The buy gives Voltas’ electro-mechanical business a leg up in the home market.
Voltas’ acquisition of Rohini Industrial Electricals (RIE) for Rs 62 crore may seem a tad expensive compared with the buyout of Naseer Electricals by Blue Star in December 2007 for an enterprise value of Rs 42 crore. With RIE’s debt at Rs 7 crore, the implied enterprise value is about Rs 130 crore, three times higher than that of Naseer.
Moreover, the Rs 3,044 crore Voltas’s electro-mechanical business will get a boost. The acquisition may be a small one but Rohini is a pan- Indian player implementing electrical turnkey projects with a focus on the industrial segment. Voltas has been aiming to grow the electro-mechanical business at around 35-40 per cent compounded annually, for the next few years, by tapping the home market estimated at Rs 3,200 crore. RIE already has an order backlog of around Rs 120 crore. The all- cash deal will be financed out of internal accruals and should not hurt the company’s financials since the size is relatively small.
Voltas retains the option to increase its stake in Rohini to 100 per cent at a later date. Meanwhile, Voltas’ net sales for the June 2008 quarter increased by a smart 22 per cent to Rs 1,006 crore with all three segments —- electro-mechanical, electrical products and cooling products —- chipping in. However, operating margins were down by about 120 basis points to 7.7 per cent with expenditure up by 24 per cent y-o-y, offsetting the revenue growth.
The company is expected to end the current year with a revenue growth of about 23 per cent to Rs 3,700 crore and net profits of around Rs 220 crore. The earnings per share is expected to grow by about 25 per cent. At the current price of Rs 131, the stock trades at a shade under 22 times its estimated FY09 earnings and is not cheap.