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Voltas: Divisional blues - Views on News from Equitymaster
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  • Jun 5, 2001

    Voltas: Divisional blues

    Voltas Limited, a Tata company, has posted a 9% growth in sales for FY01 to Rs 8,537 m. The growth in topline is expected to be on account of higher sales in its air conditioner and the refrigerator divisions thanks to the recent orders from Korean majors like LG Electronics.

    (Rs m) FY00 FY01 Change
    Sales 7,864 8,537 8.6%
    Other Income 165 121 -26.8%
    Expenditure 7,595 8,262 8.8%
    Operating Profit (EBDIT) 269 275 2.2%
    Operating Profit Margin (%) 3.4% 3.2%  
    Interest 215 77 -64.5%
    Depreciation 150 148 -1.5%
    Profit before Tax 69 172 149.0%
    Extraordinary item (9) (115)  
    Tax 5 1 -68.8%
    Profit after Tax/(Loss) 55 56 1.5%
    Net profit margin (%) 0.7% 0.7%  
    No. of Shares (eoy) (m) 33.1 33.1  
    Diluted number of shares 33.1 33.1  
    Earnings per share (Rs) 1.7 1.7  

    Voltas recently bagged the order worth Rs 9 bn from LG Electronics, the Korean multinational, for supplying 1.2 m refrigerators in three years under the 3 year Original Equipment Manufacturer (OEM) agreement. The company has already supplied over 0.2 m refrigerators to LG in the last 2 years. This order was expected to increase the unit's production capacity utilisation by 77%.

    Apart from this, the company also has interest in other businesses like textiles machinery, agrochemicals, pesticides and engineering. But the consumer electronics division (i.e. air conditioners and refrigerators) contributed to around 54% of FY00 turnover. These diversified businesses have been a drag on the company's profitability, which is apparent from the decline in operating margins. Despite continuous restructuring initiatives during the year, operating margins have declined by 200 basis points to 3.2% in FY01.

    Interest outflow has fallen significantly in FY01 on account of reduction in borrowings during the year. But higher extraordinary expenses pertaining to voluntary retirement scheme of Rs 227 m has pulled down profitability of the company. Extraordinary item also includes profits from sales of assets as well as investments.

    The scrip is currently trading at Rs 40 at a P/E multiple of 23.8x the FY01 earnings.



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