Shares of Voltas Ltd were in focus today after the Japanese research and broking firm Nomura maintained its ‘buy’ rating on the stock with a target of Rs 1,083 per share. The bullish stance of Nomura on the Voltas stock comes days after the Tata Group firm reported a weak set of Q3 earnings. Voltas reported a loss of Rs 110.38 crore in the December quarter against a profit of Rs 95.98 crore in the corresponding quarter of the previous fiscal.
However, sales rose 11.82% to Rs 2,005.61 crore in the third quarter against Rs 1793.59 crore sales in the corresponding quarter of the previous fiscal. EBITDA fell 51% to Rs 76.37 crore in Q3 against Rs 155.64 crore in the corresponding quarter of the previous fiscal.
According to Nomura, the third-quarter revenue at Rs 20 billion, plus 12 percent on-year, was around 5-6 percent above its consensus estimates. However, EBITDA at Rs 0.8 billion was below estimates. Profit after tax (PAT) was affected by an exceptional loss of Rs 1.4 billion for the overseas projects business.
The company’s unitary cooling products (UCP) revenue (up 11 percent on-year) came ahead with lower EBIT margin at 7.4 percent (flat on-quarter), leading to in-line EBIT. RAC market share remained stable at 22.5 percent YTD in December 2022. Projects disappointed, with EBIT margin at minus 7.1 percent, while the order book was at Rs 75.4 billion, Nomura said.
While Nomura has maintained a 12 percent volume rise target for the AC industry for FY24-25, stronger summer season can lead to an upside risk, given the seasonal nature of the product. Competitive intensity remains unsustainable and should normalise over a period. Operating leverage and price hikes can be other margin tailwinds for FY24, the brokerage firm added.
“In UCP, we lower EBIT margins by 100/50/50bp to 8 percent/10.5 percent/11.5 percent over FY23/24/25. For Projects, while revenue is up by 14-16 percent on higher order book, EBIT margin is lowered to 2 percent/3.5 percent/4.5 percent (3 percent/5 percent/5.5 percent earlier). Thus, we cut EPS by 25 percent/9 percent/7 percent over FY23-25,” Nomura said in its report.
“The stock is trading at 30x FY25 EPS, which we believe offers a favourable risk reward and maintain target P/E of 40x/13x/15x for UCP/Project/Service, value VoltBek at Rs 69 per share, and roll forward to Mar-25 to arrive at our unchanged target of Rs 1,083, implying a 27 percent upside,” the Japanese research firm said.
Meanwhile, Voltas shares ended 0.15 per cent lower at Rs 848.70 against the previous close of Rs 849.95 on BSE. Voltas shares stand higher than 5 day, 20 day, 50 day and 100 day moving averages but lower than 200 day moving averages. The stock opened marginally higher at Rs 850 on BSE.
The large cap stock has lost 29.02 per cent in a year and gained 5.33 per cent in 2022.
Total 0.69 lakh shares of the firm changed hands amounting to a turnover of Rs 5.81 crore on BSE. The market cap of the firm fell to Rs 28,082 crore on BSE.
┬аThe stock hit a 52-week high of Rs 1,374.75 on April 7, 2022 and a 52-week low of Rs 737.60 on January 27, 2023.
┬аAnother brokerage Jefferies has a ‘buy’ call with target of Rs 1,050 per share. Q3 EBITDA was a miss as MEP Engineering reported loss. However, outlook is positive as order book is up 35 percent YoY. Cooling segment margin and market share have stabilised QoQ, which is a lean quarter, it said.
“We see strong EPS growth and double digit stock returns in FY24,” it said.
On the other hand, Goldman Sachs has a ‘sell’ call on Voltas with a target of Rs 840 per share. “Market share loss and structural decline in margins dampen profitability. We see intense competition in air-conditioning resulting in continued margin pressure.”
The brokerage firm sees elevated multiples with the stock trading at a 44x FY24 P/E for RoE of 11 percent.
Praveen Sahay тАУ Research Analyst, Prabhudas Lilladher said, “We continue to like Voltas for long term, despite near-term challenges related to margins given 1) its leadership position in RAC 2) balance sheet comfort (Rs 8.6 bn net cash H1FY23) and 3) better traction in order flow from domestic/international. We estimate 18.7% EPS CAGR over FY22-25 and maintain тАШBUYтАЩ rating with SOTP based revised TP of Rs 980 (earlier Rs 1030) valuing UCP business at 45x FY25EPS.”
Emkay Global saw a 2.6% upside in the Voltas stock in its report dated February 12. It assigned a hold stance to the stock with a target price of Rs 872 for 12 months.┬а
“Voltas indicated that its YTD market share stands at 22.5% (down 400 bps from last year) in the
AC market, granting it the leadership position. Air-cooler market share stands at 9.2%; the segment margin has hovered at 7.3-7.7% since the last 3 quarters vs 10-14% earlier. We maintain HOLD with TP of Rs872/share: Our Mar-24E TP stands at Rs872/share. We believe the improvement in performance of the UCP and EMPS segments is critical for the company, looking ahead,” said Emkay Global.┬а
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