1. Satyam Agarwal (AgarwalS@MotilalOswal.com); +91 22 3982 5410
Amit Shah (Amit.Shah@MotilalOswal.com) / Nirav Vasa (Nirav.Vasa@MotilalOswal.com)
6 August 2014
Annual Report Update | Sector: Capital Goods
Voltas
CMP: INR199 TP: INR230 Buy
House in order; awaiting macro support
Products lead growth I Projects weigh on profits
We went through VOLT’s annual report for FY14. Our key takeaways:
Projects business restructured but legacy projects continue to haunt: The
Projects business continued to report EBIT losses for the third consecutive year,
as the pace of execution failed to pick up. However, curtailment of EBIT losses
at 1.5% of project revenues against 3.3% in FY12 could be a key positive in a
constrained environment. RIEL reported EBITDA breakeven but continued to
struggle with post tax losses, compelling VOLT to infuse capital in FY14.
NWC cycle contracts for standalone entity, remains stretched on consolidated
basis: VOLT’s net working capital (NWC) remained elevated on consolidated
basis at 53 days against 30 days in FY11. However, its NWC cycle reported sharp
improvement on standalone basis (NWC days down by 10 days on standalone
basis), supported by lower inventories (improvement of 4 days) and increase in
trade payables (higher by 4 days).
Maintains leadership position in Unitary Cooling segment: For FY14, the Room
AC division reported 7% volume growth. Overall, the Unitary Cooling division
reported 39% revenue growth. EBIT margins across the division expanded from
9% in FY13 to 12.5%, supported by favorable product mix and higher demand
from tier III & IV cities, which VOLT caters to through a pan India network of
~6,500 retailers. The Unitary Cooling division reported the highest margins in
FY14 at 12.5% from a low of 5.9% in FY09.
Rationalizing manpower to curtail fixed costs: VOLT’s manpower cost for FY14
declined 6% on a consolidated basis and 15% on a standalone basis. Employees
on its payroll continued to decrease for the third consecutive year in FY14, with
65% of its manpower being on contract basis. VOLT has been rationalizing
manpower to realign itself with current industry requirements.
Maintain Buy: VOLT trades at 19.3x FY16E of INR10.4 and 15.7x FY17E EPS of
INR12.8, and at an EV of 15.5x FY16E EBITDA and 12.2x FY17E EBITDA. Near-
term growth triggers are dormant, considering the tepid pace of project
execution across sectors. Profitability of the Projects division is also likely to be
under pressure, as VOLT is yet to complete legacy projects. The Unitary Cooling
division could be a major beneficiary of operating leverage once demand picks
up across room ACs and refrigeration boxes. We model 14% revenue CAGR and
26% PAT CAGR over FY15-17. We maintain Buy; our target price is INR230.
BSE Sensex S&P CNX
25,665 7,672
Stock Info
Bloomberg VOLT IN
Equity Shares (m) 330.9
52-Week Range (INR) 233/63
1, 6, 12 Rel. Per (%) -7/45/136
M.Cap. (INR b) 66.5
M.Cap. (USD b) 1.1
Financial Snapshot (INR Million)
Y/E March 2015E 2016E 2017E
Net Sales 54,528 62,461 70,987
EBITDA 3,285 4,036 4,982
Adj PAT 2,807 3,449 4,234
EPS (INR) 8.5 10.4 12.8
Growth (%) 20 23 23
BV/Sh. (INR) 61 68 77
RoE (%) 14.6 16.1 17.6
RoCE (%) 13.9 15.7 17.6
P/E (x) 23.7 19.3 15.7
P/BV (x) 3.3 2.9 2.6
Shareholding pattern % (Jun-14)
Jun-14 Mar-14 Jun-13
Promoter 30.3 30.3 30.2
DII 29.2 28.9 25.6
FII 18.6 18.1 18.1
Others 21.9 22.7 26.1
FII Includes depository receipts
Stock Performance (1-year)
Investors are advised to refer through disclosures made at the end of the Research Report.

2. Voltas
6 August 2014 2
Quotes from annual report
Projects business: For the projects business in particular, new investments were
few and far between, with some reliable sources reporting that capital outlays lingered at
the decade’s lowest levels. The pace of execution also posed challenges, leading to both
time and cost overruns that contributed to margin dilution in projects
The International Projects business continued to remain in the grip of recession, marked by
widespread delays in settlements and release of payments
.”
. In response, project specific task
forces have been constituted, with clear roles and responsibilities directed towards faster
completion and quick settlement of commercial entitlements. The drive towards speedy
closure of projects has yielded some results, but there is still much to be done.
Rohini Electricals: While it was a subdued year for the Water business and Rohini
Industrial Electricals Limited (RIEL), their integration under Domestic Projects Group (DPG)
has been completed
Sidra Medical & Research Centre Hospital: Due to significant upward revision
in the total estimated costs to complete a major project in Qatar, the Sidra Medical and
Research Centre Hospital (Onerous contract), the Company had in the previous years
accounted for the cost overruns in accordance with AS-7.
. However, RIEL continued to suffer losses on its low-margin ‘legacy’
orders, resulting in a further write-down of ` 20 crores in the value of the Company’s
investment.
Though the Sidra project is over
93% complete, additional costs to come have been estimated for the revised completion
date along with possible enhancement of revenue from variations/claims.
The final completion schedule and other terms are yet to be finalized between the Main
Contractor and the end Customer and could revise the Company’s current cost estimates
and entitlements
Room AC segment: Despite the early onset of monsoons as well as dampened
consumer sentiment,
.
the Room AC business (Primary
Responding to the increased demand in tier 2 and tier 3 towns, as well as the rise in rural
demand driven by good monsoons, the business enhanced its penetration, with
Market) reported growth of 6.5% as
against industry-wide AC sales de-growth of around 8%, as per internal estimates. In the
Secondary Market, the growth was 19% as against industry growth of 11% as per GFK-
Nielsen.”
the number
of touch points now exceeding 6500 outlets.
Textile machinery segment: The revised and restructured Textile Up gradation
Fund (TUF) scheme is yet to have the desired impact in boosting the demand and reviving
the fortunes of the Textile industry. The prevailing uncertainties and subdued investment
climate, coupled with Rupee devaluation and volatility, weakened sentiments and led to
postponement of equipment orders.

3. Voltas
6 August 2014 3
Projects segment awaits macro push for improved order booking
Legacy projects remain the major drag on VOLT’s Projects business. The company
continues to focus on execution of these projects, for which it has constituted an
internal task force with the intention to close these legacy projects. However,
closure of legacy projects has met with limited success, as clients continue to delay
payments, indirectly signaling their intention to delay commissioning.
Due to legacy projects and delays in project execution, revenues for FY14 declined
16% to INR26.9b, almost in line with the revenues booked in FY09. However, VOLT
was able to control its losses, effectively resulting in negative EBIT margin of 1.5%,
against negative 3.3% in FY12. Closure of legacy projects and improved pace of
project execution across recently bagged orders with higher margins and better
commercial terms hold the key to margin improvement in Projects business.
Project revenues dip under constrained environment
27,600
31,130
30,411
31,832 31,995
26,924
FY09 FY10 FY11 FY12 FY13 FY14
Revenues
Source: Company, MOSL
EBIT margins remain negative for third consecutive year
2,134
3,091
2,393
(1,042)
(491)
(396)
-5
0
5
10
15
(2,000)
(1,000)
-
1,000
2,000
3,000
4,000
FY09 FY10 FY11 FY12 FY13 FY14
EBIT EBIT (%)
Source: Company, MOSL
RIEL achieves EBITDA breakeven after three years
Supported by 29% increase in contract revenues, RIEL reported EBITDA breakeven in
FY14, with an operating profit of INR24.6m. However, interest cost of INR90.3m
continued to drag RIEL’s profitability. Consequently, it reported loss of INR69m. Post
the integration of RIEL with VOLT’s domestic projects group, VOLT had purchased
the remaining 16.33% share from RIEL’s erstwhile promoters, making RIEL its 100%
subsidiary. Improvement in RIEL’s performance is subject to improved pace of
project execution and closure of legacy orders. VOLT has invested INR370m via
preferential share allotment in RIEL.
RIEL turns EBITDA positive in FY14 but continues to report cash losses
(INR - Millions) FY10 FY11 FY12 FY13 FY14
Revenues 2,149 1,628 1,179 850 1,031
EBITDA 175 (300) (188) (47) 25
EBITDA (%) 8.2 (18.4) (15.9) (5.5) 2.4
PAT 93 (366) (262) (131) (69)
PAT (%) 4.3 (22.5) (22.2) (15.4) (6.7)
Source: Company, MOSL

4. Voltas
6 August 2014 4
INR370m invested in RIEL via preferential share allotment
250 250
620
FY12 FY13 FY14
VOLT's investment inRIEL via prefrence shares
Source: Company, MOSL
RIEL’s value in VOLT’s balance sheet
1,069 1,069
969
FY12 FY13 FY14
RIEL's value inVOLT's balance sheet
Source: Company, MOSL
NWC cycle contracts for standalone entity, remains stretched on
consolidated basis
Considering the constrained environment, characterized by tepid pace of project
execution, especially across GCC nations, VOLT’s net working capital (NWC)
remained elevated on consolidated basis at 53 days but have remained flat on YoY basis
against 30 days in FY11. However, its NWC cycle reported sharp improvement on
standalone basis (NWC days down by 10 days on standalone basis), supported by
lower inventories (improvement of 4 days) and increase in trade payables (higher by
4 days).
NWC remains at elevated levels on consolidated basis
No of days FY08 FY09 FY10 FY11 FY12 FY13 FY14
Inventories 42 35 50 58 59 65 62
Debtors 56 65 60 70 73 86 92
Unbilled Revenues 31 59 37 56 56 47 46
Retention Money 9 15 17 14 19 12 14
Loans and Advances (Excl Subs) 17 19 16 17 21 20 21
Trade Payables (73) (99) (85) (103) (105) (115) (115)
Customer Advances (56) (55) (54) (44) (35) (28) (32)
Current Liabilities (15) (12) (12) (15) (12) (14) (17)
Provisions (25) (22) (20) (22) (20) (18) (19)
Total (13) 5 8 30 56 53 53
Net Cash / Debt (INR m)
Cash and Cash Equivalents 3,002 4,571 4,689 4,890 2,710 3,498 2,818
Current Investments 2,273 1,244 2,090 2,247 2,233 2,680 5,927
Debt (737) (1,814) (352) (1,367) (2,214) (2,612) (2,629)
Net Cash / Debt 4,537 4,000 6,428 5,770 2,730 3,566 6,116
Source: Company, MOSL

5. Voltas
6 August 2014 5
NWC improves by 10 days for FY14 on standalone basis despite constrained environment
No. of days FY08 FY09 FY10 FY11 FY12 FY13 FY14
Inventories 41 33 49 54 53 55 51
Debtors 55 59 52 59 61 71 73
Unbilled Revenues 32 62 37 53 51 40 38
Retention Money 9 15 17 13 18 12 14
Loans and Advances (Excl Subs) 17 20 19 13 17 16 17
Trade Payables (74) (97) (80) (95) (97) (102) (106)
Customer Advances (57) (58) (57) (43) (32) (23) (25)
Current Liabilities (16) (9) (11) (14) (11) (13) (15)
Provisions (24) (22) (20) (21) (18) (17) (18)
Total (16) 2 6 20 43 39 29
Net Cash / Debt (INR m)
Cash and Cash Equivalents 2,752 4,002 4,029 4,251 2,054 2,586 2,085
Current Investments 2,211 1,215 2,034 2,179 2,213 2,680 5,927
Debt (477) (1,284) (191) (939) (1,778) (2,120) (1,934)
Net Cash / Debt 4,487 3,933 5,872 5,490 2,489 3,147 6,078
Source: Company, MOSL
Rationalizing manpower to curtail fixed costs
VOLT’s manpower cost for FY14 declined 6% on a consolidated basis and 15% on a
standalone basis. Employees on its payroll continued to decrease for the third
consecutive year in FY14, with 65% of its manpower being on contract basis. In all,
VOLT has 6,901 employees on its rolls, down from the peak of 11,527 employees in
FY11. VOLT has been rationalizing manpower to realign itself with current industry
requirements.
Staff cost increased to 11% of revenues from 9% in FY08
2,991
4,656
5,357
5,563
5,995
6,325
5,947
8
9
10
11
12
2,000
3,000
4,000
5,000
6,000
7,000
FY08 FY09 FY10 FY11 FY12 FY13 FY14
Staff Cost (INR - Millions) % of total revenues
Source: Company, MOSL
Employee count dips for third consecutive year in FY14
7378
9594
8608
11527
9994
8862
6901
3797
6228
5173
7771
7215
6246
4519
50
55
60
65
70
75
3500
5500
7500
9500
11500
FY08 FY09 FY10 FY11 FY12 FY13 FY14
Total Employees Contract employees
% of total employees
Source: Company, MOSL
TUF fails to support demand; near-term outlook remains grim
Demand for spindles and other spinning machines is likely to remain grim in the
near term, as the restructured Textile Upgradation Fund (TUF) has failed to provide
the desired stimulus for resumption of capex across the Indian textiles industry. The
Engineering Products & Services division reported 4% growth and 31% EBIT margin
in FY14. Overall, the division’s revenues are still 21% below peak levels of INR5.6b.
EBIT margins across the Engineering Products & Services segment expanded to
31.6% for FY14, supported by one-time gains worth INR125.4m from business
restructuring, which led to sale of its mining business.

6. Voltas
6 August 2014 6
Engineering product revenues up 4% YoY
5,420
4,680
5,638
4,121 4,311 4,482
FY09 FY10 FY11 FY12 FY13 FY14
Source: Company, MOSL
EBIT margin improvement supported by one-time gains
626
768
1,031
687
821
1,414
9
14
19
24
29
34
-
500
1,000
1,500
FY09 FY10 FY11 FY12 FY13 FY14
EBIT EBIT (%)
Source: Company, MOSL
Maintains leadership position in unitary cooling segment
VOLT maintains its leadership position across the Room AC industry. For FY14, the
Room AC division reported 7% volume growth. Overall, the Unitary Cooling division
reported 39% revenue growth. EBIT margins across the division expanded from 9%
in FY13 to 12.5%, supported by favorable product mix and higher demand from tier
III & IV cities, which VOLT caters to through a pan India network of ~6,500 retailers.
The Unitary Cooling division reported the highest margins in FY14 at 12.5% from a
low of 5.9% in FY09. Margin expansion is an outcome of sustained marketing efforts
towards institutional customers, product portfolio enhancement, focused
marketing, and expanding dealer network. To cater to increasing demand for room
ACs, VOLT has ramped-up its manufacturing capacity to 650k units per annum in its
manufacturing subsidiary, Universal Comfort Products (UPCL).
Revenue increases 2.2x in five years
9,200
11,860
15,608 15,388
18,356
20,524
FY09 FY10 FY11 FY12 FY13 FY14
Revenues
Source: Company, MOSL
EBIT margin expands from 6% in FY09 to 12.5% in FY14
550
1,203
1,599
1,298
1,655
2,567
6.0
10.1 10.2
8.4
9.0
12.5
4
6
8
10
12
14
-
500
1,000
1,500
2,000
2,500
3,000
FY09 FY10 FY11 FY12 FY13 FY14
EBIT EBIT (%)
Source: Company, MOSL
Valuation and outlook
VOLT trades at 19.3x FY16E of INR10.4 and 15.7x FY17E EPS of INR12.8, and at an EV
of 15.5x FY16E EBITDA and 12.2x FY17E EBITDA. Near-term growth triggers are
dormant, considering the tepid pace of project execution across sectors. Profitability
of the Projects division is also likely to be under pressure, as VOLT is yet to complete
legacy projects. The Unitary Cooling division could be a major beneficiary of
operating leverage once demand picks up across room ACs and refrigeration boxes.
We model 14% revenue CAGR and 26% PAT CAGR over FY15-17. We maintain Buy;
our target price is INR230.

7. Voltas
6 August 2014 7
Operating matrix
INR m FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Order Analysis
Order Book 46,780 48,870 42,920 37,190 36,120 43,376 52,610 65,055
Domestic 15,000 19,630 19,560 21,610 20,200 22,600 26,300 31,900
International 31,780 29,240 23,360 15,580 15,920 20,776 26,310 33,155
% YoY -1.7% 4.5% -12.2% -13.4% -2.9% 20.1% 21.3% 23.7%
Order Inflows 30,730 32,501 25,882 26,265 20,410 28,500 33,000 38,750
Revenues
India Contract 9,513 10,053 9,511 8,634 8,634 10,100 11,300 13,150
ME Contract 17,483 15,843 17,627 18,381 14,408 11,144 12,466 13,155
Product 4,134 4,515 4,695 4,980 3,882 4,464 5,357 5,892
EMP Revenues 31,130 30,411 31,832 31,995 26,924 25,708 29,122 32,197
India Contract, % YoY 17.1% 5.7% -5.4% -9.2% 0.0% 17.0% 11.9% 16.4%
ME Contract, % YoY 15.9% -9.4% 11.3% 4.3% -21.6% -22.7% 11.9% 5.5%
Segmental Revenues
Electro mechanical projects 31,130 30,411 31,832 31,995 26,924 25,708 29,122 32,197
Engineering Products 4,680 5,638 4,121 4,311 4,482 4,704 5,174 5,951
Unitary Cooling products 11,860 15,608 15,388 18,356 20,524 23,309 27,288 31,888
Total Revenues 48,060 51,783 51,768 55,163 52,451 54,293 62,214 70,728
EMP, % YoY 12.8% -2.3% 4.7% 0.5% -15.8% -4.5% 13.3% 10.6%
Engg Products, % YoY -13.7% 20.5% -26.9% 4.6% 4.0% 4.9% 10.0% 15.0%
UCP, % YoY 28.9% 31.6% -1.4% 19.3% 11.8% 13.6% 17.1% 16.9%
Segmental PBIT, %
Electro mechanical projects 9.9 7.9 -3.3 -1.5 -1.5 2.5 4.3 5.7
Engineering Products 16.4 18.3 16.7 19.0 31.6 21.0 18.0 18.0
Unitary Cooling products 10.1 10.2 8.4 9.0 12.5 11.0 10.7 10.5
Total PBIT 10.7 9.7 1.9 3.6 6.8 7.8 8.2 8.8
EPS (INR/sh) 11.6 10.6 4.9 6.3 7.4 8.5 10.6 13.1
NWC (Days) 8.2 30.4 55.9 53.4 52.6 47.1 46.1 45.4
Source: Company, MOSL

8. Voltas
6 August 2014 8
Financials and valuations
Income statement (INR Million)
Y/E March 2012 2013 2014 2015E 2016E 2017E
Net Sales 51,857 55,310 52,660 54,528 62,461 70,987
Change (%) 0 7 -5 4 15 14
EBITDA 3,365 2,380 2,656 3,285 4,036 4,982
EBITDA Margin (%) 6.5 4.3 5.0 6.0 6.5 7.0
Depreciation 340 278 248 258 283 309
EBIT 3,025 2,102 2,408 3,027 3,753 4,673
Interest 314 326 225 379 389 399
Other Income 985 901 1,002 1,156 1,311 1,470
Extraordinary items -1,505 121 215 0 0 0
PBT 2,191 2,798 3,399 3,804 4,675 5,743
Tax 571 729 924 997 1,226 1,509
Tax Rate (%) 26.1 26.1 27.2 26.2 26.2 26.3
Reported PAT 1,620 2,069 2,475 2,807 3,449 4,234
Adjusted PAT 2,598 1,991 2,335 2,807 3,449 4,234
Change (%) -20 -23 17 20 23 23
Min. Int. & Assoc. Share -1 -7 0 0 0 0
Adj Cons PAT 1,619 2,062 2,475 2,807 3,449 4,234
Balance sheet (INR Million)
Y/E March 2012 2013 2014 2015E 2016E 2017E
Share Capital 331 331 331 331 331 331
Reserves 14,469 15,926 17,863 19,828 22,242 25,206
Net Worth 14,800 16,256 18,193 20,159 22,573 25,536
Debt 2,214 2,612 2,629 2,629 2,629 2,629
Deferred Tax -242 -222 -239 -239 -239 -239
Total Capital Employed 16,941 18,765 20,722 22,687 25,101 28,064
Gross Fixed Assets 4,451 4,678 4,696 5,060 5,636 6,211
Less: Acc Depreciation 2,448 2,568 2,611 2,867 3,150 3,459
Net Fixed Assets 2,003 2,110 2,086 2,193 2,486 2,753
Capital WIP 46 0 18 0 0 0
Investments 3,116 4,074 7,320 7,320 7,320 7,320
Current Assets 35,271 38,352 36,973 39,928 46,081 53,148
Inventory 8,334 9,784 9,010 9,329 10,687 12,145
Debtors 20,977 21,927 22,039 22,514 25,637 28,992
Cash & Bank 2,710 3,498 2,818 5,248 6,528 8,299
Loans & Adv, Others 3,249 3,142 3,107 2,837 3,229 3,712
Curr Liabs & Provns 24,384 26,658 26,476 27,554 31,585 35,955
Curr. Liabilities 14,933 17,471 16,566 17,158 19,623 22,273
Provisions 2,790 2,711 2,790 3,033 3,566 4,177
Net Current Assets 10,887 11,694 10,497 12,374 14,496 17,193
Total Assets 16,941 18,766 20,720 22,687 25,101 28,064
E: MOSL Estimates

9. Voltas
6 August 2014 9
Financials and valuations
Ratios
Y/E March 2012 2013 2014 2015E 2016E 2017E
Basic (INR)
EPS 7.9 6.0 7.1 8.5 10.4 12.8
Cash EPS 5.9 7.1 8.2 9.3 11.3 13.7
Book Value 44.7 49.2 55.0 61.0 68.3 77.2
DPS 7.9 6.0 7.1 8.5 10.4 12.8
Payout (incl. Div. Tax.) 38.0 30.0 28.9 30.0 30.0 30.0
Valuation(x)
P/E 25.6 33.4 28.5 23.7 19.3 15.7
Cash P/E 34.0 28.4 24.4 21.7 17.8 14.6
Price / Book Value 4.5 4.1 3.7 3.3 2.9 2.6
EV/Sales 0.7 0.4 1.3 1.2 1.0 0.9
EV/EBITDA 10.9 10.0 25.0 19.4 15.5 12.2
Dividend Yield (%) 5.5 6.0 6.5 7.2 8.0 0.0
Profitability Ratios (%)
RoE 11.4 13.3 14.4 14.6 16.1 17.6
RoCE 18.9 11.8 12.2 13.9 15.7 17.6
Turnover Ratios (%)
Asset Turnover (x) 3.2 3.1 2.7 2.5 2.6 2.7
Debtors (No. of Days) 147.6 144.7 152.8 150.7 149.8 149.1
Inventory (No. of Days) 58.7 64.6 62.4 62.4 62.4 62.4
Creditors (No. of Days) 0.0 0.0 0.0 0.0 0.0 52.6
Leverage Ratios (%)
Net Debt/Equity (x) 0.0 -0.1 0.0 -0.1 -0.2 0.1
Cash flow statement (INR Million)
Y/E March 2012 2013 2014 2015E 2016E 2017E
OP/(Loss) before Tax 2,191 2,798 3,399 3,804 4,675 5,743
Depreciation 340 278 248 258 283 309
Others -187 183 80 0 0 0
Interest 314 326 225 379 389 399
Direct Taxes Paid -571 -728 -941 -997 -1,226 -1,509
(Inc)/Dec in Wkg Cap -3,838 -19 516 553 -842 -926
CF from Op. Activity -1,377 2,473 3,528 3,997 3,280 4,016
(Inc)/Dec in FA & CWIP -289 -181 -36 -346 -576 -576
(Pur)/Sale of Invt -430 -957 -3,247 0 0 0
Others 0 0 0 0 0 0
CF from Inv. Activity -719 -1,139 -3,283 -346 -576 -576
Inc/(Dec) in Net Worth 0 0 0 0 0 0
Inc / (Dec) in Debt 847 399 17 0 0 0
Interest Paid 314 326 225 379 389 399
Divd Paid (incl Tax) 615 619 716 842 1,035 1,270
CF from Fin. Activity -83 -546 -925 -1,222 -1,424 -1,670
Inc/(Dec) in Cash -2,179 788 -680 2,430 1,280 1,771
Add: Opening Balance 4,890 2,710 3,498 2,818 5,248 6,527
Closing Balance 2,711 3,498 2,818 5,248 6,527 8,298
E: MOSL Estimates

10. Voltas
6 August 2014 10
Disclosures
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