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Voltas Ltd: Growth muted but profits expand - Views on News from Equitymaster

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Voltas Ltd: Growth muted but profits expand
May 28, 2015

Voltas Ltd announced the fourth quarter results of financial year 2014-2015 (4QFY15). The company reported a mere 2% YoY growth in revenues and a net profit of Rs 1.2 bn. Here is our analysis of the results.

Performance summary
  • Consolidated revenue for the company grew 2% YoY during the 4QFY15.
  • Operating expenses of the company decreased marginally. This led operating margins to improve from 7.2% in 4QFY14 to 9.6% during the quarter.
  • The net profit for the quarter was higher by 17.5% YoY at Rs 1.18 bn as compared to Rs 1 bn during the same quarter of the previous year.

Financial performance: A snapshot
(Rs m) 4QFY14 4QFY15 Change FY14 FY15 Change
Net sales 14,628 14,900 1.86% 52,660 51,831 -1.57%
Expenditure 13,574 13,470 -0.77% 49,874 47,731 -4.30%
Operating profit (EBDITA) 1,054 1,430 35.67% 2,786 4,100 47.16%
EBDITA margin (%) 7.20% 9.60%   5.29% 7.91%  
Other income 308 303 -1.62% 1,002 1,087 8.48%
Interest (net) 65 58 -10.77% 353 233 -33.99%
Depreciation 69 81 17.39% 250 281 12.40%
Profit before tax 1,222 1,581 29% 3179 4,659 47%
Tax 392 413 5% 942 1,276 35%
Extraordinary item 174 12 -93% 215 462 114%
Profit after tax/(loss) 1,004 1,180 17.53% 2453 3843 56.67%
Net profit margin (%) 6.86% 7.92%   4.66% 7.41%  
No. of shares (m)       330.88 330.88  
Diluted earnings per share (Rs)*         10.2  
Price to earnings ratio (x)*         27.47  
(* on trailing twelve months earnings and excluding extraordinary items)

What has driven performance in FY15?
  • Voltas' net sales declined by 1.6% YoY during the FY15. The primary reason for decline in the revenues was bad performance of overseas projects and businesses. The company's Electro mechanical Projects and service segment's revenue was lower by 18% YoY compared to the previous fiscal year. The domestic projects business also had its share of challenges primarily on account of external factors which has impacted its turnover.

  • The strong margin performance for FY15 was driven by continued strong performance in its Unitary Cooling Products (UCP) division. The sales of the UCP business segment increased by 22% YoY with margins expanding by 100 basis points.

  • Profit was also significantly higher due to improving margin realization, better product mix and savings in costs.
What to expect?
At the current price of Rs 324, the stock trades at 27x its trailing twelve month earnings. Voltas's strong brand image and its distribution network should allow it to retain its market leadership position as well as foray into complimentary products like air coolers. The key highlight of the company will be the sustained strength in growth and margins profile of the UCP business. In fact, even the EPS segment managed to contribute towards this despite a fall in revenues, the segment managed to see a rise in operating profits, thus posting a substantial increase in margins. We maintain our SELL view on the stock.

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