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Accumulate Voltas – Cooling business – Hot results

October 30, 2007

Voltas’ strong performance for the second quarter in a row came in as a positive surprise, after soft performance for most of last fiscal. Revenue growth, at ~35% Y-o-Y (to INR 7 bn), on the back of a 30% plus growth across segments. EBIT margins improved in excess of 500bps for both electromechanical projects (EMPS) and engineering agency and services (EAS) segments, tripling the EBITDA to INR 636 mn. Earnings was up 79% Y-o-Y on improved margins of 6% at the net level, to INR 431 mn.

Voltas current order backlog of Rs27bn (up 37%YoY) improves visibility going forward. Voltas won 3 international orders worth Rs7bn in Q208. Management has indicated that there are a lot of projects in the final discussion stages and are confident of announcing some order wins in Q308.

Citi has upgraded the stock to BUY with a target price of Rs 242. Voltas is expected to report a fully diluted EPS of Rs 6.86 and 9.26 for FY08 and FY09 respectively. However, other brokerages are not so bullish as Citi, Credit Suisse has a target of Rs 180 on the stock with an OUTPERFORM rating with EPS expectation of Rs 5.8. Edelweiss expetcs the EPS to be Rs 5.8 as well for FY08.

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