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Voltas is India's largest air conditioning company, and one of the world's premier engineering solutions providers and project specialists.

Founded in India in 1954, Voltas Limited offers engineering solutions for a wide spectrum of industries in areas such as heating, ventilation and air conditioning, refrigeration, electro-mechanical projects, textile machinery, mining and construction equipment, water management & treatment, cold chain solutions, building management systems, and indoor air quality.

Green Mission:

It's in the very nature of Voltas' core businesses to be actively engaged in today's Green movement. Every day, the need to conserve energy, preserve the ecology and minimise man's carbon footprint become more and more imperative. That's a call which Voltas answers through its products, its services, and its operating principles.

Devlopment Growth: VOLT’s Q3 revenues (-7% YoY to Rs 11.8bn) were hit by demonetisation and slower execution in the projects business, even as EBITDA margins expanded 309bps YoY (9M: +241bps) off a low base. Management remains cautious on the pace of execution in the Middle East but expects closure of legacy projects by FY17-end. While VOLT maintains leadership in the room AC business, we think competition can depress the business metrics. BUY &HOLD with (Sep’17 TP: Rs 450) set at 20x FY19E PE.

Performance highlights:.

Execution disappoints in Middle East:

VOLT attributed the 3% YoY decline in the electromechanical projects & services (EMPS) business to slower-than-expected progress on some new orders in the Middle East. However, positive closure of some old projects and better margins in new orders led to segment EBIT margins of 3.88%. VOLT expects to close legacy projects in the Middle East by FY17-end, which should normalise segment EBIT margins to ~4-5%. Overall, VOLT booked Rs 4.5bn of new orders in Q3 and its order book stood at Rs 42bn (incl. Rs 18bn of overseas orders). PAT came in at Rs 803mn (+42% YoY).

Currency ban hits AC business: The unitary cooling products (UCP) segment declined 5% YoY to Rs 4.1bn as demonetisation negated the strong YoY growth in Oct’16. VOLT stated secondary sales of ACs across the industry dropped 11% YoY by volume, and that it maintained leadership in room ACs with YTD market share of 21.7%. Segment EBIT margins slid 116bps YoY to 10.8% but increased 150bps YoY to 13.4% in 9MFY17. Management had earlier guided to ~13% margins for FY17. VOLT thinks it can get scale benefits even if it sources ACs via imports as it will have a higher import share when rivals opt for installing manufacturing capacity locally.

Financials (Quarterly) :

Highlights the fact:

1)Voltas has a history of strong price swings, which started with a steep fall in 2008, followed by equally sharp reversal in 2009. In short, it rewards handsomely to the swing trades and investors, provided they follow its trend.

2)The unitary cooling products (UCP) segment declined 5% YoY to Rs 4.1bn as demonetisation negated the strong YoY growth in Oct’16.

3)The company is selective in booking fresh orders. VOLT booked Rs 4.5bn of new orders in Q3 and its order book stood at Rs 42bn (incl. Rs 18bn of overseas orders).

4)It has been consolidating in a broader range 320-350 for last couple of months and currently trading closer to the upper band of the same.

5) It recovered almost vertically from that mark and formed a new record high 406 in at its recent  moves.

Technically View:

VALUATION & OUTLOOK:

The stock trades at a PE of 25x/22x FY18E/FY19E; we think valuations are full given “slow recovery” in the Middle East and the near-term impact of demonetisation. Maintain BUY &HOLD with a Mar’18 TP of 550 (Sep’17 TP: Rs 450).

Given sustained Short-term earnings growth potential,–

We retain our Buy recommend in this script with the target of Rs 450-550 in the short term outlook. So Entry would be around 365-375and stoploss maintain 330 asrecomanded in this counter.