Buy Voltas - Latin Manharlal Securities Pvt Ltd.

Incorporated in 1954, Voltas Ltd is a provider of integrated end-to-end solutions in electro-mechanicals and refrigeration. The scope of work for Voltas include 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, materials handling equipment, water management & treatment, cold chain solutions, building management systems, and indoor air quality.

Global AC market estimated to grow at a CAGR of 18.5%

The global air conditioning market has been estimated to increase at a CAGR of 18.5% over the period to CY2017. Having witnessed a temporary disruption in growth, primarily due to the recent economic recession, the global market for air conditioning systems staged a remarkable recovery in the year 2010 and is now projected further to register 144.30 mn units in volume sales by 2017.

Emerged as the Leader in the domestic AC market

At long last, Voltas is now the no. 1 in domestic AC market, as confirmed by Nielsen GFK. In a market packed with strong MNC players (LG, Samsung, Hitachi, IFB, Carrier etc), Voltas has emerged as the surprise leader in the AC market (July 2012 report). Voltas increased its market share from 15.7 % in Q1 of 2011 to 21 % in July 2012 to claim leadership.

Strong footprint in Retail AC segment

In terms of its retail footprint, Voltas has over 6,000 consumer touch points and 1,100 direct service touch points. The company has major leadership in the northern markets, which contribute 45% of all India AC sales. In markets such as Delhi and Bihar, its market share was upwards of 39%. In the southern markets such as Kerala and Karnataka, where the brand claims to be making rapid inroads, the market share is upwards of 30%.

Product Positioning + Strategy + Marketing Campaign = Key Success to its Growth

With a highly competitive air-conditioners industry with well-established names, Voltas has attempted to differentiate itself through a constant change in its marketing approach. Over the years, Voltas has gone through several transitions in terms of its positioning and communication plans. The company' latest campaign 'All Weather' AC attempts to go beyond the conventional 'cooling' route followed by several air-conditioner brands in their marketing campaigns.

1QFY13: UCP division seen strong growth + EMPS too showed stability

Voltas has reported 40% y-o-y decline in the consolidated Net profit to Rs 79.1 Crs over 19.8% growth in the revenue to Rs 1611.6 Crs. While all the 3 segments of the company have reported growth in revenues, UCP business has reported highest growth in revenues. UCP business constituted 47% of total revenues (~30% in FY12) and 54% of segment profits for the quarter (~35% in FY12). Revenues from EMPS business grew 10% to Rs 741.3 Crs and constituted 46% of the total revenues.

Consistent Dividend payout history

The company has been very good in rewarding its shareholders in the form of Bonus (FY1971, FY1981, FY1989) and Dividend.

At the CMP of Rs.125 the stock is trading at 13.0x its FY14E EPS of Rs.9.63. We maintain our BUY on the stock with a 12-18 months target price of Rs.195, providing an upside of 56.0% from the current levels.

Source : Equity Bulls

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