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Voltas: Cooling products drive growth
Nov 23, 2012

Voltas has announced the second quarter results of financial year 2012-2013 (2QFY13). The company has reported 5.3% YoY growth in sales while net profits have grown by 2.5% YoY. Here is our analysis of the results.

Performance summary
  • Net sales increase 5.3% YoY in 2QFY13. This was mainly due to a 21.8% YoY growth in the Unitary Cooling Products (UCP) business segment.
  • Operating profits increased 420.5% YoY during the quarter. In line with that, operating margins also increased to 3.8% from 0.8% in 2QFY12.
  • The net profits of the company increased 2.5% YoY. However, after adjusting for the exceptional items relating to gain on sale of properties and a subsidiary company (Simto Ltd) net profit increased 68.1% YoY.
  • Consolidated order book for the Electro-Mechanical & Project services (EMPS) segment stood at Rs 41.3 bn at the end of the quarter compared to Rs 44.6 bn at the end 2QFY12.
  • The debt/equity ratio of the company stood at 0.19x as at the end of 30th September 2012.
  • During the quarter the company sold off its stake in a subsidiary company called Simto Investment Ltd for a consideration of Rs 296.8 m.

Consolidated Financial Snapshot
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Sales 11,019 11,601 5.3% 24,477 27,717 13.2%
Other operating income 29 44 50.3% 56 96 72.5%
Expenditure 10,964 11,205 2.2% 23,341 26,434 13.3%
Operating profit (EBDITA) 84 440 420.5% 1,192 1,379 15.7%
Operating profit margin (%) 0.8% 3.8%   4.9% 5.0%  
Other income 412 183 -55.6% 580 532 -8.3%
Interest 71 85 20.3% 156 206 32.6%
Depreciation 89 76 -14.6% 192 149 -22.4%
Profit before tax 336 461 37.1% 1,425 1,556 9.2%
Exceptional items 250 145 -41.8% 1,065 157 -85.3%
Tax 176 177 0.6% 756 493 -34.8%
Profit after tax/(loss) 410 430 4.7% 1,733 1,219 -29.6%
Minority interest 8 (0)   4 1 -74.4%
Share of associates - -   (1) - -100.0%
Net profit 419 429 2.5% 1,737 1,221 -29.7%
Net profit margin (%) 3.8% 3.7%   7.1% 4.4%  
No. of shares         330.9  
Diluted earnings per share (Rs)         3.7  
Reported P/E ratio (x)*         30.5  
* On a trailing 12-months earnings basis

What has driven performance in 2QFY13?
  • Voltas' consolidated sales increased by 5.3% YoY during 2QFY13. Revenues from the Electro-Mechanical & Project services (EMPS) segment increased 2.0% YoY while margins were relatively flat during the quarter. Margins were low as substantial revenues from the Sidra project were recognized during the quarter which is virtually a zero margin project. It may be noted that the project is 85% complete and no further provisions are expected to arise in the future with respect to the project. The order book for the segment was relatively flat at Rs 41.3 bn. As far as the international book is concerned, it may be noted that there were no major order inflows during the quarter. However, the domestic order book has shown healthy growth. The carry forward order position in the domestic market has increased to Rs 22 bn.

  • The sales for Engineering & Products Services (EPS) segment declined by 5.2% YoY. This was mainly due to fall in revenues from the mining & construction business. On the other hand, despite challenging environment, the textiles business has performed well in the current quarter and grew by 12% YoY.

  • Sales from the Unitary Cooling Products (UCP) business segment increased 21.8% YoY. Improvement in realizations and strong volumes witnessed in the commercial refrigeration space boosted top line growth. This was particularly commendable considering that the air conditioning industry has de-grown by 8.0% during the year. It may be noted that the company is a market leader in the air conditioning space with a share of about 20.3%.

    Segment-wise performance
    (Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
    Electro-Mechanical Projects & Services (EMPS)            
    Revenue 7,623 7,776 2.0% 14,392 15,189 5.5%
    % share 69.2% 67.0%   58.8% 54.8%  
    PBIT margin 0.7% 1.0%   2.5% 2.7%  
    Engineering Products & Services (EPS)            
    Revenue 1,202 1,139 -5.2% 2,175 2,205 1.4%
    % share 10.9% 9.8%   8.9% 7.9%  
    PBIT margin 14.8% 18.6%   16.0% 18.4%  
    Unitary Cooling Products (UCP)            
    Revenue 2,110 2,570 21.8% 7,735 10,114 30.7%
    % share 19.1% 22.1%   31.6% 36.5%  
    PBIT margin 2.9% 7.8%   9.0% 8.2%  
    Others            
    Revenue 87 123 42.1% 184 227 23.0%
    % share 0.8% 1.1%   0.8% 0.8%  
    PBIT margin -8.3% 6.8%   6.3% 5.0%  
    Total            
    Revenue* 11,022 11,608 5.3% 24,487 27,734 13.3%
    PBIT margin 2.6% 4.3%   5.8% 6.0%  
    * Excluding inter-segment adjustments

  • Overall operating margins increased to 3.8% during the quarter from 0.8% that prevailed in 2QFY12. Operating profits, too, increased 5 fold due to lower base effect.

  • Net profits increased 2.5% YoY during the quarter. However, after adjusting for the exceptional items, net profits increased 68.1% YoY. It may be noted that in 2QFY13 Voltas recorded an exceptional gain of Rs 143.5 m arising from disposing off its stake in a subsidiary company.

What to expect?
At the current price of Rs 102, the stock is trading at a multiple of 30.5 times its trailing twelve month earnings. Going forward, the international projects business is likely to face challenges due to delays in decision making in the Middle East. However, the domestic projects business is showing signs of improvement. There was a strong inflow of orders in the domestic space from the auto and urban infrastructure sectors during the quarter. However, profitability is the key issue here which will to a large extent depend upon execution capabilities. Maintaining capital employed in the segment is also turning out to be a challenge as mobilization advance has dried and the Sidra project requires additional funding.

As far as the UCP segment is concerned, it may be noted that the company is already a leader in the air conditioning space with a 20.3% market share. It plans to protect its leadership position and further strengthen its distribution reach in this segment. We maintain our BUY view on the stock from a 2-3 years perspective.

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