Voltas Ltd. Q2FY20 Results Update -In-line results; Improved UCP performance offset weakness in project division
· Result was broadly in-line with our estimates (Revenue/EBIDTA/PAT: 2.6%/-3.8%/17.7%) as improvement performance of UCP segment offset the impact of weakness in project division (EMPS). Sharp beat on PAT estimates was mainly on account of higher-than-expected non-operating income.
· Despite a seasonally weak quarter for cooling product, Voltas registered strong growth for its UCP division (at 19.2% in Q2FY20) for the second consecutive quarters. Voltas UCP segment growth is much better than any of its listed peers (Havells Lloyd and Johnson Control Hitachi registered -30% and 9% growth in Q2FY20). This indicates that the company continues to gain market share over its listed peers. UCP segment adjusted EBIT margin improved by 253 bps y-o-y to 6.7% in Q2FY20.
· Engineering division also surprised with a healthy revenue growth of 10.2% y-o-y to INR 80 crore in Q2FY20 (vs our estimate of -5%) in a weak capex environment.
· Project division orderbook significantly grew by 34% y-o-y/38% q-o-q to INR 6,567 crore in Q2FY20, indicating strong order inflow during the quarter.
· Share of loss from JV and associates sharply came down from INR 21.4 crore in Q1FY20 to INR 9.2 crore in Q2FY20.
· Project division revenue de-grew by 10.2% y-o-y in Q2FY20 mainly due to impact of strong base (registered growth of 62% in Q2FY19). Segment adjusted EBIT margin contracted by 147 bps y-o-y to 4.8% in Q2FY20. Given sharp increase in order book and improvement in pace of execution of government orders, we believe the segment to register healthy growth over the medium-term.
- Overall, Voltas has reported a strong growth for its UCP segment (+19.2% in Q2FY20) in comparison to its peers (Lloyd:-30%; Johnson Hitachi: +9%) along with improvement in segment margin (Voltas: +253 bps; Lloyd: -2078 bps; Johnson Hitachi: -98 bps). Furthermore, sharp increase in project division order book indicates healthy revenue visibility in the near-term. On the valuation front, the stock is currently trading at 40.3x/35.9x on FY20/FY21 EPS estimates.
|Year to March (INR Cr)||Q2FY20||Q2FY19||%Chg. YoY||Q1FY20||%Chg. QoQ||H1FY20||H1FY19||% Change|
|EBITDA margin||7.4%||7.6%||-19 bps||11.0%||-353 bps||9.7%||9.9%||-11 bps|
|Net profit||3.1%||3.9%||-83 bps||2.9%||17 bps||3.0%||3.9%||-88 bps|
|Year to March (INR Cr)||Q2FY20||Q2FY19||%Chg. YoY||Q1FY20||%Chg. QoQ||H1FY20||H1FY19||%Chg. YoY|
|Segment adjusted EBIT margin|
|UCP||6.7%||4.2%||253 bps||11.8%||-509 bps||10.6%||9.4%||126 bps|
|Project||4.8%||6.3%||-147 bps||6.6%||-178 bps||5.7%||7.6%||-186 bps|
|Engineering||29.4%||37.7%||-828 bps||31.0%||-163 bps||30.2%||35.5%||-535 bps|