1 June 2020
4QFY20 Results Update | Sector: Capital Goods
Voltas
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
VOLT IN
331
178.6 / 2.1
741 / 428
8/-5/9
957
CMP: INR540
TP: INR600 (+11%)
Long-term story intact despite COVID-19 led jolt
Season is lost, not the franchise value
Buy
Financials & Valuations (INR b)
Y/E Mar
2020 2021E
Sales
76.6
66.5
EBITDA
6.9
4.6
PAT
5.5
3.5
EBITDA (%)
9.0
6.9
EPS (INR)
16.7
10.7
EPS Gr. (%)
6.5 (36.3)
BV/Sh. (INR)
129.4 136.8
Ratios
Net D/E
(0.0)
0.0
RoE (%)
12.9
7.8
RoCE (%)
14.1
9.7
Payout (%)
31.5
30.0
Valuations
P/E (x)
32.3
50.7
P/BV (x)
4.2
3.9
EV/EBITDA (x)
25.9
39.2
Div Yield (%)
0.8
0.5
FCF Yield (%)
2.3
0.2
2022E
88.0
8.0
6.6
9.1
19.9
86.5
150.8
(0.1)
13.2
14.6
30.0
27.2
3.6
21.9
0.9
4.2
Voltas’ (VOLT) 4QFY20 earnings were 37% ahead of expectation led by the
UCP segment’s outperformance. VOLT has further cemented its leadership
position with its market share improving 50bp to 24.2% YTD. It also achieved
the No. 1 position in Inverter ACs for the Jan-Feb’20 period.
The AC industry is perhaps one of the worst hit due to the COVID-19 led
lockdowns, especially owing to the shutdowns coinciding with the peak
summer season. This is likely to result in higher inventory for the entire
supply chain across dealers, brands (incl. in-transit goods) and
manufacturers. As the lockdown eases, we are witnessing pent-up demand.
We expect system-level inventory to normalize by Nov-Dec’20, and hence,
FY22E should turn out to be a normal year.
We cut our FY21/FY22E earnings by 28%/6% as FY21 is likely to be a washout
year. We have also built in lower revenue and profitability for the EMP
business given the weak macro environment for the Projects’ business.
However, the cut in our TP is limited as the EMP business commands lower
valuation multiple. Maintain
Buy
with revised TP of INR600 (earlier: INR620).
4QFY20:
Revenue was flat YoY at INR20.9b, (in line with est). EBITDA grew
33% to INR1.9b (+10% ahead of est.). A favorable sales mix has led to strong
growth. EBITDA margin was up 220bp YoY to 9.2% (v/s est. 8.4%). Adj. PAT
grew 15% to INR1.6b and
was 37% ahead of est.
FY20:
Revenue grew 7.5% to INR76.6b. EBITDA grew 12.3% to INR6.9b.
EBITDA margin expanded 40bp to 9%. Adj. PAT grew 7% to INR5.5b.
Segment highlights: (a)
EMP
:
Revenue was down 18% to INR8b and was 7%
below our expectation. PBIT margins stood at just 1.4% as the company
made provisions. Order book stood at INR78b (+57% YoY).
(b) UCP:
Despite
the COVID-19 crisis, revenue was up 20% to INR12b and was 9% ahead of
our expectation.
This suggests strong channel refilling in the Mar’20
quarter.
PBIT margin came in at 14.6%, aided by operating leverage.
Inventory position:
Due to lockdowns, secondary sales could not materialize
and as such, dealer level inventory stood as high as 60 days at end-Mar’20.
As primary sales were also impacted, company level inventory stood at 90
days at end-Mar’20.
Key highlights of UCP segment:
Inverter ACs now form 64% of the total Split
AC business and 50% of the overall Room AC business. In Air coolers, the
company grew 60% YoY. It is now the No.2 player with market share of 10%.
Key highlights of EMP segment:
International business now forms 40% of
the order book. Management flagged concerns on execution and working
capital, given the deteriorating macro environment. Next few quarters may
see some provisions as well. However, VOLT is looking to focus on cash flow
rather than just top line growth in the EMP segment.
Volt-bek JV:
Market share in Frost-free refrigerators and Washing machines
stood at ~2% each
UCP delivers handsomely, EMP hit by provisions
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Mar-20
30.3
40.0
9.9
19.8
Dec-19
30.3
38.6
10.9
20.2
Mar-19
30.3
35.1
13.7
20.9
FII Includes depository receipts
Key takeaways from management commentary
Nilesh Bhaiya – Research Analyst
(Nilesh.Bhaiya@MotilalOswal.com); +91 22 6129 1556
Pratik Singh – Research Analyst
(Pratik.Singh@MotilalOswal.com); +91 22 6129 1543
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.