BUY

SUHANI ADILABADKAR RESEARCH REPORT

Q4 FY17

VOLTAS LTD

CMP

CONSOLIDATED

Rs 509.80

TARGET

QUARTERLY OUTLOOK & RECOMMENDATION VOLTAS LTD exhibited phenomenal sequential growth for fourth quarter FY17 along with stable yearly numbers propelled by its unitary cooling products which grew 28% YOY. Revenue stood at Rs. 20583 Mn for current quarter against Rs. 18634 Mn moving 10% up YOY and 72% sequentially. EBDITA for Q4 FY17 was reported at Rs. 2605 Mn compared to Rs. 2201 Mn same period previous year expanding 18% on yearly basis and galloping 75% quarterly. PAT zoomed to Rs. 2005 Mn in the current March quarter against Rs. 1642 Mn corresponding period previous year growing 22% YOY. Sequential growth was more than double or 146% in the current March quarter. Other Income was the only parameter declining both yearly and quarterly by 2% and 35% respectively in the current Q4 FY17 and was reported at Rs. 386 Mn compared to Rs. 393 Mn in Q4 FY16. Operating expenditure was at Rs. 18420 Mn in the current quarter against Rs. 16900 Mn same period previous year growing 9% YOY. With all double digit growth, both EBDITA & Net Profit Margin expanded 85 bp & 93 bp YOY respectively. One basis point is 1/100th of a percentage. EBDITA & Net Profit Margin stood at 12.66% & 9.74% in the current March quarter against 11.81% & 8.81% corresponding quarter previous year. Voltas Ltd with market cap of Rs.168642 Mn is India's largest air conditioning company, and one of the world's premier engineering solutions providers and project specialists. The company offers engineering solutions for a wide spectrum of industries in areas such as heating, ventilation and air conditioning, refrigeration, electromechanical projects, textile machinery, mining and construction equipment, water management & treatment, cold chain solutions, building management systems, and indoor air quality. After performing well in the demonetization hit December quarter, Voltas has moved even stronger both YOY and sequentially on the back of high revenue growth, controlled cost structure, and lower finance costs. Though GST impact will be known in the coming quarters, pick up in the domestic economy augurs well for the company. The company has market share of 21.40% for the year 2016-17. We recommend BUY for the stock for medium & long term investment with PE multiple of 32.98 x FY18E & 26.62 x FY19E with a target price of Rs. 665.

Rs. 665.00

INDUSTRY

CONSTRUCTION & ENGINEERING

SCRIP CODE

500575

FACE VALUE

Rs. 1.00

MARKET Rs. 168641.84 Mn CAP 52 WEEK Rs. 520.00/Rs.287.00 HIGH/LOW SHAREHOLDING PATTERN (%) PROMOTER

30.30

PUBLIC

69.70

OTHERS TOTAL

In Mn

Q4 FY17

100.00 Q4 FY16 CHN%

REVENUE

20582.60

18633.60

10%

PAT

2004.70

1642.30

22%

EBDITA

2605.20

2201.00

18%

6.06

4.96

22%

FY17A

FY18E

FY19E

REVENUE

60950.20

65216.71

68803.63

PAT

5114.20

6334.60

7450.28

EBDITA

7789.10

9256.01

10404.57

EPS

15.46

19.15

22.52

PE

32.98

26.62

22.64

EPS

In Mn

VOLTAS LTD V/S S&P BSE SENSEX

PERFORMANCE METRICS (March Quarter FY17) Profitability Analysis NET PROFIT GROWTH (Rs. In Mn) 2500

EBDITA (Rs. In Mn) Q4 FY17

2605

2005

2000 1642

Q3 FY17

1486

1576

1500 Q2 FY17 1000 721

1345

816 Q1 FY17

2353

500 Q4 FY16

2201

0 Q4 FY16 Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17

Voltas Ltd reported strong March quarter supported by its cooling products business resulting in double digit growth for Revenue, PAT & EBDITA except other income which declined both yearly and QOQ. In seasonally strong March quarter, revenue rose 10% YOY and 72% sequentially. PAT jumped 22% YOY and 146% sequentially at Rs. 2005 Mn in the current March quarter. Profit Before Tax grew 7% YOY and stood at Rs. 2493 Mn against Rs. 2339 Mn in Q4 FY16. EBDITA expanded 18% YOY with operating expenditure rising just 9% on yearly basis. Operating expenditure stood at Rs. 18420 Mn against Rs. 16900 Mn same period previous year. EBDITA Margin expanded 85 basis points YOY and was reported at 12.66% in the current quarter. Net Profit Margin was at 9.74% in the current quarter against 8.81% in the corresponding March quarter previous year. Net Profit Margin also improved 294 basis points QOQ. Other Income for the March stood at Rs. 386 Mn compared to Rs. 393 Mn declining 2% yearly and 35% sequentially.

0

1000

2000

3000

REVENUE GROWTH (Rs. In Mn)

25000 18634

20000

20583 18552

12001

15000

9815

10000

5000

0 Q4 FY16

Q1 FY17

Q2 FY17

Q3 FY17

Q4 FY17

OTHER INCOME (Rs. In Mn)

NET PROFIT MARGIN 12.00%

386

Q4 FY17

10.00%

Q3 FY17

597

Q2 FY17

8.81% 8.50%

8.00%

658

Q1 FY17

9.74%

7.35% 6.80%

6.00% 4.00%

357

2.00%

Q4 FY16

393 0.00% 0

200

400

600

800

Q4 FY16

Q1 FY17

Q2 FY17

Q3 FY17

Q4 FY17

Expenditure Analysis

Rs. In Mn Cost of Materials

Stock In trade

Q4 FY17

Q4 FY16

CHG%

10499.70

9508.80

10%

3638.50

2914.50

25%

COST OF MATERIAL (Rs. In Mn)

12000 10000

9509

10500

10104 8111

8000 Excise Duty

232.00

80.00

190%

Employee Benefit Expenses

1484.70

1740.40

-15%

Depreciation & Amortization Other Expenses

6000

5447

4000 2000 56.20

75.20

-25%

1795.10

1597.10

12%

0

Total operating expenditure grew 9% YOY in the current March quarter and stood at Rs. 18420 Mn. Cost of material is the major constituent with 59% of total operating expenditure. On quarterly basis, cost of material grew 29% whereas YOY growth was 10%. Stock in trade jumped 25% YOY in the current March quarter and it contributes 21% to total operating expenditure. Other expenses constitute the next biggest chunk 10% of

expenditure, rising 12% YOY whereas QOQ rise was 42%. Employee Benefit expenditure forms 9% of operating expenditure in the current March quarter declining 15% YOY and was constant sequentially. Excise Duty comprises 1% and rose 3 times YOY whereas the quarterly jump was 18%. DEPRECIATION (Rs. In Mn)

80

INTEREST EXPENSE (Rs. In Mn) 70

75 66

70

63

60 60

60

56

50

50

30

30 20

20

Q4 FY16 Q1FY17 Q2 FY17 Q3 FY17 Q4 FY17

TAXATION EXPENSE (Rs. In Mn) 800 671

651

600 500

33 22

10

10

700

48

40

40

0

58

54

505

496 437

400 300 200 100 0 Q4 FY16 Q1FY17 Q2 FY17 Q3 FY17 Q4 FY17

0 Q4 FY16 Q1FY17 Q2 FY17 Q3 FY17 Q4 FY17

EBDITA margin grew 85 BP YOY as both operating expenditure & Revenue grew almost parallely in the current March quarter. EBDITA Margin stood at 12.66% & 12.38% in Q4 & Q3 FY17 respectively rising 27 basis points sequentially even though operating expenditure jumped 64% QOQ as revenue grew at a even higher rate of 72%. Depreciation forms negligible proportion of total operating expenditure and declined 25% YOY and 6% sequentially. Interest expenses after declining over the last few quarters jumped almost 3 times QOQ and accounted for about 3% of PAT in the current quarter. On absolute basis, rise in interest expenses QOQ was about Rs. 36 in Q4 FY17. Taxation expenditure accounted 2.40% of total revenue in current quarter and on yearly terms declined 26%. On quarterly basis, Taxation expenditure increased 13%. Total expenditure including finance costs and taxation rose 8% YOY

and constituted 92% of total revenues compared to 95% of revenues same as corresponding quarter previous year.

Segment Revenue Analysis

Rs. In Mn

ElectroMechanical Projects & Services

Engineering Products & Services Unitary Cooling Products for Comfort & Commercial Use

Q4 FY17

Q4 FY16

CHG%

8290.00

9062.60

-8.53%

1068.30

10860.10

929.00

8503.90

14.99%

27.71%

REVENUE MIX

ElectroMechanical Projects & Services 41%

Unitary Cooling Products for Comfort & Commercial Use 54%

Engineering Products & Services 5%

Electro-Mechanical Projects & Services Voltas' credentials as an EPC (Engineeering, Procurement & Construction) contractor are well-established in electro-mechanical projects, specifically turnkey projects such as Electro-mechanical works consisting of electrical building services, HVAC (heating, ventilation & air conditioning), plumbing, public health, fire fighting, ELV & specialized systems and Electrical power projects. Electro-Mechanical Projects & Services Revenue was lower at Rs. 8290 Mn as compared to Rs. 9063 Mn in the corresponding quarter last year due to slower progress on certain projects. Engineering Products & Services Engineering Products & Services mainly constitutes textile machinery, mining and construction machinery. Revenue for Engineering Products & Services was reported at Rs. 1068 Mn compared to Rs. 929 Mn in the corresponding quarter last year. Revenue from the segment was higher by 15% YOY and 32% sequentially in the current March quarter.

Unitary Cooling Products for Comfort & Commercial Use This segment comprises of commercial refrigeration, air conditioners and water coolers & dispensers. Revenues were reported at Rs. 10860 Mn compared to Rs. 8504 Mn corresponding quarter previous year, rising 28% YOY and three fold quarterly supported by advantageous weather and higher consumer demand across the country, Voltas remains markets leader in this segment with 21.40% market share.

Corporate Profile Voltas is India's largest air conditioning company, and one of the world's premier engineering solutions providers and project specialists. Founded in India in 1954, Voltas Limited offers engineering solutions for a wide spectrum of 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. Voltas' operations have been organized into three independent business-specific clusters. Each of these has its own facilities for market coverage and service to customers. Electro-Mechanical Projects & Services encompasses electrical, mechanical & refrigeration solutions and electrical & mechanical solutions (international). Engineering Products & Services comprises of textile machinery and mining & construction equipment. Unitary Cooling Products is the third segment constituting air conditioners, commercial refrigeration and water coolers & dispensers. Over more than five decades, Voltas has reached a position of leadership in its businesses and markets as Voltas is India's largest air conditioning company and India's No 1 air conditioner brand. Voltas is also one of the most trusted names in textile machinery and mining & construction equipment.

Financial Analysis QUARTERLY PROFIT & LOSS STATEMENT OF VOLTAS LTD FROM 30th Sep 2016 TO 30th June 2017E

VALUE

30-Sep-16

31-Dec-16

31-March-17

30-June-17E

Rs. In Million

3 months

3 months

3 months

3 months

INCOME FROM OPERATIONS

9814.60

12001.20

20582.60

21508.82

OTHER INCOME

658.40

596.60

386.00

424.60

TOTAL INCOME

10473.00

12597.80

20968.60

21933.42

EXPENDITURE

-9127.90

-11111.60

-18363.40

-19097.94

EBDITA

1345.10

1486.20

2605.20

2835.48

-63.20

-59.60

-56.20

-54.51

1281.90

1426.60

2549.00

2780.97

-32.60

-21.70

-57.70

-51.93

EXCEPTIONAL ITEM

0.00

0.00

1.60

0.00

PROFIT BEFORE TAX

1249.30

1404.90

2492.90

2729.04

TAX

-505.30

-437.10

-495.60

-520.38

PROFIT AFTER TAX

744.00

967.80

1997.30

2208.66

MINORITY INTEREST

23.90

0.00

0.00

0.00

SHARE OF PROFIT / LOSS OF JV & ASSOCIATES

-46.80

-152.20

7.40

8.14

NET PROFIT

721.10

815.60

2004.70

2216.80

EQUITY CAPITAL

330.80

330.80

330.80

330.80

FACE VALUE

1.00

1.00

1.00

1.00

EPS

2.18

2.47

6.06

6.70

DEPRECIATION PROFIT BEFORE INTEREST & TAX INTEREST

ANNUAL PROFIT & LOSS STATEMENT OF VOLTAS LTD FROM 2016 TO 2019E VALUE

31- Mar-16

31- Mar-17

31- Mar-18E

31-Mar-19E

Rs. In Million

12 months

12 months

12 months

12 months

INCOME FROM OPERATIONS

57466.60

65216.71

68803.63

OTHER INCOME

1367.10

60950.20 1998.20

2397.84

2877.41

TOTAL INCOME

58833.70

62948.40

67614.55

71681.04

EXPENDITURE

-53137.00

-55159.30

-58358.54

-61276.47

EBDITA

5696.70

7789.10

9256.01

10404.57

DEPRECIATION

-263.50

-244.50

-256.73

-266.99

PROFIT BEFORE INTEREST & TAX

5433.20

7544.60

8999.29

10137.58

INTEREST

-158.00

-160.40

-165.21

-168.52

EXCEPTIONAL GAIN/LOSS

289.40

11.00

0.00

0.00

PROFIT BEFORE TAX

5564.60

7395.20

8834.08

10137.58

TAX

-1695.70

-2088.50

-2297.35

-2481.14

PROFIT AFTER TAX

3868.90

5306.70

6536.73

7656.44

0.00

0.00

0.00

0.00

62.20

-192.50

-202.13

-206.17

3931.10

5114.20

6334.60

7450.28

330.80

330.80

330.80

330.80

27780.10

32735.40

39070.00

45895.31

1.00

1.00

1.00

1.00

11.88

15.46

19.15

22.52

MINORITY INTEREST SHARE OF PROFIT / LOSS OF JV & ASSOCIATES NET PROFIT EQUITY CAPITAL RESERVES FACE VALUE EPS

Ratio Analysis YEAR

FY 16A

FY 17A

FY 18E

FY19E

EPS

11.88

15.46

19.15

22.52

NPM

6.84%

8.39%

9.71%

10.83%

EBDITA MAGIN

9.91%

12.78%

14.19%

15.12%

ROE

13.76%

16.05%

16.59%

16.56%

EV/EBDITA

28.40

20.51

17.01

14.95

BOOK VALUE

84.98

99.96

119.11

139.74

P/BV

6.00

5.10

4.28

3.65

PE

42.90

32.98

26.62

22.64

BALANCE SHEET OF VOLTAS INDIA LTD FROM 2016-19E CAPITAL & LIABILITIES (Rs. In Mn) CAPITAL RESERVES & SURPLUS NETWORTH NON CONTROLLING INTERESTS NON CURRENT LIABILITIES Provisions Deferred Tax Liabilities Other Non Current Liabilities TOTAL NON CURRENT LIABILITIES CURRENT LIABILTIES Borrowings

2016 330.80 27780.10 28110.90 266.80

2017 330.80 32735.40 33066.20 285.20

2018E

2019E

330.80 39070.00 39400.80 299.46

330.80 45895.31 46226.11 314.43

812.60 96.50 8.00 917.10

914.30 107.20 2.00 1023.50

1005.73 123.28 2.10 1131.11

1086.19 138.07 2.21 1226.47

2707.40

1709.40

Trade Payables

17487.80

19945.70

Other Financial Liabilities Provisions Current Tax Liabilities Other Current Liabilities TOTAL CURRENT LIABILITIES TOTAL EQUITY & LIABILITIES

515.00 1561.70 516.20 6708.20 29496.30 58791.10

529.70 1770.20 475.00 5990.70 30420.70 64795.60

1880.34 22381.85 556.19 1911.82 522.50 6110.51 33363.21 74194.58

2011.96 24396.22 572.87 2026.52 559.08 6232.72 35799.38 83566.39

1952.00 12.90 289.70 723.10 85.60

1727.50 5.50 456.60 723.10 91.70

1813.88 5.78 584.45 737.56 96.29

1868.29 6.06 701.34 752.31 101.10

793.00 11988.50 10.60 317.80 361.00 407.00 594.00 17535.20

586.00 20097.30 7.20 176.00 55.80 305.00 668.30 24900.00

615.30 25771.15 7.56 184.80 61.38 335.50 735.13 30948.77

633.76 30925.38 7.94 194.04 70.59 375.76 793.94 36430.51

7246.80 6676.50 13672.20 1698.00 156.80 28.50 578.50 11198.60 41255.90 58791.10

9070.30 1995.40 14541.10 3130.50 183.80 27.40 724.20 10222.90 39895.60 64795.60

10430.85 2095.17 15122.74 3756.60 205.86 31.51 869.04 10734.05 43245.81 74194.58

11891.16 2199.93 15878.88 4432.79 222.32 34.66 990.71 11485.43 47135.88 83566.39

ASSETS (Rs. In Mn) NON CURRENT ASSETS Property, Plant & Equipment Capital Work In Progress Investment Property Goodwill Other Intangible Assets Financial Assets  Investments in JVs & Associates  Other Investments  Loans  Other Financial Assets Advance Payment Of Taxes Deferred Tax Assets Other Non Current Assets TOTAL NON CURRENT ASSETS CURRENT ASSETS Inventories Other Investments Trade Receivables Cash & Cash Equivalents Bank Balances Loans Other Financial Assets Other Current Assets Total Current Assets TOTAL ASSETS

Industry- Current Scenario Engineering sector has exhibited stupendous growth due to increased investments in infrastructure and industrial production over the last few years. Engineering sector is dependent on both manufacturing and infrastructure sectors which are important to any economy. In India, Engineering Export Promotion Council (EEPC) is the apex body responsible for promotion of engineering goods, products and services from India. India exports transport equipment, capital goods, other machinery/equipment and light engineering products to various countries, especially US and Europe, which account for about 60-65%of exports. Engineering sector in India enjoys a comparative advantage with respect to skilled labor, manufacturing costs, technology and innovation. In addition to all of this, favorable government policies attract foreign investment in the country. As per Department of Industries Policy and Promotion (DIPP), FDI flows in engineering & mechanical industry stood at $ 3296 Mn between 2000-2016. The government has allowed 100% FDI in the sector to give a boost to the manufacturing sector and has also relaxed the excise duties on factory gate tax, capital goods, consumer durables and vehicles.

Comparative Analysis Q4 FY17 VOLTAS LTD Consolidated

SIMPLEX INFRASTRUCTURE LTD LARSEN & TOUBRO LTD

EPS (Rs)

REVENUE (Rs. In Mn)

PAT (Rs. In Mn)

EBDITA (Rs. In Mn)

MKT CAP (Rs. In Mn)

6.06

20582.60

2004.70

2605.20

168641.84

13.51

15500.90

668.30

2107.40

24612.50

32.42

368279.90

31804.10

26959.10

1628542.20

(5.46)

8899.80

(2301.60)

276.30

7274.80

Consolidated

PUNJ LLOYD LTD

SUHANI ADILABADKAR [email protected] 9701063320

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