Voltas reported a strong set of numbers for 4QFY2016. The top-line at Rs1,876cr
is up 26.4% yoy and is higher than our expectation, mainly driven by strong
execution across the EMP segment. The EMP segment impressed us with a 36.5%
yoy increase in revenue to Rs819cr (accounting for 44% of the company’s overall
4QFY2016 revenues), whereas the UCP segment’s revenue at Rs859cr is almost
in-line with our estimate. The EBITDA margin for the quarter was flat yoy at 9.2%.
Notably, with most of the legacy projects nearing completion, the EMP segment
reported a strong EBIT margin of 3.4%, as against a loss and 0.7% margin in the
corresponding quarter of the previous year. Better than expected execution
coupled with higher other income helped the company report a PAT of Rs176cr, which
is up 49.5% on a yoy basis. On adjusting for exceptional items, the PAT stood at
Rs149cr, reporting a sharp increase of 27.1% yoy. The Adj. PAT margin for the quarter
stood at 7.9%, which is the same as in the corresponding quarter a year ago.
Another positive is the company announcing order inflow of Rs959cr for the
quarter. The order book for the EMP segment as of 4QFY2016-end stands at
Rs3,914cr (order book [OB] to LTM ratio of 1.4x).
A report by GFK Nielsen states towards Voltas having retained its top slot in the
domestic AC sales market in FY2016.
Valuation: We expect Voltas to report a strong 13.3% top-line and 18.1%
bottom-line CAGR during FY2016-18E, respectively. On considering the case for
improvement in all of its business segments’ performances, we expect improved
profitability and better investment return ratios for the company, going forward.
We now assign Voltas a 25.0x PE multiple to our FY2018E EPS estimate of
Rs16.3/share and arrive at a price target of Rs407. This reflects 24% upside
potential from the stock’s current market price. Accordingly, we continue to
maintain our BUY rating on the stock.

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