Sunday, March 29, 2009

>Voltas Ltd. (KR CHOKSEY)

We met the management of Voltas Ltd to understand the company’s strategy in the midst of the global economic slowdown. Key takeaways of the meeting are as follows:

Huge orders from the international market to provide strong revenue visibility
The total order backlog of the company stands at Rs 5,334 crore at the end of Q3FY09. In domestic business the order book stands at Rs 1,085 crore, a growth of 35% y-o-y and in international projects the order book stands at Rs 4,200 crore, a growth of 58% y-o-y. The domestic projects have timeline of 9-12 months and international projects have timeline of 24-30 months thereby providing good revenue visibility. The company has not witnessed any cancellation of orders as most of the projects are government or semi-government funded.

Diversified business model
Voltas has primarily three business lines where Electro Mechanical Projects & Service (EMPS) is the biggest business segment contributing 54% to the topline in FY08. In this segment Voltas serves both international as well as domestic clients. Going forward we expect the international projects to contribute ~60% to the segment revenue (45% in FY08). The company is now a fully integrated player from a mere HVAC (Heating, Ventilation and Air-conditioning) to MEP player in domestic market on acquiring Rohini Electrical (Mumbai based turnkey electrical and instrumentation projects contractor). Thus being well diversified would ensure revenue growth inspite of economic slowdown.

Competitive Advantage over others
Civil work constitutes 65% of the total construction cost of an In-built environment and 30-35% is MEP works. Voltas is a contractor of choice in MEP (Mechanical which includes HVAC, Electrical & Public health which includes plumbing) in the international market. Thus being a well established player and having strong track record of projects, Voltas has an edge over other players in domestic and international markets.

To see full report: VOLTAS