Recommendation from Diversified Sector
This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.
VOLTAS LIMITED : MAINTAINING A ‘COOL’ LEAD
HERE IS WHY
✓Huge growth potential
✓Focus on cost reduction
✓Good financial improvement
Voltas Limited is India’s largest air-conditioning company and one of the world’s premier engineering solutions providers and project specialists.
The company reported net sales of Rs7,627.15 crore in FY20, an increase of 7.66 per cent. It had reported net sales of Rs7,084.59 crore in FY19. The company reported PBIDT of Rs686.66 crore in FY20, an increase of 12.25 per cent. It had reported PBIDT of Rs611.71 crore in FY19. The company reported PAT of Rs589.75 crore in FY20, an increase of 4.25 per cent. It had reported PAT of Rs565.70 crore in FY19. The company has reported cash from operating activities of Rs462.45 crore in FY20 as against negative cash from operating activities of Rs321.43 crore it reported in FY19.
Net sales were at Rs1,970.40 crore in December 2020, up by 32.50 per cent from Rs1,487.07 crore in December 2019. Revenue increased on back of strong recovery in demand and sales volumes seen across all segments. The PBIDT was at Rs145.89 crore in December 2020, up 49.55 per cent from Rs97.55 crore in December 2019.Quarterly net profit wasat Rs148.70 crore in December 2020 as against net profit of Rs106.68 crore in December 2019, an increase of 39.39 per cent.
Operating profit increased on account of driving better product mix amidst cost efficiencies, coupled with lower holding costs of carry forward inventories. The company has delivered decent results across segments and has further bolstered its order book during the quarter. It achieved leadership position in the inverter category with an excess market share of 21.8 per cent as of December, 2020.
Meanwhile, it continued to retain the lead in the overall AC market with a 26 per cent share. During Q3FY21 the company secured new orders worth Rs700 crore in the EMP segment, thereby taking its carry forward order book to Rs7,275 crore. According to the management, the room air-conditioner (RAC) performance is likely to remain strong in Q4FY21 as well due to continuous inventory build-up at dealers’ level (due to the upcoming season) and a favourable base.
The company has adequate liquidity on its balance-sheet which should continue to aid its future growth. This, coupled with the recent price increases across its UCP range so as to factor in rising input costs, should help Voltas continue delivering decent performance in the coming months. Further, the government’s focus on increasing manufacturing within India for ACs and related components through the use of cash incentives to the sector should benefit the company, even as it looks to set up component manufacturing plants within India. The company has also initiated a price hike in the range of 5-6 per cent largely to offset input price pressure.
The company has delivered good profit growth of 26.13 per cent CAGR over the last five years. The company’s median sales growth is 20.95 per cent of the last 10 years. It has reduced its debt and is almost debt-free. The total debt to equity ratio is 0.05. On the returns front, it has ROE and ROCE of 14.05 per cent and 18.69 per cent. By virtue of these factors, we recommend our reader-investors to BUY this stock.