>VOLTAS (PINC RESEARCH)

BACK ON TRACK
Voltas Ltd’s Q4FY10 results beat our expectation as net sales grew by 8.1% YoY to Rs14.8bn as against our estimate of Rs11.9bn. OPM expanded by 257bps to 9.4% due to decline in raw material prices. Consequently, adj. net profit rose by 87% to Rs1.1bn (our estimate was Rs777mn). For FY10, adj net profit increased by ~56% to Rs3.6bn against our estimate of Rs3.3bn. Intense summer took revenues northward: Revenues from cooling products segment (contributes ~25% to topline) increased by ~72% (YoY) and more than compensated the decrease in revenues from other segment. Overall, net sales for the Q4FY10 surged by 8.1%
YoY. Margins improved across the segment and resulted in OPM expansion of 257bps in Q4FY10.

Improving order inflows: In our earlier reports, we highlighted the expectations of improving order inflows by the end of FY10 due to lag effect from construction/ infrastructure industry. Voltas received a prestigious MEP order of Rs8bn for the modernisation of Abu Dhabi's Central Market. Total order inflows for Q4FY10 is ~Rs16bn which is an increase of ~5x QoQ. The total order book at the end of Q4FY10 stands at Rs47.2bn (+19% QoQ).

Outlook: Healthy order inflows augur well for bright future for Voltas. We believe that the company should be back on high growth trajectory from FY12 onwards. Performance for the Engineering product division should also improve in FY11 with improvement in industrial activities.

VALUATIONS AND RECOMMENDATION
We have increased our earning estimates for FY11 by ~7% on the back of better visibility from MEP segment and have introduced FY12 estimates. At the CMP of Rs172, the stock trades at a P/E of 13.0x and an EV/EBITDA of 7.2x its FY12E EPS of Rs13.3. We upgrade our recommendation to ‘BUY’ with a target price of Rs212

To read the full report: VOLTAS