Prabhudas Lilladher's research report on Voltas
We cut FY22/23 earnings by 13%/ 6% given 1) dampened summer season sales due to Covid-19 and 2) commodity inflation led margin pressure. VOLT remained cautiously optimistic even as buoyant summer season demand has been impacted by 2nd wave of covid-19. Unprecedented increase in commodity cost & ocean freights are likely to put pressure on margins despite 2 tranches of price hikes (5%/3%). However, management remains confident of sustained market share gains in RAC (1% annually; currently at 25.6%) while maintaining margins at minimum of 12%-12.5% led by 1) wide distribution reach (19,000 touchpoints) 2) strong brand recall 3) supply chain efficiencies 4) calibrated price increases. MEP segment continues to show improvement while focusing on domestic infrastructure projects (urban infrastructure, Metro, Waste water management). Voltbek JV continues to witness consumer acceptance for its products led by strong distribution, technology with target to breakeven and 10% market share by FY25. We continue to like VOLT for the longer term given 1) leadership position in high potential RAC segment 2) balance sheet comfort (Rs11bn net cash) and 3) Restructuring in B2B business to focus on B2C.
Outlook
We estimate 29.8% EPS CAGR over FY21-23. Maintain Hold rating with SOTP based target price of Rs955/- (valuing UCP business at 46x FY23 EPS).
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