Voltas share price today: Jefferies pegs price target at Rs 1175 - Key details investors must know

Jefferies said that Voltas 4Q EBITDA was 41% above expectations as both the engineering (MEP) and cooling segments, primarily AC, saw a margin surprise. MEP (Electro-Mechanical Projects) and cooling segment margins were 8.4% vs 1.4% YoY (4.5% in 4QFY19) and 15.6% vs 14.6% YoY (10.4% in 4QFY19). Jefferies said it has lowered FY22E-23E EPS by 7-8% as state lockdowns should affect 1QFY22E AC sales. Jefferies said that near-term stock performance could be subdued, but sales recovery should support upside over 12 months (price target of Rs 1175 vs Rs 1270)

Air conditioners (AC) – managing inflationary pressure is the focus:

Voltas’ 4QFY20 was a stellar quarter, with cooling segment revenues rising 20% YoY while peers reported declines due to the March 2020 lockdown. 20% YoY revenue growth in 4QFY21 on that base was on expected lines. Our 1QFY22E revenue is lower by 6% QoQ vs normal run-rate of 20%+ QoQ growth to factor lockdown linked store closures. Management mentioned that in 15.6% margins, 2% is due to lower-priced carry forward raw material inventory. Ad spend was also lower. 3% incremental price hikes have been taken selectively and additional hikes are likely needed, particularly due to copper. Our FY22E-23E margin is lower than 4Q at 13.5%, which we believe is reasonable in the context of lockdown impact, commodity price rises, and rating change next year in ACs. Every 50 bps margin change is 2% EPS change, highlights Jefferies.

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Voltas MEP revenues rose 37% YoY and at a 6% CAGR between 4QFY19-4QFY21, with strong margins. The order book is down 15% YoY given a conscious decision to consolidate business operations. However, it gives enough visibility for our FY22E-23E revenue estimates. Commercial real estate remains weak and is not expected to recover in a hurry. Sites are not closed, though work has slowed. Ramping up should be faster than in 2020, says Jefferies

Voltas outperforming peers in managing margins should see premium valuations. Jefferies revised price target of Rs 1175 (vs Rs 1250) factors in the EPS change and values it at 45x PE FY23E (38% premium to 5-yr average of 32.5x).

Voltas Downside risk:

1) Domestic AC demand collapses
2) National-level lockdown