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Voltas: Margins shine through
Oct 29, 2009

Performance summary
  • Net sales grow 12% YoY in 2QFY10, 16% YoY in 1HFY10. Growth aided by strong performances from the electro-mechanical projects business, which grows by 22% YoY during the quarter.
  • Operating margins expand by 3.6% YoY owing to lower cost on purchase of traded goods (as percentage of sales).
  • This adds to the bottomline, which grows by 50% YoY though also helped by a fall in depreciation and interest expenses.


Financial performance snapshot
(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Sales 9,748 10,930 12.1% 20,150 23,348 15.9%
Expenditure 9,033 9,738 7.8% 18,613 21,131 13.5%
Operating profit (EBDITA) 715 1,192 66.7% 1,538 2,217 44.2%
Operating profit margin (%) 7.3% 10.9%   7.6% 9.5%  
Other income 246 212 -13.6% 529 423 -20.1%
Interest 21 16 -22.3% 37 49 31.4%
Depreciation 61 56 -9.0% 110 105 -4.4%
Profit before tax 878 1,332 51.7% 1,920 2,487 29.5%
Extraordinary income/(expense) 31 (0)   223 28  
Tax 298 415 39.4% 695 802 15.4%
Profit after tax/(loss) 611 916 50.0% 1,448 1,712 18.2%
Minority interest 1 13   1 20  
Share of profit of associate 0 -     (2) -    
Net profit 610 903   1,445 1,693  
Net profit margin (%) 6.3% 8.3%   7.2% 7.2%  
No. of shares       330.9 330.9  
Diluted earnings per share (Rs)*         8.4  
P/E ratio (x)*         18.5  
* On a trailing 12-months basis

What has driven performance in 2QFY10?
  • Voltas grew its sales by 12% YoY during 2QFY10. This was largely a result of strong performance from its electro-mechanical projects & services (EMPS) business. This business recorded sales growth of 22% YoY and contributed to 70% of sales compared to 65% in the same period last financial year. The order book of this segment stands at Rs 43 bn.

    Segment-wise performance
    (Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
    Electro-Mechanical Projects & Services (EMPS)            
    Revenue 6,316 7,692 21.8% 11,159 14,693 31.7%
    % share 64.7% 70.4%   55.2% 62.9%  
    PBIT margin 9.3% 11.7%   8.9% 10.3%  
    Engineering Products & Services (EPS)            
    Revenue 1,617 1,170 -27.7% 2,981 2,309 -22.5%
    % share 16.6% 10.7%   14.7% 9.9%  
    PBIT margin 14.6% 18.3%   15.1% 16.1%  
    Unitary Cooling Products (UCP)            
    Revenue 1,554 1,968 26.7% 5,567 6,122 10.0%
    % share 15.9% 18.0%   27.5% 26.2%  
    PBIT margin 3.0% 9.5%   6.8% 9.4%  
    Others            
    Revenue 280 103 -63.4% 504 230 -54.4%
    % share 2.9% 0.9%   2.5% 1.0%  
    PBIT margin 11.0% 13.8%   9.3% 12.4%  
    Total            
    Revenue* 9,766 10,932 11.9% 20,211 23,354 15.6%
    PBIT margin 9.2% 12.0%   9.2% 10.6%  
    * Excluding inter-segment adjustments

  • As for the company’s engineering products and services (EPS) business, sales fell by 28% YoY during the quarter, impacted by the slowdown in demand for capital equipment. The third business segment of unitary cooling products (UCP) did relatively better. Sales grew by a 27% YoY during the quarter.

  • Voltas has reported a substantial 3.6% YoY increase in operating margins during 2QFY10. This was a result mainly of lower cost on purchase of traded goods. Based on segments, all the three segments of the company reported healthy increases in margins.

  • Voltas’ bottomline during 2QFY10 grew at a faster pace than the growth in topline. This was on the back of expansion in operating margins, as also lower fixed charges of interest and depreciation, which together contributed to the 50% YoY growth in net profits during the quarter.

What to expect?
At the current price of Rs 155, the stock is trading at a multiple of 13.6 times our estimated FY12 earnings. The company’s management has indicated that although the domestic market for the projects business (EMPS) remains subdued, the international business has done very well during the quarter. Domestically, the IT sector’s results have been good recently and they are now talking of increasing their bench strength which will be good for the company as that would mean more business from the IT sector. The realty sector still remains a mixed bag with both negatives and positives as of now.

Overall, Voltas feels that the sluggishness in domestic market for the EMPS business is a temporary phase. Medium to long term the prospects in India remain bright as a lot of investments by many companies are expected to come in over the long term.

We maintain our view on the stock from a 2 to 3 year perspective.

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