Accumulate Voltas; target of Rs 660: Prabhudas Lilladher

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Prabhudas Lilladher's research report on Voltas

We increase our FY21, FY22 & FY23 earnings by 10.6%, 7.5% and 10.3% given 1) sustained market share gains in Room AC 2) encouraging response to Voltas-Beko portfolio in first season and 3) Sufficient forward visibility in MEP with strong order book (Rs77bn) led by domestic operations Even with lockdown disrupting peak summer season sales, VOLT continued to outperform the industry by reporting a 45% decline in RAC volumes vs 49% of industry on the back of 1) wide distribution reach (19,000 touchpoints) 2) heat-wave in the month of May and 3) strong brand recall. In MEP, although the order book remains healthy at Rs77bn, pace of execution remains slow and will take 2-3 months to bounce back given 1) non-availability of skilled labor 2) delayed inward transport, receipt of materials and certification and 3) liquidity constraints. With demand for Voltbek JV products encouraging, management maintains its guidance of achieving 10% market share in major product categories by 2025 and expect the JV to breakeven by 2023-2024. We expect JV to report a loss of Rs1.3bn/Rs1bn/Rs500mn in FY21/22/23.

Outlook

We continue to maintain our positive stance on VOLT given 1) leadership position in high potential RAC segment 2) balance sheet comfort (Rs15bn net cash) and 3) sustained order wins in MEP segment. We estimate 16.6% EPS CAGR over FY20-23. Maintain Accumulate with SOTP based target price of Rs660/- (valuing UCP business at 32x Sept-22 EPS).

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