Voltas

Message

   Voltas, a Tata group company, is a leading player in India's Heating, Ventilation and Air Conditioning (HVAC) market, having a ~28% market share in electromechanical projects. The company offers engineering solutions for a wide spectrum of industries in areas such as HVAC, refrigeration, electromechanical projects, textile machinery, machine tools, mining and construction equipment, materials-handling vehicles, water management, building management systems, indoor air quality and chemicals. 

CMP: Rs.220
Market Cap: Rs.7274 crs
Revenues (9M FY08): Rs.2232 crs
EPS (FY07): Rs.5.62
EPS (9M FY08): Rs.4.62 (Q3 FY07 - Rs.2)
ROE (FY07): 38% 
ROCE (FY07): 26.6%
EBIDTA margins: 8.3% in Q3FY08 (up from 4.8% in Q3 FY07)
Break-up: Electromechanical segment - 7.4% in Q3 FY08 (up from 5.1% YoY)
               Unitary cooling segment - 5.2% (Manufacturing opearations were shifted to Himachal Pradesh where it enjoys excise benefits, loss in Q3FY07)
              Engineering segment - 17.7% (down from 21.4% in FY07, Margins fell because engineering products earlier used to be a commission business, with no material costs, while it has now become a manufacturing business )

Order Book: Rs.3460 crs (up 44% YoY)
Break-up: International Market - Rs.2700 crs
               Domestic market - Rs.760 crs 

Electromechanical Segment
Voltas with an impressive track record of having executed contracts in 30 countries is an established MEP contractor in Middle East and part of South East Asia. The business potential of the amusement, leisure and entertainment industries in the Middle East is pegged above US$ 10 billion, excluding the land and the construction costs which experts are expecting to witness 27% CAGR for the next five years.Middle East contributed 26.3% of Voltas revenues in FY07. Voltas is one of the MEP sub-contractor for Burj Tower, World's Tallest high-rise building. Voltas has executed some prestigious projects like the Emirates Mall, the worlds biggest mall beyond North America, Hong Kong airport, Emirates Palace Hotel to name a few. 

Unitary Cooling Segment
This segment consists of room air conditioner, water coolers, water dispensers and commercial refrigerator. Voltas has a 16% share in this market. 

Engineering Segment
This is a trading business where it markets products of its principals besides its own manufactured forklift trucks. It supplies engineering and capital equipment such as mining and construction equipment, textile equipments, machine tools to various segments.

Recommendation: Company has given a guidance of Rs10,000 crore turnover and NPM at 10% by FY11 which results into 4 times growth in revenues and 400bps increase in NPM in 3 years. The new civil aviation policy is expected to result in 35-40 new airports. Many real estate companies have made public their plans to make five star hotels. Many corporate hospitals, software parks, organized retail and muliplexes are coming up all over the country. The demand will be huge. At Rs 220, the stock trades at about 24x FY09E. Voltas is expected to grow at a CAGR of over 55% in the next two-three years. 