RESULTS REVIEW 3QFY17 16 FEB 2017

Voltas
BUY

INDUSTRY CAPITAL GOODS Mixed quarter

CMP (as on 16 Feb 2017) Rs 345 Voltas (VOLT) 3QFY17 overall result was in line of Rs 387/share (valuing EMPS/EPS/UCP at Dec-
with estimates. However, on a segmental basis, 18E P/E of 10/20/25x).
Target Price Rs 387 EMP surprised with better margins (3.9% vs. -0.6% Highlights of the quarter
Nifty 8,778 YoY) and UCP reported 5% decline in revenues led
by demonetisation. Other income also stood
As per the mgmt, the AC industry volumes declined
Sensex 28,301 11% YoY in 3QFY17 (due to demonetization).
KEY STOCK DATA
higher at Rs 597mn (+140% YoY) leading to APAT
However, it maintained its long-term growth
of Rs 802mn (+44% YoY). With a majority of legacy
Bloomberg VOLT IN guidance of 10-15% (notwithstanding short-term
projects over, the mgmt expects EMP margins to
No. of Shares (mn) 331 volatility led by harsh/mild summers).
improve gradually over the next two years. The
MCap (Rs bn) / ($ mn) 114 / 1,702 same, coupled with higher other income, has led VOLT has already contracted for copper and other
6m avg traded value (Rs mn) 530 to a 7%/5% YoY upward revision in our FY17/18E commodities until this summer. However, going
STOCK PERFORMANCE (%) PAT estimates. ahead, it would have to consider price hikes if
commodity inflation persists.
52 Week high / low Rs 406 / 211 Voltas continues to maintain a leadership position
3M 6M 12M in the AC industry, which is well set for growth EPS segments revenue declined 28% YoY, as textile
given low penetration (4-5%) and affordable price machinery sales was also negatively impacted by
Absolute (%) 2.0 (0.7) 22.9
points (when compared with other consumer demonetisation. EMP orders from the Middle East
Relative (%) (1.9) (1.5) 5.1 are likely to pick up as crude prices stabilise at
durable products like mobiles and 2Ws).
SHAREHOLDING PATTERN (%)
Demonetisation is unlikely to hurt demand current levels. However, the mgmt reiterated its
Promoters 30.30 structurally. Traction in air-coolers and cautious stance on taking new orders going ahead.
FIs & Local MFs 26.87 improvement in EMP margins also augur well for Near-term outlook: With the upcoming summer
FPIs 22.37 VOLT. Reiterate BUY with a revised SOTP-based TP season, the stock could outperform. Reiterate BUY
Public & Others 20.46 Financial Summary - Consolidated
Source : BSE (Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%) FY15 FY16 FY17E FY18E FY19E
Net Sales 11,805 12,659 (7) 9,672 22 51,831 58,574 59,603 67,580 76,489
Pawan Parakh, CFA EBITDA 890 563 58 687 30 4,100 4,369 5,314 6,256 7,254
pawan.parakh@hdfcsec.com APAT 802 556 44 721 11 3,496 3,567 4,385 5,044 5,839
+91-22-6171-7314 Diluted EPS (Rs) 2.4 1.7 44 2.2 11 10.6 10.8 13.3 15.3 17.7
P/E (x) 32.6 32.0 26.0 22.6 19.5
Ashutosh Mehta, ACA EV / EBITDA (x) 25.1 23.0 18.8 15.6 13.1
ashutosh.mehta@hdfcsec.com RoE (%) 17.8 15.9 17.2 17.4 17.8
+91-22-3078-8241 Source: Company, HDFC sec Inst Research

HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
 VOLTAS : RESULTS REVIEW 3QFY17

Quarterly Financials Snapshot - Consolidated

(Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%)
Net Sales 11,805 12,659 (7) 9,672 22
Revenue declined across the
Material Expenses 8,175 9,101 6,161
three segments, with
Employee Expenses 1,478 1,610 1,594
EMPS/EPS/UCP declining
Other Operating Expenses 1,262 1,385 1,230
2.9/27.6/4.6% respectively
EBITDA 890 563 58 687 30
Interest Cost 22 37 33
Depreciation 60 65 63
Other Income (incl E/o items) 597 271 658
PBT 1,405 732 92 1,249 12
Tax 437 195 505
Reported PAT 968 537 744
Other income grew 140% YoY Minority Interest (166) 41 (23)
to Rs 597mn, led by treasury E/o inc/(loss) 0 22 0
income and MTM gains on IND APAT 802 556 44 721 11
AS adjustments Source: Company, HDFC sec Inst Research

Margin Analysis - Consolidated

3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%)
Material Expenses As % Of Net Sales 69.3 71.9 -263 63.7 555
Employee Expenses As % Of Net Sales 12.5 12.7 -20 16.5 -395
Other Operating Expenses As % Of Net Sales 10.7 10.9 -26 12.7 -203
EBITDA Margin (%) 7.5 4.4 309 7.1 44
Net Profit Margin (%) 6.8 4.4 240 7.5 -66
Tax Rate (%) 31.1 26.7 444 40.4 -933
Source: Company, HDFC sec Inst Research

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 VOLTAS : RESULTS REVIEW 3QFY17

Segmental Quarterly Performance - Consolidated

(Rs mn) 3QFY17 3QFY16 YoY (%) 2QFY17 QoQ (%)
Segmental Gross Revenues (ex other
operating revenues)
Electro Mechanical Projects & Services 7,026 7,236 (3) 5,432 29
Engineering Products & Services 807 1,115 (28) 751 8
Unitary Cooling Products 4,111 4,307 (5) 3,542 16
EMPS segment EBIT margins Total 11,944 12,657 (6) 9,725 23
improved 440bps YoY to 3.9% as EBIT
most of the legacy projects are Electro Mechanical Projects & Services 273 (40) (780) 4 7,691
completed Engineering Products & Services 200 247 (19) 304 (34)
Unitary Cooling Products 434 505 (14) 409 6
Total 908 712 28 716 27
Segmental Margins (EBIT)(%) YoY (bps) QoQ (bps)
Electro Mechanical Projects & Services 3.9 (0.6) 444 0.1 382
Engineering Products & Services 24.8 22.1 270 40.4 -1562
Unitary Cooling Products 10.6 11.7 -116 11.5 -97
Source: Company, HDFC sec Inst Research

EMP Segment - Revenue And EBIT Margin UCP Segment - Revenue and EBIT Margin
Revenue EBIT Margin (RHS) Revenue EBIT Margin (RHS)
While the secondary sales of ACs Rs mn Rs mn
9,000 5.0% 14,000 20.0%
at multi-brand outlets declined 8,000 18.0%
4.0% 12,000
11% YoY, VOLT has been able to 7,000 16.0%
3.0% 10,000 14.0%
maintain its market share at 6,000
2.0% 8,000 12.0%
21.7% for 9mFY17 (21% in FY16) 5,000
10.0%
4,000 1.0% 6,000 8.0%
3,000 6.0%
0.0% 4,000
2,000 4.0%
-1.0% 2,000
1,000 2.0%
0 -2.0% 0 0.0%

1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

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 VOLTAS : RESULTS REVIEW 3QFY17

Key Assumptions - Consolidated

Rs mn FY15 FY16 FY17E FY18E FY19E
Segment Revenues
Electro-Mechanical Projects 22,085 27,171 26,963 29,783 31,653
Growth YoY -18.0% 23.0% -0.8% 10.5% 6.3%
We expect 17%/20% revenue
Engineering Products & Services 3,601 3,702 3,147 3,304 3,469
growth, coupled with 14.0% EBIT
Growth YoY -19.7% 2.8% -15.0% 5.0% 5.0%
margin for the UCP segment over
Unitary Cooling Products 25,105 25,566 29,146 34,100 40,920
FY18/FY19E Growth YoY 22.3% 1.8% 14.0% 17.0% 20.0%
Segment Margins
Electro-Mechanical Projects -7.6% 1.4% 2.3% 2.8% 3.3%
Engineering Products & Services 30.0% 30.5% 30.5% 30.5% 30.5%
Unitary Cooling Products 13.9% 13.2% 14.0% 14.0% 14.0%
Source: Company, HDFC sec Inst Research

Key Changes In Estimates

Previous estimates Revised estimates % change
(Rs mn)
FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E
Revenues (Rs mn) 61,973 68,425 75,925 59,603 67,580 76,489 -3.8% -1.2% 0.7%
APAT increased 5.2%/6.3% for EBITDA (Rs mn) 4,925 5,855 6,821 5,314 6,256 7,254 7.9% 6.9% 6.4%
FY18/19E, led by an EBITDA margin (%) 7.9% 8.6% 9.0% 8.9% 9.3% 9.5%
improvement in EMPS margins APAT (Rs mn) 4,115 4,796 5,493 4,385 5,044 5,839 6.6% 5.2% 6.3%
and higher other income Net margin (%) 6.6% 7.0% 7.2% 7.4% 7.5% 7.6%
Source: Company, HDFC sec Inst Research

SOTP Valuation
Business Method Dec-18E APAT Multiple (x) Valuation VPS
Electro-Mechanical Projects P/E multiple 516 10 5,159 16
Engineering Products & Services P/E multiple 1,051 20 21,021 64
Unitary Cooling Products P/E multiple 4,073 25 101,836 308
SOTP 387
Source: Company, HDFC sec Inst Research

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 VOLTAS : RESULTS REVIEW 3QFY17

Peer Valuation
MCap CMP TP EPS (Rs/sh) P/E (x) EV/EBITDA (x) ROE (%)
Company Rating
(Rs bn) (Rs) (Rs) FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E
Larsen & Toubro ^ 1,370 1470 BUY 1,625 64.8 69.2 69.8 17.5 16.4 16.3 17.0 15.5 13.7 13.1 12.8 11.9
Cummins India * 247 891 BUY 1005 27.3 30.6 34.4 32.6 29.1 25.9 29.6 26.1 22.8 22.8 23.3 23.6
Voltas 114 345 BUY 387 13.3 15.3 17.7 26.0 22.6 19.5 18.8 15.6 13.1 17.2 17.4 17.8
Suzlon 102 17 BUY 24 0.9 1.2 1.5 19.6 14.3 11.4 10.0 9.0 7.5 NA NA NA
Thermax 101 847 SELL 770 26.3 27.8 31.8 32.2 30.5 26.6 22.6 19.8 16.7 12.8 12.4 13.0
Engineers India * 100 148 BUY 178 5.9 6.2 8.0 25.3 23.9 18.5 20.5 18.2 12.7 14.4 14.5 18.0
Carborundum Universal 49 262 BUY 340 8.9 11.5 13.6 29.3 22.7 19.3 14.0 12.1 10.4 13.4 15.4 15.9
Kalpataru Power * ^ 43 282 BUY 376 17.2 18.5 21.3 12.5 11.6 10.1 9.1 8.3 7.3 11.1 10.8 11.2
Techno Electric ^ 42 370 NEU 388 18.2 21.1 23.9 16.6 14.4 12.7 12.8 11.7 10.2 19.5 19.7 19.3
KEC International 42 164 BUY 179 10.2 11.1 12.7 16.1 14.8 12.9 8.6 7.9 7.1 16.1 15.2 15.3
Crompton Greaves ^ 42 66 BUY 82 -1.2 1.6 1.6 NA 34.9 33.8 12.5 11.0 10.1 -1.7 2.2 2.3
Triveni Turbine 41 125 BUY 148 4.0 4.5 5.1 31.5 27.9 24.5 22.3 19.3 16.5 39.0 34.5 31.1
Inox Wind 38 173 BUY 298 21.4 24.9 25.8 8.1 7.0 6.7 5.3 4.5 4.1 22.8 22.0 19.8
Sanghvi Movers * 10 232 BUY 325 21.8 25.7 27.6 10.6 9.0 8.4 4.4 4.1 3.5 12.0 12.7 12.2
*Represents SA data ^ P/E adjusted for value of Subs /JV's / non-core businesses
Source: Company, HDFC sec Inst Research

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 VOLTAS : RESULTS REVIEW 3QFY17

Income Statement - Consolidated Balance Sheet - Consolidated

(Rs mn) FY15 FY16 FY17E FY18E FY19E (Rs mn) FY15 FY16 FY17E FY18E FY19E
Net Revenues 51,831 58,574 59,603 67,580 76,489 SOURCES OF FUNDS
Growth (%) (1.6) 13.0 1.8 13.4 13.2 Share Capital 331 331 331 331 331
Material Expenses 35,974 41,261 40,947 46,630 52,777 Reserves 20,690 23,621 26,845 30,535 34,439
Employee Expenses 5,899 6,698 6,735 7,569 8,567 Total Shareholders Funds 21,021 23,952 27,176 30,866 34,770
SG&A Expenses 5,857 6,246 6,607 7,125 7,891 Minority Interest 161 258 288 321 358
Total Expenses 47,730 54,205 54,289 61,324 69,235 Long Term Debt 47 - - - -
EBIDTA 4,100 4,369 5,314 6,256 7,254 Short Term Debt 1,170 2,603 1,603 1,150 750
EBIDTA % 7.9 7.5 8.9 9.3 9.5 Total Debt 1,217 2,603 1,603 1,150 750
EBIDTA Growth % 54.4 6.6 21.6 17.7 15.9 Net Deferred Taxes (349) (511) (511) (511) (511)
Depreciation 280 278 286 329 354 Long Term Provisions &
1,281 1,542 1,116 1,238 1,397
EBIT 3,820 4,091 5,028 5,927 6,900 Others
Other Income (Including EO TOTAL SOURCES OF FUNDS 23,330 27,845 29,672 33,064 36,764
1,549 1,583 2,000 1,870 1,964
Items) APPLICATION OF FUNDS
Interest 233 153 168 110 76 Net Block 2,688 2,934 3,148 3,319 3,465
PBT 5,137 5,521 6,860 7,687 8,787 CWIP 44 13 13 13 13
Tax (Incl Deferred) 1,276 1,600 2,195 2,460 2,812 Investments 939 981 981 981 981
RPAT 3,860 3,921 4,665 5,227 5,975 LT Loans & Advances 1,093 1,125 1,313 1,489 1,685
Minority Interest (17) (65) (280) (183) (136) Total Non-current Assets 4,764 5,052 5,455 5,801 6,144
EO (Loss) / Profit (Net Of Tax) 347 289 - - - Inventories 8,671 8,928 9,536 10,859 12,291
APAT 3,496 3,567 4,385 5,044 5,839 Debtors 13,386 13,066 14,770 16,747 18,955
APAT Growth (%) 52.2 2.0 22.9 15.0 15.8 Other Current Assets 9,178 12,166 11,816 13,397 15,163
Adjusted EPS (Rs) 10.6 10.8 13.3 15.3 17.7 Cash & equivalents 12,517 16,248 15,984 17,709 19,719
EPS Growth (%) 52.2 2.0 22.9 15.0 15.8 Total Current Assets 43,751 50,407 52,105 58,712 66,127
Source: Company, HDFC sec Inst Research Creditors 22,723 24,739 25,285 28,562 32,246
Other Current Liabilities &
2,462 2,875 2,603 2,888 3,260
Provns
Total Current Liabilities 25,185 27,614 27,888 31,450 35,507
Net Current Assets 18,566 22,793 24,218 27,262 30,620
TOTAL APPLICATION OF
23,330 27,845 29,672 33,064 36,764
FUNDS
Source: Company, HDFC sec Inst Research

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 VOLTAS : RESULTS REVIEW 3QFY17

Cash Flow - Consolidated Key Ratios - Consolidated

(Rs mn) FY15 FY16 FY17E FY18E FY19E FY15 FY16 FY17E FY18E FY19E
Reported PBT 5,137 5,521 6,860 7,687 8,787 GPM 30.6 29.6 31.3 31.0 31.0
Non-operating & EO items (1,549) (1,583) (2,000) (1,870) (1,964) EBITDA margin 7.9 7.5 8.9 9.3 9.5
Interest Expenses 233 153 168 110 76 APAT margin 6.7 6.1 7.4 7.5 7.6
Depreciation 280 278 286 329 354 RoE 17.8 15.9 17.2 17.4 17.8
Working capital change 1,820 (266) (2,303) (1,373) (1,385) Core RoCE (RoIC) 23.9 25.9 27.0 27.8 29.0
Tax Paid (1,276) (1,600) (2,195) (2,460) (2,812) RoCE 16.2 14.4 15.6 16.3 16.9
Other operating items (284) - - - - EFFICIENCY
OPERATING CASH FLOW (a) 4,360 2,504 816 2,423 3,057 Tax Rate (%) 24.8 29.0 32.0 32.0 32.0
Capex 17 (449) (500) (500) (500) Fixed Asset Turnover (x) 19.0 19.9 18.9 20.3 22.0
Free Cash Flow 4,377 2,054 316 1,923 2,557 Inventory (days) 61.1 55.6 58.4 58.7 58.7
Investments 455 (42) - - - Debtors (days) 94.3 81.4 90.5 90.5 90.5
Non-operating Income 1,549 1,583 2,000 1,870 1,964 Other Current Assets (days) 64.6 75.8 72.4 72.4 72.4
INVESTING CASH FLOW (b) 2,021 1,092 1,500 1,370 1,464 Payables (days) 160.0 154.2 154.8 154.3 153.9
Debt Issuance/(Repaid) (1,412) 1,387 (1,000) (453) (400) Other Current Liab & Provns
17.3 17.9 15.9 15.6 15.6
Interest (233) (153) (168) (110) (76) (days)
FCFE 2,732 3,288 (853) 1,359 2,081 Cash Conversion Cycle (days) 42.6 40.8 50.4 51.6 52.0
Share Capital Issuance - - - - - Debt/EBITDA (x) 0.3 0.6 0.3 0.2 0.1
Minority Interest 16 23 (250) (150) (100) Net D/E (x) (0.5) (0.6) (0.5) (0.5) (0.5)
Dividend (980) (1,120) (1,161) (1,354) (1,935) Interest Coverage (x) 16.4 26.7 29.9 53.8 90.8
FINANCING CASH FLOW (c) (2,609) 136 (2,579) (2,068) (2,511) PER SHARE DATA (Rs)
NET CASH FLOW (a+b+c) 3,772 3,731 (264) 1,725 2,010 EPS 10.6 10.8 13.3 15.3 17.7
Closing Cash & Equivalents 12,517 16,248 15,984 17,709 19,719 CEPS 11.4 11.6 14.1 16.2 18.7
Source: Company, HDFC sec Inst Research Dividend 2.3 2.6 3.0 3.5 5.0
Book Value 63.6 72.4 82.2 93.3 105.1
VALUATION
P/E (x) 32.6 32.0 26.0 22.6 19.5
P/BV (x) 5.4 4.8 4.2 3.7 3.3
EV/EBITDA (x) 25.1 23.0 18.8 15.6 13.1
EV/Revenues (x) 2.0 1.7 1.7 1.4 1.2
OCF/EV (%) 4.2 2.5 0.8 2.5 3.2
FCF/EV (%) 4.3 2.0 0.3 2.0 2.7
FCFE/Mkt Cap (%) 2.4 2.9 (0.7) 1.2 1.8
Dividend Yield (%) 0.7 0.8 0.9 1.0 1.4
Source: Company, HDFC sec Inst Research

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 VOLTAS : RESULTS REVIEW 3QFY17

RECOMMENDATION HISTORY
Date CMP Reco Target
Voltas TP 16-Feb-16 238 NEU 254
450
20-May-16 323 NEU 310
400 4-Aug-16 345 NEU 325
21-Nov-16 293 BUY 351
350
16-Feb-17 345 BUY 387
300

250

200 Rating Definitions

Apr-16
Feb-16

Sep-16

Feb-17
Jun-16
Jul-16
Mar-16

Dec-16
Oct-16
Aug-16

Nov-16 BUY: Where the stock is expected to deliver more than 10% returns over the next 12 month period

Jan-17
May-16

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

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 VOLTAS : RESULTS REVIEW 3QFY17

Disclosure:
We, Pawan Parakh, CFA, and Ashutosh Mehta, ACA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect
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Research Analyst or his/her relative or HDFC Securities Ltd. does not have any financial interest in the subject company. Also Research Analyst or his relative or HDFC Securities Ltd. or its
Associate may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Further
Research Analyst or his relative or HDFC Securities Ltd. or its associate does not have any material conflict of interest.
Any holding in stock No

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