According to the latest marketing update, shares of Tata group’s Voltas had advanced more than 60% so far from January 2017 and HDFC Securities had recommended it as a ‘buy’ with an upside of over 13%. The stock of Mumbai based HVAC (Heating, ventilation, and air conditioning), and refrigeration company Voltas rose as much as 67% to Rs 545 on NSE so far in this year.
While on the other hand both the benchmark indices — Sensex and Nifty — has returned 21-23% in the same time period. HDFC Securities has recommended ‘buy’ at the CMP (current market price) of Rs 545 as on 14 September 2017 and had given a target price of Rs 619 an upside of 13.58% from CMP.
HDFC Securities said that the healthy underlying demand in the consumer business and Voltas focus on sustaining the project’s EBIT margin of 4-5% are favourable for the company. Given the favourable macros in the AC industry (low penetration and increasing affordability) and foray into other consumer durable categories will provide multi-year growth visibility to Voltas, HDFC Securities said. A revenue/PAT CAGR (compounded annual growth rate) of 14% each over FY17-20E, on the basis of which we recommend a target price of Rs 619.
- Investment rationale:
- In the cooling products segment, the base product ACs (air conditioners) will grow at ~20% over the next 3- 4 years, by which time other product categories would also mature, HDFC Securities said.
- The management plans to launch new products under JV (joint venture) with Arcelik in a phased manner starting February 2018.
- The management believes that the shift to inverter ACs will be a gradual process and hence continues with its focus on fixed speed ACs. While Inverter ACs contributes nearly 21% of the total AC market, Voltas inverter AC contributes only 6% of its AC volumes.
- As per management, the market share of various AC players as on June 2017 stood at Voltas at 22.2%, LG at 11.5%, Lloyd at 9.8%, Hitachi at 9.6%, Daikin at 7.5%, Samsung at 5.5% and Blue Star at 5.5%. Over the last few years, LG has lost market share, while Voltas, Hitachi and Daikin have gained market share.
- In project business, management believes that margins are likely to improve to 7% over the next three to five years.
Voltas had reported a rise of 38.5% in the consolidated net profit to Rs 508.2 crore for the financial year ended 31 March 2017 as compared to Rs 367 crore as on last year. The total sales of the Tata group company grew 5.5% to Rs 6,032.8 crore for the financial year 2017.
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