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Bonanza Wealth
Voltas (Buy)
CMP: ₹571.5
Target: ₹708
Voltas has an order book position of about ₹4,880 crore by the end of Q2FY19, which is over 1.5x of TTM sales of EMPS and EPS sales. It gives a good revenue visibility for the next two years. To reduce working capital requirements and improve profitability, Voltas has adopted a strategy to remain selective in the choice of new project undertakings with a ticket size in the range of ₹300-400 crore. Apart from this, Voltas is also focussing on improving the EBITDA margin from here, by bidding for higher margin (of about 7 per cent ) projects.
Currently, Voltas has around 100 exclusive brand outlets and about 16,000 touch points to sell Voltas products. The JV, Voltas Beko, plans to add 10,000 additional outlets for its range in washing machine and refrigerators.
With strong brand in the room air conditioner segment, recently launched washing machine, refrigerator, dish washer and microwave oven categories, order book position of about ₹4,880 crore and plans to take exclusive brand outlets, we recommend a buy.
Risks: a) Voltas is mostly in AC business across the entire consumer durables space, any increase in competition may negatively impact Voltas. b) Most of the long-term international projects are fixed price contracts and any adverse currency fluctuations may impact margins. c) Any lower-than-expected response of the newly launched range of washing machines and refrigerators may have adverse impact on the future growth of Voltas.
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