BoB Capital bets on this Tata Stock for 25% gain, gave over 100% return in 5 years

Leading brokerage firm has recommended investors to buy stocks of Voltas Ltd. (VOLT), a Tata Group company for a potential gain of 23% for a target price of Rs 1250 apiece. The management of the company is highly confident of achieving double digit margins in UCP (unitary cooling products) segment in the FY 2023 which is a positive sign in the current inflationary scenario. The brokerage firm has put its faith in Voltas Ltd in the RAC space as well.

1. Stock Outlook

The Current Market Price of Voltas Ltd is 998 as of writing this report around 3:05 pm with a loss of 1.32%. The stock had touched a 52-week high 1356.90 apiece and a 52-week low of 922.55 apiece. The stock has given a negative return of 6.36% in one month.

Voltas Ltd's stock has given a negative return of 8.83% and a positive return of 105% in 5 years. The P/E of the stock is 65.66 while the sector P/E is 55.53. According to BOB Capital, the stock will give a potential gain of 23% at 1250 apiece from its current market price of 998.

Current Market Price	Target Price	Potential Gain
998	1250	25.25%

2. VOLT's performance

The company regained some ground in April. In its recent analyst meet, VOLT stated that the company has clawed back approximately 200bps of market share in April - this indicates an effective share of 21.6% vs. 19.6% in March (and 23.4% in FY22). Its March figure has been raised by 110bps from the earlier 18.5% by market research agency GfK. VOLT has a multi-pronged strategy in place to improve its positioning in the South, especially in Tamil Nadu and Kerala, where it is relatively weaker.

Data for the month of May is likely to be slightly weaker than April, especially in West and South India, where the monsoon sets in toward the end of the month, dampening AC sales.

3. VOLT's management confident of achieving double digit growth in FY23

VOLT is trying to recoup market share, it is taking a balanced approach so that margins don't suffer. Management is confident of achieving double-digit margins (approximately 10%) in the UCP segment in FY23, which is commendable in the current inflationary scenario. The approximate 3% pricing gap for VOLT vs. competition still continues in the AC segment.

There have been no major price hikes across the industry as players wait for the energy label change in July.

4. Future plans of VOLT

VOLT has planned Rs 5bn in capex over the next three years, primarily for (i) backward integration of inverter AC compressors in the JV with Hong Kong-based Highly International, and (ii) capacity expansion for RAC and commercial refrigerators as part of the PLI scheme. The company is not unduly worried about most players adding capacities over the next 3-5 years as it believes that market growth will ensure the new capacities are absorbed, implying a limited impact on pricing. Bob Capital said, "VOLT continues to be the strongest player in the RAC business and expects to deliver double-digit margins. We are confident of the company's growth trajectory and continue to value the stock at 50x FY24E EPS, a 40% premium to its 5Y average, for an unchanged TP of Rs 1,250."

5. About Voltas Ltd

Voltas Limited is a six-decade old company in India. VOLT has attained expertise in Air Conditioning & Cooling technology. It is broadly structured into projects and products business. The projects business is classified into Domestic Projects Group (DPG) and International Operations Business Group (IOBG). While the products business is classified into Unitary Products Business Group (UPBG), Mining & Construction Equipment Division (MCED) and Textile Machinery Division (TMD), as per its official website. The market capital of VOLT is Rs 32,893 crore.

Disclaimer

The stock has been picked from the brokerage report of BOB Capital Markets Ltd. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.