Voltas share price today: Voltas reported a better than expected performance. Overall revenues grew 32.5% yoy driven by the UCP segment (up 40% yoy) due to robust festive demand and pre-stocking in anticipation of price hikes. EMP margins may remain under pressure in FY2021E. Kotak Institutional Equities upgrade FY2022-23 EPS estimates on stronger UCP sales. Kotak Institutional Equities raise FV to Rs 785 (Rs 655 earlier); SELL stays.

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Voltas Q3 FY21 revenue growth came in at 32.5% yoy and beat estimates by 12.5%. UCP segment revenues grew by a healthy 40% yoy with Voltas sustaining its industry-leading share of 26% in 9MFY21TD.

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Volume growth of 40% yoy was led by 43% yoy growth in RAC, 100% yoy growth in commercial refrigeration, and 11% yoy growth in air cooler. UCP segment margin expanded 150 bps yoy to 12.5%, which Kotak Institutional Equities believes is due to cost saving measures and strong operating leverage.

Voltas EMP segment’s marginally higher than expected yoy revenue growth of 26% was on account of recovery in project execution with normalization of activities in international and domestic geographies. Carry forward order book was higher at Rs 72.8 bn (vs Rs 70.3 bn in Q3 FY20). EMP segment’s EBIT came in lower-than-expected at Rs 322 mn (down 14% yoy) primarily due to conservative time based provisions, amid liquidity constraints on some of the old legacy projects. EBIT margin stood at 3.2% (vs estimate of 4.5%).

Voltas increased the prices of its cooling products by 5-6% in January 2021 in order to pass on the impact of higher RM prices to customers. As of now, the company still has some old inventory; once that is exhausted it may have to raise consumer prices more. Kotak Institutional Equities believe a part of the revenue growth in 3Q was on account of stocking up of products by the channel before the price hike; channel inventory however is still not very high.

Kotak Institutional Equities raise their EPS estimates by 4-15% for FY 2021-23 as we bake in sharper revenue recovery across segments. UCP segment can benefit from the government’s domestic manufacturing push and result in faster-than-expected share gains. These, coupled with roll forward to March 2023E, drive a revised SoTP-based FV of Rs 785 (from Rs 655). Kotak Institutional Equities retains SELL rating on Voltas.