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The unitary cooling products (UCP) segment has been the key driver of Voltas’ performance so far but the Street is optimistic on the electro-mechanical projects and services (EMP) segment, too. This has led to Voltas outperforming on the bourses, rising threefold in a year, 28 per cent in the past month. Analysts at Jefferies say the company’s leadership position, strong margins and cash flows in the air conditioning (AC) segment are likely to increase return on equity from 12 per cent to 18 per cent.
After declining from Rs 507 crore in FY10 to Rs 268 crore in FY13, operating profit rebounded to Rs 318 crore in FY14, as market share in the AC segment rose from 18.4 per cent to 19.8 per cent. For the quarter ended June, operating profit stood at Rs 126 crore, up 283 per cent year-on-year.
The EMP segment, which accounts for 51 per cent of revenue, is expected to see better traction. While analysts expect orders for Doha/Riyadh metros in the next few quarters, it is felt traction in domestic order flow will also pick up as the economy revives. For the June quarter, EMP revenue had declined 10 per cent, though it reported a profit (before one-offs) of Rs 4.4 crore. After a fall in profit in the past two years due to execution challenges in the EMP segment, Voltas has taken steps to boost profitability—new orders at higher margins, new management for international operations and process improvement for timely claims. Analysts at IDFC feel these steps should accrue benefits in the second half of FY16.
As the recent run-up means the stock is currently trading near fair value, investors with longer investment horizons could accumulate it on dips.
