We met the management of Voltas. The key takeaways from the meet are 1) Management expects ordering in the MEP segment to pick up in FY16 2) Legacy orders in the MEP segment might continue till Q3/Q4FY15 3) EMP segment may see a meaningful dip in revenues in FY15

1.
Voltas
Muted near‐term outlook!
July 03, 2014
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Visit Update
Kunal Sheth
kunalsheth@plindia.com
+91‐22‐66322257
Rating Accumulate
Price Rs222
Target Price Rs233
Implied Upside 5.0%
Sensex 25,841
Nifty 7,725
(Prices as on July 02, 2014)
Trading data
Market Cap. (Rs bn) 73.5
Shares o/s (m) 330.7
3M Avg. Daily value (Rs m) 1347.8
Major shareholders
Promoters 30.30%
Foreign 18.09%
Domestic Inst. 28.94%
Public & Other 22.67%
Stock Performance
(%) 1M 6M 12M
Absolute 14.9 91.0 173.5
Relative 10.2 67.3 140.7
How we differ from Consensus
EPS (Rs) PL Cons. % Diff.
2015 7.8 8.6 ‐9.3
2016 10.4 11.1 ‐7.0
Price Performance (RIC: VOLT.BO, BB: VOLT IN)
Source: Bloomberg
0
50
100
150
200
250
Jul‐13
Sep‐13
Nov‐13
Jan‐14
Mar‐14
May‐14
Jul‐14
(Rs)
We met the management of Voltas. The key takeaways from the meet are 1)
Management expects ordering in the MEP segment to pick up in FY16 2) Legacy
orders in the MEP segment might continue till Q3/Q4FY15 3) EMP segment may
see a meaningful dip in revenues in FY15 4) Volume growth in the UCP segment
remains below expectation for the quarter. The stock is currently trading at 21.5x
FY16e earnings. We believe that a weak near‐term outlook will lead to stock under‐
performing the broader market in the near term. However, we remain positive on
Voltas from medium/long term perspective due to (a) improving margin profile of
fresh orders (b) strong consumer business franchisee and (c) healthy balance sheet
and cash flow. We maintain ‘Accumulate’ on the stock.
 MEP market to revive in FY16: The management is not seeing any meaningful
improvement in the order pipeline, especially in the domestic market and
expect ordering to pick up in FY16. In the international market, management
continues to remain positive due to opportunities in markets like UAE (Dubai
2020 expo), Abu Dhabi, Oman etc, despite the uncertainty surrounding the
Qatar 2022 FIFA World Cup. The management continues to remain selective in
order‐picking due to visa‐related issues in the KSA market. Management expects
revival in the MEP market in FY16. Current order book is ~Rs36bn and ~60‐65%
of the order book is from new margin orders. Management expects to complete
low margin legacy orders by Q3/Q4FY15 (except Sidra, where the closure
timeline is uncertain).
Contd..2
Key financials (Y/e March) 2013 2014 2015E 2016E
Revenues (Rs m) 55,310 52,660 55,538 61,504
Growth (%) 6.7 (4.8) 5.5 10.7
EBITDA (Rs m) 2,380 2,656 3,222 4,325
PAT (Rs m) 2,283 2,243 2,586 3,426
EPS (Rs) 6.9 6.8 7.8 10.4
Growth (%) 40.9 (1.8) 15.3 32.5
Net DPS (Rs) 1.6 1.9 2.0 2.6
Profitability & Valuation 2013 2014 2015E 2016E
EBITDA margin (%) 4.3 5.0 5.8 7.0
RoE (%) 14.7 12.9 13.5 16.2
RoCE (%) 13.8 11.9 12.9 15.4
EV / sales (x) 1.3 1.4 1.3 1.1
EV / EBITDA (x) 30.5 27.6 22.4 16.2
PE (x) 32.2 32.8 28.4 21.5
P / BV (x) 4.5 4.0 3.7 3.3
Net dividend yield (%) 0.7 0.8 0.9 1.2
Source: Company Data; PL Research

2.
July 03, 2014 2
Voltas
 Volume growth in UCP segment likely to be muted, EMP segment to see
meaningful de‐growth in FY15: AC segment’s volume growth for April and May
was lower than expectation due to erratic climatic conditions. Though June has
been better than April/May, overall volumes are still below company
expectations. Voltas reported a margin of 12.9% in the UCP segment due to few
one‐offs and a better product mix (in favour of Split ACs). The company expects
to report margins in the range of 10‐11% for FY15 in the UCP segment, while in
the EMP segment, the company expects revenues to de‐grow meaningfully due
to discontinuation of few principals (Bucyrus, LeTourneau).
 Outlook and Valuation: Voltas is currently trading at 21.5x FY16e earnings. We
have downgraded our earnings by ~10% for FY15 to factor in lower revenues in
the EMP segment and slower‐than‐expected ramp‐up in MEP margins. We
believe weak near‐term outlook will lead to stock under‐performing the broader
market in the near term. We remain positive on Voltas from medium/long term
perspective due to (a) improving margin profile of fresh orders (b) strong
consumer business franchisee (c) healthy balance sheet and cash flow. We
maintain ‘Accumulate’ on the stock.
Exhibit 1: One year forward Price/Earnings
38.1
18.5
16.4
3.5
26.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
Mar‐05
Sep‐05
Feb‐06
Jul‐06
Dec‐06
Jun‐07
Nov‐07
Apr‐08
Oct‐08
Mar‐09
Aug‐09
Jan‐10
Jul‐10
Dec‐10
May‐11
Oct‐11
Apr‐12
Sep‐12
Feb‐13
Jul‐13
Jan‐14
Jun‐14
P/E (x) Peak(x) Avg(x) Median(x) Min(x)
Source: Company Data, Bloomberg, PL Research

3.
July 03, 2014 3
Voltas
Income Statement (Rs m)
Y/e March 2013 2014 2015E 2016E
Net Revenue 55,310 52,660 55,538 61,504
Raw Material Expenses 41,670 38,543 39,987 44,283
Gross Profit 13,639 14,118 15,551 17,221
Employee Cost 6,325 5,947 7,387 8,180
Other Expenses 4,934 5,515 4,942 4,716
EBITDA 2,380 2,656 3,222 4,325
Depr. & Amortization 278 248 418 442
Net Interest 326 226 361 361
Other Income 974 1,002 1,149 1,236
Profit before Tax 2,751 3,184 3,592 4,758
Total Tax 728 941 1,006 1,332
Profit after Tax 2,023 2,243 2,586 3,426
Ex‐Od items / Min. Int. — — — —
Adj. PAT 2,283 2,243 2,586 3,426
Avg. Shares O/S (m) 330.7 330.7 330.7 330.7
EPS (Rs.) 6.9 6.8 7.8 10.4
Cash Flow Abstract (Rs m)
Y/e March 2013 2014 2015E 2016E
C/F from Operations 2,534 3,230 2,760 3,763
C/F from Investing (841) (3,547) (300) (300)
C/F from Financing (570) (928) (1,171) (1,363)
Inc. / Dec. in Cash 1,122 (1,245) 1,290 2,100
Opening Cash 2,710 3,832 2,588 3,877
Closing Cash 3,832 2,588 3,877 5,978
FCFF 2,111 2,705 2,100 3,102
FCFE 2,472 2,721 2,046 3,102
Key Financial Metrics
Y/e March 2013 2014 2015E 2016E
Growth
Revenue (%) 6.7 (4.8) 5.5 10.7
EBITDA (%) (29.3) 11.6 21.3 34.2
PAT (%) 40.9 (1.8) 15.3 32.5
EPS (%) 40.9 (1.8) 15.3 32.5
Profitability
EBITDA Margin (%) 4.3 5.0 5.8 7.0
PAT Margin (%) 4.1 4.3 4.7 5.6
RoCE (%) 13.8 11.9 12.9 15.4
RoE (%) 14.7 12.9 13.5 16.2
Balance Sheet
Net Debt : Equity (0.1) — (0.1) (0.2)
Net Wrkng Cap. (days) 26 24 (6) (6)
Valuation
PER (x) 32.2 32.8 28.4 21.5
P / B (x) 4.5 4.0 3.7 3.3
EV / EBITDA (x) 30.5 27.6 22.4 16.2
EV / Sales (x) 1.3 1.4 1.3 1.1
Earnings Quality
Eff. Tax Rate 24.2 29.6 28.0 28.0
Other Inc / PBT 33.7 31.5 32.0 26.0
Eff. Depr. Rate (%) 6.0 5.0 8.0 8.0
FCFE / PAT 108.3 121.3 79.1 90.6
Source: Company Data, PL Research.
Balance Sheet Abstract (Rs m)
Y/e March 2013 2014 2015E 2016E
Shareholder's Funds 16,325 18,317 19,930 22,338
Total Debt 2,612 2,629 2,575 2,575
Other Liabilities 118 138 152 167
Total Liabilities 19,056 21,084 22,657 25,081
Net Fixed Assets 2,156 2,208 2,089 1,947
Goodwill 888 799 826 826
Investments 4,074 7,320 7,320 7,320
Net Current Assets 11,693 10,499 12,163 14,729
Cash & Equivalents 3,498 2,818 3,877 5,978
Other Current Assets 34,852 34,157 32,172 35,483
Current Liabilities 26,657 26,476 23,887 26,732
Other Assets 245 259 259 259
Total Assets 19,055 21,084 22,657 25,081
Quarterly Financials (Rs m)
Y/e March Q2FY14 Q3FY14 Q4FY14 Q1FY15E
Net Revenue 10,805 11,194 14,628 15,366
EBITDA 432 675 1,054 1,076
% of revenue 4.0 6.0 7.2 7.0
Depr. & Amortization 60 60 69 70
Net Interest 55 46 65 85
Other Income 303 170 308 250
Profit before Tax 620 740 1,228 1,171
Total Tax 196 164 392 375
Profit after Tax 424 577 1,010 796
Adj. PAT 424 577 836 796
Source: Company Data, PL Research.

4.
July 03, 2014 4
Voltas
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Rating Distribution of Research Coverage
28.4%
53.2%
18.3%
0.0%
0%
10%
20%
30%
40%
50%
60%
BUY Accumulate Reduce Sell
% of Total Coverage
PL’s Recommendation Nomenclature
BUY : Over 15% Outperformance to Sensex over 12‐months Accumulate : Outperformance to Sensex over 12‐months
Reduce : Underperformance to Sensex over 12‐months Sell : Over 15% underperformance to Sensex over 12‐months
Trading Buy : Over 10% absolute upside in 1‐month Trading Sell : Over 10% absolute decline in 1‐month
Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly
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