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Voltas: Cost overrun mars profits
May 21, 2013

Voltas has announced the fourth quarter and full year results of financial year 2012-2013 (4QFY13). The company has reported 1.2% YoY growth in sales while net profits have declined by 91.4% YoY during the quarter. Here is our analysis of the results

Performance summary
  • Net sales increase 1.2% YoY in 4QFY13.
  • Operating profits fell 39.2% YoY during the quarter. In line with that, operating margins also declined from 8.7% in 4QFY12 to 5.2% in 4QFY13.
  • The company reported a net profit of Rs 89 m, a fall of 91.4% YoY. This was mainly due to poor performance at the operating level and cost overruns to the tune of Rs 956 m incurred during the quarter. However, after adjusting for some exceptional items and cost overruns the net profit declined 28.7% YoY.
  • The order book of electro mechanical projects and services segment stood at Rs 37.1 bn at the end of the year.
  • The board of directors have recommended a dividend of Rs 1.60 per share
  • The debt/equity ratio of the company stood at 0.16x at the end of the year


Consolidated performance snapshot
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Sales 15,735 15,922 1.2% 51,750 55,141 6.6%
Other operating income 10 49 404.1% 107 169 57.6%
Expenditure 14,378 15,141 5.3% 48,493 52,858 9.0%
Operating profit (EBDITA) 1,366 831 -39.2% 3,365 2,452 -27.1%
Operating profit margin (%) 8.7% 5.2%   6.5% 4.4%  
Other income 175 126 -27.7% 985 901 -8.5%
Interest 95 120 25.8% 314 398 26.5%
Depreciation 64 60 -6.1% 340 278 -18.0%
Profit before tax 1,381 777.1 -43.7% 3,696 2,677.5 -27.6%
Onerous contract - (956)   (2,766) (956)  
Exceptional items 25 322 1168.9% 1,262 1,076 -14.7%
Tax 360 54 -85.0% 571 728 27.4%
Profit after tax/(loss) 1,047 90 -91.4% 1,620 2,071 27.8%
Minority interest (9) (1)   1 7 688.9%
Share of associates - -   (1) - -100.0%
Net profit 1,038 89 -91.4% 1,621 2,078 28.2%
Net profit margin (%) 6.6% 0.6%   3.1% 3.8%  
No. of shares         330.9  
Diluted earnings per share (Rs)         6.3  
Reported P/E ratio (x)*         14.3  
* On a trailing 12-months basis

What has driven performance in 4QFY13 and FY13?
  • Voltas' consolidated sales remained almost flat growing by just 1.2% YoY during 4QFY13. Revenues from the EMPS segment declined 4% YoY. This was due to lower opening order book as compared to last year and also slow pace of execution on its Sidra, Qatar project. Also, progress of orders is slow in Rohini Industrial Electricals Limited (RIEL) as well. For FY13, EMPS segment sales grew by just 0.5% YoY.

  • EMPS margin stood at 0.5% compared to 8.3% in 4QFY12. This is largely due to low margin orders received amongst extremely competitive environment in last 1-2 years and changes in scope of work on few projects.

  • The order book for the segment declined to Rs 37.1 bn (declining 13.4% YoY) at the end of the quarter. Also, the implied order inflow for 4QFY13 comes to just Rs 4.1 bn.

  • The sales for Engineering & Products Services (EPS) segment also registered a decline of 2.8% YoY. The margins remained stable YoY for 4QFY13. For full year EPS segment grew moderately by 4.6% YoY. The growth was led by both Textile Machinery and Mining & Construction Equipment business.

  • Sales from the Unitary Cooling Products (UCP) segment increased 10.2% YoY in 4QFY13. For FY13 as a whole, UCP's sales grew by 19.3% YoY. Voltas managed to emerge as No.1 brand in the UCP business for most part of the year with 18.4% market share. Despite the industry volume declining by 5% YoY, Voltas clocked volume growth of 7% YoY in FY13. Also, improved traction in commercial refrigeration products has contributed to UCP segment's performance.

  • UCP segment has seen significant margin improvement owing to increase in volumes (operating leverage) and decline in advertising cost this quarter. However, the management asserted that 13% margin may not be sustainable in the coming quarters. This is because the competition may intensify further or low volumes may lead to rise in fixed cost due to off seasons.

    Segment-wise performance#
    (Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
    Electro-Mechanical Projects & Services (EMPS)
    Revenue 9,199 8,834 -4.0% 31,832 31,995 0.5%
    % share  58.4% 55.5%   61.5% 58.0%  
    PBIT margin 8.3% 0.5%   5.4% 1.6%  
    Engineering Products & Services (EPS)
    Revenue 1,069 1,039 -2.8% 4,121 4,311 4.6%
    % share  6.8% 6.5%   8.0% 7.8%  
    PBIT margin 16.2% 16.2%   16.7% 19.4%  
    Unitary Cooling Products (UCP)
    Revenue 5,315 5,855 10.2% 15,388 18,356 19.3%
    % share  33.8% 36.8%   29.7% 33.3%  
    PBIT margin 8.6% 12.8%   8.4% 9.4%  
    Others
    Revenue 158 198 25.3% 427 502 17.4%
    % share  1.0% 1.2%   0.8% 0.9%  
    PBIT margin 24.4% 1.8%   9.7% 0.6%  
    Total
    Revenue* 15,741 15,926 1.2% 51,768 55,163 6.6%
    PBIT margin 9.1% 6.0%   7.2% 5.6%  
    * Excluding inter-segment adjustments
    # The segmental results are before onerous contract & exceptional items

What to expect?
The outlook appears to be slightly uncertain in the near term on Voltas' order book and margin. However, once the investment cycle turns, Voltas is likely to be the primary beneficiary of uptick in orders. Voltas has years of experience in executing complex projects and has a wide reach in international markets. Its strong presence in the domestic market shall also lead to improvement in order flow as and when investment picks up in industries like IT, healthcare and hospitality. Also, the company's low debt and strong cash gives us comfort that the company can swift through the downturn. Thus we maintain our BUY view on the stock from a 2-3 years perspective.

However, we would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow our suggested asset allocation and that no single stock comprises more than 5% of your portfolio.

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