>VOLTAS (CITI)

Sell: Inline 1QFY10 – Order Inflow Remains a Worry

■ Inline 1QFY10 results — Voltas’ 1QFY10 recurring PAT at Rs678mn was inline with CIRA estimate of Rs670mn. Revenue at Rs11.7bn grew 16% YoY and was 6% ahead of estimates. Margin at 7.5% declined 18bps YoY and was 47bps below estimates.

■ Order inflow remains a cause of conern — Voltas’s order backlog at Rs46.7bn is down 18% YoY. International order backlog at Rs34bn is down 26% YoY and provides sales coverage till September 2010 only. International order inflow has not picked up yet, though Voltas has indicated that it has received inquiries from several customers.

■ Domestic market seems to have bottomed out — Voltas has won ~Rs3bn of domestic orders in 1QFY10 and is seeing MoM improvement in order inflow and product sales in domestic market.

■ Engineering products and services division is still sluggish — as mining and construction equipment inventory has still not been depleted, and textile machinery is likely to pick up very slowly starting 2HFY10.

■ Unitary cooling products have improved — helped by prolonged summer. The company has managed to run down inventory to a significant extent and has experienced stock outs in 1QFY10 due to high demand.

■ Reiterate Sell — Voltas is trading at ~16x 1Yr fwd EPS. We believe that order inflows especially from international projects will take time to pick up. The current price is discounting a very optimistic outlook for order inflow.

To see full report: VOLTAS