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IndiaNivesh
Voltas (Reduce)
CMP: ₹651.7
Target: ₹608
Despite two consecutive years (FY19 and FY20E) of strong growth in the UCP (unitary cooling products) segment, we are factoring in a 15 per cent growth in FY21E (in-line with the management commentary). On other hand, we expect 9 per cent y-o-y growth in the EMPS (electromechanical project space) segment against the management’s flattish growth outlook for FY21E.
We estimate FY20E EBIT per cent for UCP/EMPS segment at 11 per cent/7 per cent (in-line with the management commentary), respectively. Despite 14.4 per cent/27.1 per cent revenue/EBITDA CAGR during FY19–21E, we expect losses at Beko to be the spoiler. This can be gauged from the RoEs, which are expected to be limited to 13.3 per cent in FY21E (vs 15.7/14.8 per cent reported in FY17/ FY18, respectively), as the company is pursuing diversification (setting up RAC plant at Tirupati and Voltas Beko plant at Sanand).
However, we believe the company has a strong channel-partner network, helping to place 60–65 per cent of seasonal sales, coupled with their focus on mid-market pricing and Tier 2/3 networks. We expect the company to outpace expectations in the RAC segment in the short term and the Voltas Beko products in the long term.
We maintain our ‘reduce’ rating on the stock owing to the valuation.
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