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Earnings upgrades have started even before the earnings season has officially ended. It’s not only the big companies who are expecting the current financial year to be better than the one gone by. Even the smaller players are looking at a revival in growth.
Voltas, the engineering products and cooling solutions company, has indicated expected robust order inflows in the engineering and products segment and that it expects to sustain a higher margin trajectory in the cooling business.
The summers of 2013 and 2014 have been good for the cooling business, and with consumers moving towards split air-conditioners, its product mix has improved. This has driven up the cooling segment’s margins. Other than this, the lower provisions for warranties and foreign currency gains have also propped profitability. Against the Street's expectations, the company has reported a 210 basis points year-on-year increase in operating margins.
Most of this was driven by the cooling segment. The Ebit (earnings before interest, tax) margin of the engineering products segment increased 1,430 basis points year-on-year to 30.6 per cent in the March quarter.
Voltas reported an 81 per cent increase in earnings during the March quarter, significantly ahead of the Street's estimates. HSBC Global Research has raised the company's earnings per share forecast for FY15 and FY16 by seven per cent each. The upgrade is driven by a 50 basis points margin expansion, along with reduction in working capital, largely during FY16.
Other than the cooling segment, which saw revenue grow 11.8 per cent, electro-mechanical sales declined 22.4 per cent and engineering declined five per cent. In an earnings call after reporting its March quarter numbers, the management said 65 per cent of the order backlog comprises orders won in the last one year. The company expects revenues from new orders to surpass that from legacy orders, which will also impact the margin profile significantly.
