This Mid Cap Tata Stock Reported Rs 2,768 Cr Revenue, Up 55% YoY, Brokerage Sees 17% Upside

Edelweiss Direct Research has suggested buying the stock of Voltas Limited, Tata Group, for a target price of Rs 1134 apiece. If an investor buys the stock of the company at the current market price i.e. Friday's closing price, he/she can expect potential gains of 17% in 12 months, considering the estimated target price by the brokerage firm. In Q1FY23, Company's Gross margin stood at 20.5% (down 740bps YoY) dragged by the higher procurement cost of inventory sold during Q1FY23. EBITDA came in at INR 177cr (up 30% YoY). Voltas Limited is a mid-cap stock with a market capitalisation of Rs crore.

Stock Outlook & Returns

The stock of Voltas Limited currently trading at Rs 972.95 apiece. The stock's current market price is Rs 50.4 above the 52 week low of Rs 922.55 apiece, and Rs 383.95 below the 52 week high of Rs 1356.90 apiece, respectively.

Week ending Friday 05 August, it has given a negative return of 3.17% and 1.6% positive return, respectively. Over the past 3 months and 1 year, the shares have fallen 15.94% and 6.92%, respectively. However, over the past 3 and 5 years, it has given a positive return of 61.71% and 79.61%, respectively.

The stock's PE ratio is 65.56 and the P/B ratio is 5.81, respectively. TTM EPS is Rs 14.84. Its ROE is 9.16%. Its dividend yield is 0.57% and the face value is Rs 1.

Recouped RAC market share despite price competition

The UCP segment grew ~125% YoY (vs Blue Star: up 123% YoY, Symphony: up 46% YoY, Lloyd: up 120% YoY), led by healthy performance across businesses owing to robust volume growth (up 111% YoY) on strong demand due to a heat wave across India and benefitted by a full period of seasonal sale after two years of washouts due to COVID-19. VOLT continues to be the market leader in RACs and regained majority of its lost share during Q4FY22. The exit market share in RACs stood at 24.1% (950bps lead over nearest competitor - LG) as of June 2022.

The inverter category witnessed good traction due to competitive pricing and a large number of SKUs, contributing over 82% to the total split ACs sold compared to 70% in Q1FY22. Earlier, Voltas was trailing LG but now it also dominates the inverter AC market with a 21.8% market share, which is ~300 bps ahead of LG. The segment's EBIT margin fell 460bps YoY (vs Blue Star: up 380bps YoY, Symphony: up 850bps YoY, Lloyd reported operating loss) to 7.7% due to inventory losses, disruptive pricing by competition and a normalised A&P spend compared to minimal A&P spend in Q1FY22 due to COVID-19.

EMPS segment continue to disappoint

EMPS revenue came in at INR 455cr (down 34% YoY), 22% below our estimate of INR 585cr, owing to lower carry forward order book, cost overrun along with liquidity constraints and most projects nearing completion. The segment reported LBIT of INR 13cr (vs EBIT of INR 31cr in Q1FY22). The segment's carry forward order book fell 6% at INR 5,811cr as opposed to INR 6,149cr in Q1FY22.

Edelweiss Direct Research Maintain BUY for Rs 1134

Overall, Voltas reported higher-than-anticipated revenue growth, while margins were significantly lower than expectations due to inventory loss, disruptive pricing by competition and normalised A&P expenses. The UCP segment performed decent on the revenue front and VOLT regained majority of the lost market share during Q4FY22 in the RAC segment. VOLT not only maintained its leadership position in the overall AC market but also led the inverter category by overtaking LG despite VOLT maintaining Q4FY22 level of gross margin and the competitive intensity remained the same as Q4FY22. All players withheld price increase during Q1FY23 and the price hikes will resume in Q3FY23 as Q2 is a seasonally lean quarter.

The brokerage said, "The management is guided to take a balanced view in terms of margins as well as market share. We expect margins to remain under pressure in near term due to increasing competitive intensity. In addition, EMPS de-grew with a lower order book and reported loss due to cost overrun and provisions in some projects. However, the EPS segment continued to post healthy revenue growth and profitability. We believe it will continue to retain its leadership position and we remain positive on VOLT. We revise FY23E and FY24E earnings downwards by 24% and 9%, respectively, and maintain BUY with SOTP-based revised target price of INR 1,134."

Disclaimer

The stock has been picked from the brokerage report of Edelweiss Direct Research. Greynium Information Technologies, the Author, and the respective 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 decision.