257 Gaurav Jogani
[email protected] +91-22-66322238 Rating Price Target Price Implied Upside Sensex Nifty
Accumulate Rs93 Rs123 32.3% 19,608 5,933
(Prices as on February 13, 2013) Trading data Market Cap. (Rs bn) Shares o/s (m) 3M Avg. Daily value (Rs m) Major shareholders Promoters Foreign Domestic Inst. Public & Other Stock Performance (%) 1M 6M Absolute (10.5) (14.5) Relative (10.2) (25.7) How we differ from Consensus EPS (Rs) PL Cons. 2014 8.8 9.1 2015 9.6 10.5
30.8 330.7 220.2 30.15% 21.65% 25.71% 22.49% 12M (4.7) (15.0) % Diff. ‐4.0 ‐8.3
Price Performance (RIC: VOLT.BO, BB: VOLT IN)
Source: Bloomberg
Feb-13
Dec-12
Oct-12
Aug-12
Jun-12
Apr-12
Feb-12
(Rs) 160 140 120 100 80 60 40 20 0
Contd…2
Key financials (Y/e March) Revenues (Rs m) Growth (%) EBITDA (Rs m) PAT (Rs m) EPS (Rs) Growth (%) Net DPS (Rs) Profitability & Valuation EBITDA margin (%) RoE (%) RoCE (%) EV / sales (x) EV / EBITDA (x) PE (x) P / BV (x) Net dividend yield (%)
2012 51,857 0.2 3,365 737 2.2 (76.3) 1.6
2013 54,569 5.2 2,327 2,047 6.2 176.8 1.5
2014E 54,762 0.4 3,597 2,914 8.8 41.9 2.2
2015E 59,290 8.3 3,909 3,211 9.6 10.2 2.4
2012 6.5 5.2 5.9 0.6 9.0 41.8 2.1 1.7
2013 4.3 12.9 12.2 0.5 12.8 15.1 1.8 1.7
2014E 6.6 15.8 15.0 0.5 7.5 10.6 1.6 2.4
2015E 6.6 14.9 14.3 0.4 6.5 9.6 1.3 2.6
Source: Company Data; PL Research
Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report
Q3FY13 Result Update
Focus back on profitability
Voltas
February 13, 2013
!
Update on Sidra: The Sidra project is 90% complete. Voltas is working with the main contractor to firm-up date for completion. The company continue to submit variation and claim pertaining to Sidra. We expect write-back from Sidra to happen from Nov/Dec 2012.
!
UCP ‐ Continues to grow faster than market: Voltas highlighted that the sales during the festive season were sluggish largely impacted by economic uncertainties, coupled with generally lower disposable incomes, higher prices and poor consumer sentiment. However, the company continued to grow faster than the market (industry de-growth by 1% in the quarter, Voltas sales up 2%). Margins in the segment were largely impacted by lower volumes and continued spend on advertising and brand building. Growth has also been driven by better traction witnessed in Commercial refrigeration products through sizeable OEM orders.
!
Over the nine month period, the company has sustained a leadership position in air conditioners. The 'all weather' proposition proved its appeal with both consumers and trade by addressing market needs of the winter months and helped secure better sales growth, especially in the Northern markets. New product range, coupled with a customer-oriented marketing thrust, will help continue the build-up and penetration and help sustain growth in the segment.
!
Outlook and Valuation: The stock is trading at 10.6x FY14E earnings. We continue to believe that the worst might be behind us, given that the provisions on cost overruns on Sidra project have already been accounted for. The outlook might be slightly muted in the near term on order flow and margin, given the increased reach in terms of geography in international markets and business segments in the domestic market which should help order flow once cycle turns. We maintain our ‘Accumulate’ rating on this stock.
2
Voltas
Exhibit 1:
Q3FY13 Result Overview (Rs m)
Y/e March
Q3FY13
Q3FY12
YoY gr. (%)
Q2FY13
9MFY13
9MFY12
YoY gr. (%)
Net Sales
11,525
11,539
(0.1)
11,601
39,242
36,016
9.0
Raw Material
8,813
7,983
10.4
8,485
29,346
26,150
12.2
76.5
69.2
73.1
74.8
72.6
Personnel Cost
1,473
1,628
1,629
4,747
4,578
12.8
14.1
14.0
12.1
12.7
998
1,162
(14.1)
1,091
3,623
3,383
Expenditure % of Net Sales % of Net Sales
Others
% of Net Sales
Total Expenditure EBITDA
Margin (%)
(9.5)
3.7 7.1
8.7
10.1
9.4
9.2
9.4
11,283
10,773
4.7
11,204
37,716
34,111
10.6
242
766
(68.4)
397
1,526
1,904
(19.9)
2.1
6.6
3.4
3.9
5.3
Other income
243
272
(10.6)
227
872
908
(4.0)
Depreciation
70
84
(17.0)
77
219
276
(20.4)
416
954
(56.4)
547
2,178
2,536
(14.1)
72
64
12.6
85
278
219
26.8
EBIT Interest Extra Ordinary
560
—
—
560
—
PBT
944
891
6.0
462
1,901
2,317
(18.0)
Total Taxes
181
544
(66.8)
177
674
1,302
(48.2)
19.1
61.0
38.3
35.4
56.2
Adjusted PAT
ETR (%)
378
661
(42.8)
332
1,414
1,623
(12.9)
Reported PAT
761
(1,165)
(165.4)
430
1,981
569
248.2
Q3FY13
Q3FY12
YoY gr. (%)
Q2FY13
9MFY13
9MFY12
YoY gr. (%)
Electro-mechanical projects & services
7,973
8,241
(3.3)
7,776
23,162
22,633
2.3
69.3
71.4
67.0
59.1
62.8
1,067
877
21.6
1,139
3,272
3,052
9.8
8.3
8.5
2.1
2,570
12,501
10,073
22.2
31.9
28.0
11,601
39,216
36,016
Source: Company Data, PL Research Exhibit 2:
Segmental Break‐up (Rs m)
Y/e March Revenue % of total Revenue
Engineering products & services
9.3
7.6
Unitary Cooling products
% of total Revenue
2,388
2,338
20.8
20.3
11,500
11,539
% of total Revenue
Total
(0.3)
7.2 24.1 8.9
EBIT Margin (%) Electro-mechanical projects & services
0.7
7.3
1.0
2.0
4.2
24.7
19.0
18.6
20.5
16.9
Unitary Cooling products
6.2
6.1
7.8
7.8
8.3
Total
4.0
7.8
4.3
5.4
7.0
Engineering products & services
Source: Company Data, PL Research
February 13, 2013
3
Voltas Income Statement (Rs m) Y/e March 2012 Net Revenue Raw Material Expenses Gross Profit Employee Cost Other Expenses EBITDA Depr. & Amortization Net Interest Other Income Profit before Tax Total Tax Profit after Tax Ex-Od items / Min. Int. Adj. PAT Avg. Shares O/S (m) EPS (Rs.)
Cash Flow Abstract (Rs m) Y/e March
51,857 37,800 14,058 5,995 4,698 3,365 340 314 2,490 5,200 571 4,629 (883) 737 330.7 2.2
2013
2014E
2015E
54,569 38,744 15,825 6,712 6,786 2,327 329 280 1,124 2,843 796 2,047 — 2,047 331.7 6.2
54,762 39,429 15,333 7,283 4,453 3,597 400 301 1,151 4,048 1,133 2,914 — 2,914 332.7 8.8
59,290 42,689 16,601 7,886 4,807 3,909 424 301 1,275 4,459 1,249 3,211 — 3,211 332.7 9.6
2012
2013
2014E
2015E
(2,064) 963 (280) (1,381) 4,980 2,710 (2,790) (1,920)
2,026 (530) (978) 519 2,710 3,229 1,247 1,147
4,529 (500) (1,154) 2,875 3,229 6,104 3,927 3,927
3,329 (500) (1,240) 1,588 6,104 7,693 2,728 2,728
Key Financial Metrics Y/e March Growth
2012
2013
2014E
2015E
Revenue (%) EBITDA (%) PAT (%) EPS (%)
0.2 (23.7) (76.3) (76.3)
5.2 (30.8) 177.6 176.8
0.4 54.6 42.4 41.9
8.3 8.7 10.2 10.2
6.6 5.3 15.0 15.8
6.6 5.4 14.3 14.9
(0.2) (6)
(0.2) (6)
10.6 1.6 7.5 0.5
9.6 1.3 6.5 0.4
28.0 28.4 8.0 134.8
28.0 28.6 8.0 85.0
C/F from Operations C/F from Investing C/F from Financing Inc. / Dec. in Cash Opening Cash Closing Cash FCFF FCFE
Profitability EBITDA Margin (%) PAT Margin (%) RoCE (%) RoE (%)
6.5 1.4 5.9 5.2
Balance Sheet Net Debt : Equity Net Wrkng Cap. (days)
Valuation PER (x) P / B (x) EV / EBITDA (x) EV / Sales (x)
Earnings Quality Eff. Tax Rate 26.1 Other Inc / PBT 26.7 Eff. Depr. Rate (%) 8.1 FCFE / PAT (260.4) Source: Company Data, PL Research.
February 13, 2013
2014E
2015E
17,027 2,153 187 19,366 2,221 825 3,146 12,033 3,229 32,071 23,267 1,141 19,366
19,951 2,153 206 22,310 2,121 826 3,346 13,995 6,104 31,642 23,752 2,021 22,309
23,082 2,153 226 25,461 1,997 826 3,546 16,190 7,693 34,256 25,758 2,901 25,461
Quarterly Financials (Rs m) Y/e March Q4FY12
Q1FY13
Q2FY13
Q3FY13
16,116 887 5.5 73 121 402 1,106 316 780 780
11,601 397 3.4 77 85 227 607 177 284 284
11,525 242 2.1 70 72 243 344 181 164 164
Net Revenue 15,735 EBITDA 1,356 % of revenue 8.6 Depr. & Amortization 64 Net Interest 95 Other Income 184 Profit before Tax 1,407 Total Tax 360 Profit after Tax 1,013 Adj. PAT 1,013 Source: Company Data, PL Research.
(0.1) (5)
41.8 2.1 9.0 0.6
2013
14,761 2,252 189 17,202 2,050 890 3,116 10,885 2,710 32,558 24,383 261 17,202
Shareholder's Funds Total Debt Other Liabilities Total Liabilities Net Fixed Assets Goodwill Investments Net Current Assets Cash & Equivalents Other Current Assets Current Liabilities Other Assets Total Assets
4.3 3.8 12.2 12.9
— (31)
Balance Sheet Abstract (Rs m) Y/e March 2012
15.1 1.8 12.8 0.5
28.0 39.5 7.0 56.1
4
Voltas
Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209 Rating Distribution of Research Coverage
55.9%
60%
% of Total Coverage
50% 40% 30% 20%
24.6% 18.6%
10%
0.8%
0% BUY
Accumulate
Reduce
PL’s Recommendation Nomenclature
Sell
BUY
:
Over 15% Outperformance to Sensex over 12-months
Accumulate
:
Outperformance to Sensex over 12-months
Reduce
:
Underperformance to Sensex over 12-months
Sell
:
Over 15% underperformance to Sensex over 12-months
Trading Buy
:
Over 10% absolute upside in 1-month
Trading Sell
:
Over 10% absolute decline in 1-month
Not Rated (NR)
:
No specific call on the stock
Under Review (UR)
:
Rating likely to change shortly
This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accept any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. We may from time to time solicit or perform investment banking or other services for any company mentioned in this document.
February 13, 2013
5
