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Voltas: Margins boost bottomline
May 29, 2010

Voltas has announced its FY10 results. The company has reported 11% YoY increase and a 51% YoY increase in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline rises by 11% YoY during FY10.
  • EBITDA margins expand from 6.5% in FY09 to 9.6% in FY10 due to a large fall in raw material costs.
  • Other income falls by 18% YoY in FY10.
  • Profit after tax sees an increase of 51% YoY during FY10 due to the expansion in operating margins. Excluding the effect of extraordinary items during both years, profits see a rise of 58% YoY.
  • Board recommends a dividend of Rs 2 per share for FY10 (dividend yield of 1.2%)


Consolidated financial snapshot
(Rs m) FY09 FY10 Change
Net sales 43,259 48,059 11.1%
Expenditure 40,428 43,467 7.5%
Operating profit (EBDITA) 2,831 4,592 62.2%
EBDITA margin (%) 6.5% 9.6%  
Other income 962 789 -18.0%
Depreciation 210 214 2.1%
Interest 128 98  
Profit before tax 3,456 5,068 46.6%
Extraordinary Items 261 250  
Tax 1,172 1,472 25.6%
Profit after tax/(loss) 2,545 3,846 51.1%
Net profit margin (%) 5.9% 8.0%  
Minority interest -29 -36  
Share of profit of associate -3 0  
Net Profit 2,514 3,810 51.5%
No. of shares (m) 330.9 330.9  
Diluted earnings per share (Rs)   11.6  
Price to earnings ratio (x)   14.8 14.8

What has driven performance in FY10?
  • Voltas grew its consolidated sales by 11% YoY during FY10. This was largely a result of a strong performance of its unitary cooling products segment. This segment received a boost during the fourth quarter with the sales of room air conditioners going through the roof. Especially during the months of February and March 2010. To the extent that the huge pickup in demand actually led to stocks-outs at the company’s end. The electro-mechanical projects & services (EMPS) segment on the other hand saw a growth of 12.5% YoY on the other hand. This business contributed to nearly 65% of the overall topline in FY10.

    Segment-wise performance
    (Rs m) FY09 FY10 Change
    Electro-Mechanical Projects & Services (EMPS)
    Revenue 27,668 31,134 12.5%
    % share 64% 65%  
    PBIT margin 7.7% 9.9%  
    Engineering Products & Services (EPS)
    Revenue 5,422 4,680 -13.7%
    % share  13% 10%  
    PBIT margin 11.6% 16.4%  
    Unitary Cooling Products (UCP)
    Revenue 9,223 11,871 28.7%
    % share 21% 25%  
    PBIT margin 6.0% 10.1%  
    Others
    Revenue 1,039 391 -62.4%
    % share 2% 1%  
    PBIT margin 8.7% 18.4%  
    Total
    Revenue* 43,352 48,076 10.9%
    PBIT margin 7.8% 10.7%  
    * Excluding inter-segment adjustments

  • As for the company’s engineering products and services (EPS) business, sales fell by 14% YoY during the year. However, within this segment, the mining and textile machinery businesses acted as positives which saw a pick up especially during the fourth quarter. The management expects the textile machinery business to continue to do well. The mining and construction machinery business too was seen on the path of revival and the company is seeing a good amount of inquiries coming in.

  • Voltas has reported a substantial 3.1% YoY expansion in operating margins during FY10. This was mainly on the back of substantially lower raw material costs. It should be noted that all the other costs heads of the company were see increasing as a percentage of sales during the year. Overall, all the three major segments of the company reported healthy increases in margins.

  • Voltas’ bottomline grew at a faster pace (51% YoY) than the growth in topline during the quarter. This was on the back of a strong operating performance as well as lower interest costs. On excluding the extraordinary items during both years, profits are higher by about 58% YoY.

What to expect?
At the current price of Rs 182, the stock is trading at a multiple of 15 times our estimated FY12 earnings. As far as the company’s project oriented EMPS business is concerned, revenues saw a subdued growth because of a sluggish international business environment while domestic turnover saw healthy growth. Overall, lower commodity prices and the completion of some large projects have been the main factors that have given a boost to margins. The company’s move into providing complete MEP (mechanical, electrical and plumbing) services has also helped it on the margins front. It has successfully seen an increase in the share of MEP and water management business. The management has expressed that good progress has been made in the company’s motive to foray into the Saudi Arabian market and it will start booking orders from this geography soon. At the current price, we have a cautious view on the stock.

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