Maintain ADD on Voltas - Beat in RAC continues - HDFC Securities

Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities

Voltas' 1QFY21 was slightly ahead of expectations as revenue/EBITDA declined by 52/77% YoY (HSIE 59/84%). UCP posted a revenue decline of 60% YoY (in-line) with RAC volume dip of 45% YoY (industry 49% dip). The company retained its market leadership (also in inverter) in RAC with market share expanding to 26.2%. EBIT margin was robust at 15.5% (HSIE 9.5%), led by product mix and cost-saving. EMPS revenue exceeded expectations, although increased provisioning and slow pace of execution led to the higher-than-expected loss. The company's performance in challenging times reinforces our long-term view. Market leadership in underpenetrated RAC along with an entry in large home appliances gives multi-year growth visibility. We increase EPS estimates by 1/3/3% for FY21/FY22/FY23. We value Voltas on a SoTP basis, arriving at an implied P/E of 32x (UCP 38x, EMPS 15x, EPS 12x P/E and Volt-Beko 2x P/S) to derive a target price of Rs 653. Maintain ADD.

Revenue ahead of estimates: Consolidated revenue declined by 52% YoY to Rs 12.7bn (+24% in 1QFY20 and +1% in 4QFY20) vs. expectation of 59% YoY dip. UCP revenue declined by 60% YoY to Rs 7bn (+47% in 1QFY20 and +20% in 4QFY20), in line with our estimates. Despite lockdown, Voltas sold ~2,90,000 RACs in 1QFY21. EMPS declined by 37% YoY (-5% in 1QFY20 and -18% in 4QFY20), ahead of expectations.

EMPS loss higher-than-expected: Voltas surprised with a strong UCP EBIT margin expansion of 236bps YoY to 15.5% (+61bps in 1QFY20 and +423bps in 4QFY20). EBIT stood at Rs 1.1 bn. EMPS recorded an EBIT loss of Rs 393mn (HSIE Rs 264mn). Consolidated EBITDA declined by 77% YoY (HSIE 84% YoY dip) while EBITDA margin fell by 583bps YoY to 5.1% (-35bps in 1QFY20 and +219bps in 4QFY20). APAT fell 58% YoY to Rs 818mn.

Call takeaways: (1) Voltas' market share is higher by 14% than the second player; (2) sustainable UCP EBIT margin at 11-12%; (3) UCP revenue in June grew by 1% YoY.; (4) company currently has Rs 11bn of inventory (~140 days). Trade inventory stands at 40-45 days; (5) current EMPS order book stands at Rs 76.63bn.

Shares of VOLTAS LTD. was last trading in BSE at Rs.628.7 as compared to the previous close of Rs. 615.15. The total number of shares traded during the day was 67623 in over 2038 trades.

The stock hit an intraday high of Rs. 637.15 and intraday low of 618. The net turnover during the day was Rs. 42474269.

Source : Equity Bulls

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