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Voltas: Cooling Products steal the show
Aug 14, 2014

Voltas has announced the first quarter (1QFY15) results for FY15. The company has reported a 9% YoY growth in sales while net profits grew by 168% YoY during the quarter. Here is our analysis of the results.

Performance summary
  • Net sales increased by 9% YoY in 1QFY15.
  • Operating profits rose substantially, growing 161% YoY during the quarter.
  • The company reported net profit increase of 168% YoY.
  • The order book of Electro-Mechanical & Project services (EMPS) segment stood at Rs 37.9 bn (down 1% YoY) at the end of 1QFY15.

Consolidated performance snapshot
(Rs m) 1QFY14 1QFY15 Change
Sales 16,018 17,523 9.4%
Other operating income 15 50 230.9%
Expenditure 15,528 16,255 4.7%
Operating profit (EBITDA) 505 1,319 161.3%
Operating profit margin (%) 3.1% 7.5%  
Other income 221 292 32.1%
Interest 70 87 24.8%
Depreciation 61 61 0.2%
Profit before tax 596 1,463.4 145.7%
Onerous contract - -  
Exceptional items (1) 5  
Tax 190 365 92.8%
Profit after tax/(loss) 405 1,103 172.1%
Minority interest 2 (13)  
Share of associates - -  
Net profit 408 1,090 167.5%
Net profit margin (%) 2.5% 6.2%  
No. of shares   331  
Diluted earnings per share (Rs)*    9.5  
P/E ratio (x)*    23.0  
* On a trailing 12-months basis

What has driven performance in 1QFY15?
  • The sales for the quarter have been boosted by growth in revenues in Unitary Cooling Products segment, which saw a 27% YoY growth in sales. The Electro-Mechanical Projects and Services (EMPS) segment saw a fall in sales. The Engineering Products & Services (EPS) segment of the company on the other hand saw a flat sales growth.

  • The growth in operating margins from 3.1% to 7.5% is what drove the big increase in operating profit. Substantial fall in the company’s raw material and staff costs is what helped the company post these much margins. The margins have started to improve in the company’s EMPS segment with the execution of newer orders which have a better margin profile. However, overall margins in the segment continue to be impacted largely on account of the cost overruns in the older overseas projects.

  • The robust top line performance of the UCP segment on account of the extended summer season and late rains also helped the segment post a healthy increase in operating margins. As per the company, despite the competition, it has managed to enhance its market share in room air conditioners during the quarter, and continues to hold the top position in multi-brand outlets for this product.

  • This expansion in operating margins helped the company post the stellar increase in net profits.

    Segment-wise performance#
    (Rs m) 1QFY14 1QFY15 Change
    Electro-Mechanical Projects & Services (EMPS)
    Revenue 6,930 6,222 -10.2%
    % share  43.3% 35.5%  
    PBIT margin -3.8% 0.7%  
    Engineering Products & Services (EPS)
    Revenue 1,112 1,109 -0.3%
    % share  6.9% 6.3%  
    PBIT margin 27.8% 21.6%  
    Unitary Cooling Products (UCP)
    Revenue 7,867           10,014 27.3%
    % share  49.1% 57.1%  
    PBIT margin 8.6% 11.6%  
    Others
    Revenue    112    181 62.3%
    % share  0.7% 1.0%  
    PBIT margin -2.3% 17.0%  
    Total
    Revenue*           16,020           17,526 9.4%
    PBIT margin 4.5% 8.4%  
    * Excluding inter-segment adjustments
    # The segmental results are before exceptional items
What to expect?
Voltas has delivered healthy increases at the operating and net level largely due to the absence of losses in its EMPS segment coupled with a robust increase in revenues and margins of the UCP segment.

At current price of Rs 218, the stock is trading at 16.8 times our estimated FY17 earnings. Considering these valuations, we maintain our sell view on the stock .

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