Voltas Ltd. Q2FY20 Results Update -In-line results; Improved UCP performance offset weakness in project division

06 Nov
UP

Voltas Ltd. Q2FY20 Results Update -In-line results; Improved UCP performance offset weakness in project division

Voltas Ltd. Q2FY20 Results Update -In-line results; Improved UCP performance offset weakness in project division

Hits

·       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.

Misses

·       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.

House View:

  • 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.

Financials

Year to March (INR Cr) Q2FY20  Q2FY19 %Chg. YoY Q1FY20 %Chg. QoQ H1FY20  H1FY19 % Change
Net sales 1422 1421 0.0 2654 -46.4 4076 3569 14.2
EBITDA 106 109 -2.5 291 -63.6 397 352 12.9
EBITDA margin 7.4% 7.6% -19 bps 11.0% -353 bps 9.7% 9.9% -11 bps
Net profit 112 107 4.5 197 -43.3 309 294 5.1
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 revenue                
UCP 526 441 19.2 1749 -69.9 2,274 1,632 39.4
Project 809 901 -10.2 824 -1.8 1633 1767 -7.6
Engineering 80 73 10.2 74 8.6 154 150 2.9
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

Write a Reply or Comment

4 × two =