PremiumVoltas Ltd’s stock performance shows no signs of covid-19 disruptions. After all, the shares have appreciated by nearly 35% from its pre-covid highs seen in February 2020 on the NSE
The Voltas Ltd stock shows no signs of covid-19 disruptions. After all, the shares have appreciated by nearly 38% from the pre-covid highs seen in February 2020 on the NSE. Based on Bloomberg data, the stock currently trades at 48 times estimated earnings for this financial year (FY22), which isn’t particularly cheap.
Note that this would be the second year when the pandemic restrictions coincide with Voltas’ peak season. Lockdowns across various regions owing to the pandemic are expected to weigh on demand for air conditioners (ACs). This would adversely impact Voltas’ June quarter performance. In this backdrop, it’s not surprising that many analysts have cut the company’s earnings estimates for FY22 and FY23.
Premium Premium 
Premium Premium 
Premium Premium 
Analysts at Prabhudas Lilladher Pvt. Ltd have cut FY22/23 earnings by 13%/6% given the dampened summer season sales due to covid-19 and the commodity inflation-led margin pressure. The broker said in a 14 May report, “Unprecedented increase in commodity cost & ocean freights are likely to put pressure on margins despite two tranches of price hikes (5%/3%)".
For now, Voltas’ March quarter earnings are ahead of analysts’ expectations. Consolidated total operating revenue grew 27% year-on-year (y-o-y) to ₹2,651 crore. The unitary cooling products (UCP) and electro-mechanical projects and services (EMPS) segments put up a good show, boosting revenue growth last quarter. The UCP segment contributed 54.5% of total revenue and saw a y-o-y growth of 20%. This is commendable given that the base was high with the segment’s growth in Q4FY20 at 20%. Voltas said, “The cooling products business made good recovery, post easing of the lockdown situation and achieved overall volume growth of 18%."
The EMPS segment accounted for almost 42% of Voltas’ revenue, growing 37%, thanks to a favourable base of the year-ago quarter when revenues had declined. Overall, Voltas managed to expand its earnings before interest, taxes, depreciation and amortization (Ebitda) margins last quarter, even as gross profit margins contracted. Decline in employee costs and other expenses helped increase Ebitda margins by about 330 basis points to 12.5%. One basis point is one-hundredth of a percentage point.
Analysts from Motilal Oswal Financial Services Ltd said in a report on 16 May, “We note that a large part of the margin surprise (in the UCP segment) is due to a cut in ad spends and low-cost inventory that was procured last year (around 200 basis points advantage)." The broker added, “We marginally lower our FY22E/FY23E earnings per share estimate by 5%/4% on account of lower order book in the EMPS segment and maintain our neutral rating with a target price of ₹1,060 per share."
Motilal Oswal’s target price is only about 5% ahead of Voltas’ current market price. Given the near-term demand concerns, meaningful upsides could well be limited hereon.
Never miss a story! Stay connected and informed with Mint. Download our App Now!!
