>VOLTAS (ANAND RATHI)

■ Business environment improves; concerns continue. Voltas is seeing a gradual improvement in businesses especially in the UCP segment and the domestic EMPS segment as well as some parts of the EPS segment. But the international EMPS business is still a concern due to lack of order inflows from international markets in the last few quarters. We thus maintain our Sell rating.

■ EMPS segment the key. As growth in UCP and EPS segments (except textiles), along with domestic EMPS, is picking up, only the international EMPS segment is a concern: slack order inflows even with crude at over US$70/barrel. Voltas’ order backlog has declined for five consecutive quarters now. The current order backlog is Rs43.6bn, down 22% yoy. It includes a Rs7bn order, currently suspended.

Still awaiting international orders; maintain Sell

■ Margin outlook stable. We expect the EBITDA margin to expand 146bps in FY10, to 8%, and thereafter to be stable on account of higher margins in the UCP and EPS segments.

■ Change in estimates. We raise our earnings estimate on account of the better margin profile of the EPS and UCP segments, consolidation of Rohini Industrial and assumption of better order
inflows due to higher crude oil prices.

■ Valuation. Our new target price of Rs169 (Rs129 earlier) is at 15x one-year-forward estimated earnings (Dec ’11).

To read the full report: VOLTAS