We reiterate ‘buy’ on Voltas and raise our target price to R260 (from R 229), largely due to roll-forward. We now value the stock on Sept-16F EPS (vs Mar-16F earlier) of R14.4. Our target multiple remains unchanged at 18.0x (+1SD above the mid-cycle multiple). Our target is ~18% above consensus, given our more positive growth outlook.
Voltas’ strong Q1FY15 reinforces confidence in domestic room AC business, while recovery in EMP business is the next catalyst. First quarter results were significantly ahead of consensus expectations, once again led by the strong performance of its room AC segment.
Even the electro-mechanical projects segment showed initial signs of revival, posting a marginal profit in the quarter (note that past three out of the past four quarters stood in a loss).
While the profitability of this segment has been under stress, owing to cost overruns in legacy international projects, we think that margins for this business should return to normalised levels next year on the back of completion of legacy projects and as new projects bagged in the last few quarters have come at a threshold margin of 5-6%.
To reflect the strong performance of the UCP segment partially offset by lower-than-expected topline in EMP/ EPS segments in Q1, our EPS estimates have seen an increase by ~2% for FY15f/FY16f. We remain positive on the stock.