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Voltas: Execution issues mar performance - Views on News from Equitymaster

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Voltas: Execution issues mar performance

Oct 27, 2010

Voltas has announced its 2QFY11 results. The company has reported a 2% YoY fall and a 2% YoY rise in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline falls by 2% YoY during 2QFY11.
  • EBITDA margins contract from 10.9% in 2QFY10 to 10% in 2QFY11 due to a large rise in raw material costs.
  • Other income falls by 5% YoY in 2QFY11.
  • Excluding extraordinary items, net profits see a fall of 17% YoY during 2QFY11 due to the contraction in operating margins, a fall in other income as well as a rise in interest expenses.

(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Net sales 10,893 10,636 -2.4% 23,142 24,666 6.6%
Expenditure 9,701 9,576 -1.3% 20,925 22,383 7.0%
Operating profit (EBDITA) 1,192 1,060 -11.1% 2,217 2,283 3.0%
EBDITA margin (%) 10.9% 10.0%   9.6% 9.3%  
Other income 220 209 -5.1% 435 462 6.2%
Depreciation 56 53 -4.3% 105 104 -1.4%
Interest 24 37 55.4% 60 90 49.5%
Profit before tax 1,332 1,178 -11.5% 2,486 2,552 2.6%
Extraordinary Items (0) 178   28 170  
Tax 415 453 9.2% 802 882 10.1%
Profit after tax/(loss) 916 902 -1.5% 1,712 1,839 7.4%
Net profit margin (%) 8.4% 8.5%   7.4% 7.5%  
Minority interest -13 22   -20 18  
Net Profit 903 924 2.3% 1,693 1,857 9.7%
No. of shares (m)       330.9 330.9  
Diluted earnings per share (Rs)         11.9  
Price to earnings ratio (x)*         20.3  
* trailing twelve months

What has driven performance in 2QFY11?
  • Voltas saw its consolidated sales fall by 2% YoY during 2QFY11. This was largely a result of a weak performance of its electro mechanical projects and services segment which saw an 8% YoY fall in topline. This was on account of delays in execution of some large projects caused by certain external factors. The unitary cooling products segment on the other hand saw a good growth of 18% YoY. The engineering products & services (EMPS) segment on the other hand also saw a growth of 8% YoY. This business contributed to nearly 21% of the overall topline in 2QFY11.

    Segment-wise performance
    (Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
    Electro-Mechanical Projects & Services (EMPS)
    Revenue 7,692 7,066 -8.1% 14,693 13,991 -4.8%
    % share 71% 66%   63% 57%  
    PBIT margin 11.7% 8.2%   10.3% 8.3%  
    Engineering Products & Services (EPS)
    Revenue 1,170 1,267 8.3% 2,309 2,470 7.0%
    % share 11% 12%   10% 10%  
    PBIT margin 18.3% 20.9%   16.1% 21.9%  
    Unitary Cooling Products (UCP)
    Revenue 1,932 2,281 18.1% 5,915 8,149 37.8%
    % share 18% 21%   26% 33%  
    PBIT margin 9.5% 12.3% 9.5% 10.2%
    Others
    Revenue 103 26 -74.9% 230 63 -72.4%
    % share 1% 0%   1% 0%  
    PBIT margin 13.8% 21.7%   12.4% 10.4%  
    Total
    Revenue* 10,896 10,639 -2.4% 23,147 24,674 6.6%
    * Excluding inter-segment adjustments

  • Voltas has reported a 0.9% YoY contraction in operating margins during 2QFY11. This was mainly on the back of substantially higher raw material costs. The overall profitability also took a hit due to a big fall in the margins of the company’s project business. This was again on account of delays that took place for certain projects as mentioned above. The company’s other two business segments saw an expansion in EBIT margins.

  • Voltas’ bottomline bore the brunt of the fall in topline and the contraction in margins. Excluding extraordinary items, net profits saw a fall of 17% YoY. Lower other income and higher interest costs also contributed towards dampening the company’s bottomline performance. In August 2010, the company purchased additional equity shares of Rohini Industrial Electricals Limited (RIEL), a subsidiary of the company. As a consequence, Voltas’ shareholding in RIEL stands increased from 67.3% to 83.7%.

What to expect?
At the current price of Rs 241, the stock is trading at a multiple of 15.5 times our estimated FY13 earnings (ResearchPro subscribers, kindly click here). Current valuations leave little room for upside for investors. Thus we have a cautious view on the stock at these levels.

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