Strong Q4: Voltas’s FY21 Q4 income, EBITDA and PBT grew by 27%, 72%, and 44%, respectively. Strong functionality was only partly attributable to a favourable base as Voltas’s 2 year CAGR in income and pre-tax profit are 13% and 36% respectively. Earnings came in 18% above consensus expectations as each Projects business enterprise (8.4%) and space AC segment (15.6%) profitability shocked positively. Room AC segment income grew 20% y-o-y and Voltas’s industry share in the segment at multi brand outlets enhanced to 25.6% (year to date Feb 2021) from 24.2% in very same period last year. The projects business’ leading line elevated 37% y-o-y.
Short-term headwinds: Ongoing lockdowns in quite a few states across India to include the Covid-19 second wave have coincided with the summer season season, materially impacting demand, which had been recovering sharply and strongly post the Covid-19 initial wave. Rising commodity price is an added quick-term headwind on profitability.
Bright outlook medium term: We count on swift and reasonably robust demand recovery for the space AC market as soon as lockdown restrictions ease, thinking about low penetration and demand composition. We believe the higher-development Indian space AC market is set for more quickly consolidation in favour of bigger players due to import restriction measures, Covid-19 led provide chain challenges and altering customer behaviour. Voltas could be a important beneficiary offered its leadership position and its position as one of the highest profitability organizations in the sector. We believe the scaling up of VoltBek joint venture is impressive and nonetheless underappreciated by industry.
Earnings and valuation: On the back of stronger than anticipated Q4 21, we raise our FY22e EPS forecasts by 9% on a larger segment margin assumption. Changes to our FY23e are negligible. We worth Voltas and its VoltBek joint venture employing a discounted money flow methodology. We assume a weighted typical price of capital of 9.50% (unchanged). Our medium-term forecasts (FY23e and onwards) are broadly unchanged in this report – hence our target value remains at `1,150. The VoltBek JV contributes `180/sh to our target value (unchanged). Downside dangers: Slower and protracted demand revival post removal of lock down restrictions and slower than anticipated ramp-up of VoltBek JV are important downside dangers.