The Voltas management says tight money market conditions could result in business slowing down in the current year. As a result, the momentum in revenues which grew 27 per cent last year to Rs 3,045 crore is likely to taper off to 25 per cent in the current year.
It’s already visible: in the six months to September 2008, Voltas’ revenues have grown just 25 per cent, despite a strong 32 per cent growth in the electro-mechanical projects (MEP) segment. This segment accounts for 54 per cent of the firm’s revenues and the management anticipates some weakness in the Dubai region as also the home market over the next couple of quarters.
However, over the longer term the management believes this segment could grow at a compounded 35-40 per cent. In the meantime though, despite having a strong order book, of around Rs 5,575 crore, the management is circumspect, even though at these levels, the order book represents nearly two times last year’s sales. That’s possibly because much will depend on whether these are executed on time. There could be time overruns relating to projects in the realty sector.
Voltas’ other two divisions — engineering and product services and unitary cooling division have grown by 22 per cent and 16 per cent respectively in the first half of this year, though growth was clearly lower in the September 2008 quarter.
The slump in the textile sector could hurt the engineering business since the demand for textile machinery — which Voltas sells — is likely to fall given the weakening offtake from developed markets for garments.
Since the textiles sector is unlikely to turn around in the near future, the profitability of the engineering division could continue to be under pressure — already in the September quarter the operating profit margin (OPM)came off by nearly 700 basis points.
With the cooling division also likely to see lower profitability, Voltas’s margins for the current year could be lower — the opm for the September quarter was down by 120 basis points. As such, the firm’s profit before tax (net of other income and exceptionals), which grew by 143 per cent in FY08, is likely to see a more subdued rise this year.
