Quarterly Update

Voltas Ltd UCP dream run continues, EMPS sprung positive surprise
Voltas Q1FY21 results came broadly ahead of estimates (Revenue/EBIDTA beat: 26.6%/31.2%).
Revenue for the quarter was down 51% on a y-o-y basis as against expectations of 61% fall as the Praveen Sahay
peak season for UCP was impacted due to lockdown & a strong monsoon. Better than expected Research Analyst
performance rendered by the EMPS segment was a positive surprise in a lockdown impacted praveen.sahay@edelweissfin.com
quarter which saw a significant fall in infrastructure activities. The UCP segment continued to
outperform the market as the UCP segment reported a fall of 59.6% in Q1FY21 as compared to its
listed peer (Blue Star: -70%) along with a significant improvement in EBIT margin (+240 bps vs
significant margin contraction for others). The company continued to gain market share as it CMP INR: 659
increased the market share in RAC segment by a mammoth 200bps to 26.2%. The robust
performance in the UCP segment has become a regular affair for Voltas led by a strong product-line Rating: BUY
of both inverter ACs & coolers which is comforting. Maintain ‘Buy’. Target Price INR 770

Fall in Sales lesser than expected: Surprising robust EMPS performance saves the day Upside: 17%
Revenue was down 51.1% y-o-y to INR 1,297cr in Q1FY21 as a surprising lower than expected fall in
EMPS segment (down 37.1% y-o-y as against expected fall of 65%) led to the beat. Gross margin
continued its expansionary trajectory & improved by 460bps on a y-o-y basis to 30% primarily led by
higher margins in the UCP segment. However, the expansionary gross margin effect was dwarfed by
the negative operating deleveraging & proactive provisioning in the EMPS segment, as a result of
which EBITDA margin contracted by 580bps y-o-y to 5.1% in Q1FY21. Share of loss from JV and
associates fell 45% on a yearly basis at INR 12cr. PAT for the quarter fell by 51% y-o-y to INR 82cr in
Q1FY21.
Bloomberg: VOLT:IN
UCP segment continues its dream run; market share gain along with margin improvement
52-week
Voltas continue to maintain its leading market share in UCP (26.2% YTD) by registering lower fall 428 / 741
range (INR):
(59.6% in Q1FY21) vs its listed peers as the quarter was impacted by lockdown with the products not
falling under the essentials list. Management believes that the market share at current levels is Share in issue (cr): 33.1
sustainable. However, the segment witnessed a significant improvement in EBIT margin (+240bps y-
o-y in Q1FY21) in a quarter in which most of its peers witnessed significant margin contraction led by M cap (INR cr): 21,815
better product mix & significant decline in A&P expenses but isn’t sustainable at current levels.
Revenue for the segment came in at INR 707 cr. vs our expectation of INR 700cr. EBIT for the quarter Avg. Daily Vol.
82/1,429
fell by 52.3% to INR 110cr. BSE/NSE :(‘000):

Promoter
30.30
EMPS segment sprung a positive surprise, prudent provisions led to losses Holding (%)
EMPS revenue de-grew by 37.1% y-o-y to INR 518cr in Q1FY21 mainly due to slow pace of execution
of projects & reduction of construction activities during the lockdown. However, the healthy order
book size keeps us hopeful of a positive surprise in the upcoming quarters as well. EMPS segment
reported a loss led by pro-active provisioning to cushion for the probable after-effects of COVID-19
led lockdown & current tight liquidity situation. Also, the continued payments to employees despite
lack of project execution contributed to losses. Order book currently stands at INR 7,663 cr.

Valuation & outlook:

While the quarter saw a fall in headline numbers of Revenue, EBITDA, PAT, but the performance was
above expectation with lot of positives to take heart from. The UCP segment continued its strong
traction of market share gain, EMPS segment sprung a positive surprise on revenue front. The
management believes that the market share in UCP is sustainable & shall likely grow in the upcoming
quarters. Voltas Beko continues to see good traction & currently the firm is experiencing supply
shortage to cater to demand & the management remains confident of capturing ~10% market share
by 2023. We maintain our ‘BUY’ rating with a revised target price (as we shift to FY22 financials) of
INR 770 arrived at by SOTP methodology.

Financials - Consolidated
Year to March Q1FY21 Q1FY20 % change Q4FY20 % change FY19 FY20 FY21E
Net Sales (INR cr) 1297 2654 -51.1% 2090 -37.9% 7124 7658 7329
Revenue Growth (%) 23.6% 10.5% 0.7% 11.2% 7.5% -4.3%
EBITDA (INR cr) 67 291 -77.1% 191 -65.0% 637 687 609
Core PAT (INR cr) 82 166 -50.8% 160 -49.0% 517 557 491
Dil. EPS (INR) 15.6 16.8 14.8
Diluted P/E (x) 42.2 39.1 44.4
EV/EBITDA (x) 32.6 29.2 32.1
ROACE (%) 39.8 32.7 26.0
ROE (x) 12.8 12.4 11.0 Date: 24th August, 2020

Edelweiss Professional Investor Research 1

Voltas Ltd Q1FY21 Result Highlights

Particulars Q1FY21 Q1FY20 % change Q4FY20 % change FY20 FY19 % change

Net Revenues 1297 2654 -51.1% 2090 -37.9% 7658 7124 7.5%
Cost of goods sold 908 1980 -54.1% 1492 -39.1% 5556 5262 5.6%
Gross Profit 389 674 -42.3% 598 -35.0% 2102 1862 12.9%
Employee expenses 157 163 -3.5% 178 -11.6% 672 642 4.7%
Other expenses 165 219 -25.0% 229 -28.1% 745 608 22.5%
Total operating expenses 322 383 -15.9% 407 -20.9% 1417 1250 13.4%
EBITDA 67 291 -77.1% 191 -65.0% 685 612 12.0%
Depreciation and amortization 8 8 6.5% 8 2.8% 32 24 32.4%
EBIT 59 283 -79.4% 183 -68.0% 654 588 11.2%
Interest expenses 7 4 53.4% 6 12.0% 21 33 -36.2%
Other income 67 43 55.8% 61 11.4% 231 186 23.8%
Profit from JV/associates -12 -21 -45.3% -20 -40.1% -69 -52 32.6%
Exceptional items 0 -43 NM 0 -49 -12 NM
PBT 108 258 -58.3% 218 -50.6% 745 677 10.0%
Provision for tax 26 92 -71.9% 57 -55.0% 223 164 36.5%
Reported PAT 82 166 -50.8% 160 -49.0% 522 514 1.6%
Extraordinary items 0 31 NM 0 NM -35 -9 NM
Adjusted net profit 82 197 -58.5% 160 -49.0% 487 504 -3.5%
No. of shares (Cr) 33.1 33.1 0.0% 33.1 0.0% 33 33 0.0%
Diluted EPS (INR) 2.5 6.0 -58.5% 4.8 -49.0% 14.7 15.3 -3.5%
-26 0 -6 248 220
Ratio
Gross margin 30.0% 25.4% 458 28.6% 137 27.5% 26.1% 132
EBITDA margin 5.1% 11.0% -583 9.1% -398 8.9% 8.6% 36
Tax Rate 24.0% 35.5% 26.3% 30.0% 24.1%
PAT margin 6.0% 6.2% -17 7.5% -147 6.6% 7.0% -41
Interest coverage 9.9 66.5 31.8 32.6 18.5

Edelweiss Professional Investor Research 2

Voltas Ltd Q1FY21 Result Highlights

Financials in Charts

Voltas revenue fell 51% in Q1FY21.. ..as entire RAC market suffered
3000 40.0% Revenue growth (y-o-y)
2500 20.0% 100%
2000
0.0% 50%
1500
-20.0% 0%
1000
-40.0% Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21
500 -50%
0 -60.0%
-100%
Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21
UCP EMPS EPS
Revenue (INR cr) Growth % (y-o-y)

EBITDA margin contracted 580bps to 5.1% in Q1FY21.. ..due to margin contraction in EMPS segment
350 12.0% Adjusted EBIT margin (%)
300 10.5% 60%
250
9.0% 40%
200
7.5%
150 20%
6.0%
100
50 4.5% 0%
Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21
0 3.0%
-20%
Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21
UCP EMPS EPS
EBITDA (INR cr) EBITDA margin (%)

Strong B/S with enough cash provides comfort RoACE to improve after falling in FY21
Net Debt 70.0
60.0
0
50.0
-500
40.0
-1000
-1500 30.0

-2000 20.0

-2500 10.0

-3000 0.0
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY16 FY17 FY18 FY19 FY20 FY21E FY22E

Edelweiss Professional Investor Research 3

Voltas Ltd Q1FY21 Result Highlights

Previous Result Outlook

Q4FY20: We have highlighted in our sector report dated 11th May 2020, that Mar-May is peak season for cooling products and
contributes ~40% of total volume of annual sales, which due to COVID-19, was lost out amidst lockdown – which is in-line with
management (Voltas) commentary. Also, management highlighted that the demand pattern and behaviour of the Consumers
might undergo a change, and spend towards discretionary products may be withheld, temporarily affecting the growth of the
Industry in FY21. EMP business is impacted due to sharp decline of oil prices and stressed liquidity in system. The company has
highlighted that post lifting of the lockdown, remobilization of work force at Project sites remains a challenge and could result
into delay in project completion which will further delay the execution. However, recent extension of 6 months on projects of
GoI or sponsored by them will be helpful. Due to subdued demand, the material prices have come down and savings are expected
to accrue on the future project material sourcing. Also, company is careful in selection of projects which would help in mitigating
the liquidity risk and margin erosion. The company focus on cost control and limited capex spend to protect long-term strategic
objectives. We believe FY21 will be a challenging year for company. However, we maintain our long-term positive outlook on
Voltas. At CMP of INR 540, the stock is trading at 36x/27x FY21E/FY22E earnings respectively. We maintain our ‘BUY’ rating with
a target price of INR 640, valuing at SOTP

Q3FY20: We continue to maintain positive outlook on Voltas as we believe a) UCP segment is on a strong footing by gaining
market share and would further gain market share post start of South India plant, b) success of Voltbek JV would take the
company to top 3 place in consumer durable sector over the next five years, and c) likelihood of EMPS segments springing a
positive surprise on increased government capex. We are expecting Voltas to deliver healthy financials over FY19-21E –
revenue/EBITDA/PAT CAGR of 14%/18%/13% with improvement in EBITDA margin from 8.9 to 9.6%. At CMP of INR 684, the
stock is trading at 40x/35x FY20E/FY21E earnings respectively. We maintain our ‘BUY’ rating with revised target price of INR 801,
valuing at SOTP.

Q2FY20: We maintain our ‘BUY’ rating with a revised target price of INR 750 per share (INR 709 earlier) mainly to account for
better-than-expected order inflow for EMPS division. We continue to like Voltas as we believe a) UCP segment is on a strong
footing by gaining market share for two consecutive quarters and would further gain market share post start of Tirupati plant in
Dec 2020, b) success of Voltbek JV would take the company to top 3 place in consumer durable sector over the next five years,
and c) likelihood of EMPS segments springing a positive surprise on increased government capex. At CMP, the stock is trading at
a valuation of 41.0x/35.6x on FY20/FY21 EPS estimate.

Q4FY20 Q3FY20 Q2FY20

Edelweiss Professional Investor Research 4

Voltas Ltd Financials

Income statement (INR cr)

Year to March FY18 FY19 FY20 FY21E FY22E
Income from operations 6,404 7,124 7,658 7,329 8,805
Direct costs 5,740 6,487 6,971 6,720 7,983
Employee costs 587 642 672 593 712
Other expenses 5,154 5,846 6,300 6,127 7,271
Total operating expenses 5,740 6,487 6,971 6,720 7,983
EBITDA 664 637 687 609 822
Depreciation and amortisation 24 24 32 32 32
EBIT 640 613 655 577 790
Interest expenses 12 33 21 20 20
Other income 174 186 231 186 200
Non-operating expenses 1 25 0 0 0
Profit before tax from operations 801 741 864 744 970
Share from associates 4 -52 -69 -42 -21
PBT before exceptional income and tax 804 689 796 701 948
Extraordinary items 1 -12 -51 0 0
Provision for tax 227 164 223 210 284
Reported profit 578 514 521 491 664
Extraordinary items 0 -9 -36 0 0
Profit after tax 577 523 557 491 664
Minority Interest -6 -6 0 0 0
Adjusted net profit 572 517 557 491 664

Equity shares outstanding (cr) 33 33 33 33 33

EPS (INR) basic 17.3 15.6 16.8 14.8 20.1
Diluted shares (Cr) 33.1 33.1 33.1 33.1 33.1
EPS (INR) fully diluted 17.3 15.6 16.8 14.8 20.1
Dividend per share 4.0 4.0 4.0 3.8 5.1
Dividend payout (%) 23.1 25.6 23.8 25.4 25.4

Common size metrics- as % of net revenues

Year to March FY18 FY19 FY20 FY21E FY22E
Operating expenses 89.6 91.1 91.0 91.7 90.7
Depreciation 0.4 0.3 0.4 0.4 0.4
Interest expenditure 0.2 0.5 0.3 0.3 0.2
EBITDA margins 10.4 8.9 9.0 8.3 9.3
Net profit margins 8.9 7.3 7.3 6.7 7.5

Growth metrics (%)

Year to March FY18 FY19 FY20 FY21E FY22E
Revenues 6.2 11.2 7.5 (4.3) 20.1
EBITDA 10.5 (4.1) 7.8 (11.3) 35.0
PBT 8.4 (7.4) 16.6 (13.9) 30.4
Net profit 11.2 (11.1) 1.4 (5.8) 35.3
EPS 10.7 (9.7) 7.8 (11.9) 35.3

Edelweiss Professional Investor Research 5

Voltas Ltd Financials

Balance sheet (INR cr)

As on 31st March FY18 FY19 FY20 FY21E FY22E
Equity share capital 33 33 33 33 33
Reserves & surplus 3,872 4,077 4,247 4,588 5,048
Shareholders funds 3,905 4,110 4,280 4,621 5,081
Minority interest 32 35 36 36 36
Borrowings 142 315 218 218 218
Non-current liabilities 1 1 7 7 8
Sources of funds 4,080 4,460 4,542 4,882 5,344
Gross block 408 453 523 553 583
Depreciation 237 238 270 302 334
Net block 170 216 253 251 249
Capital work in progress 4 16 26 350 500
Intangible Assets 82 81 82 82 82
Investment property 45 46 45 45 45
Total fixed assets 301 359 407 728 876
Investments 2,775 2,445 2,403 1,982 1,982
Other non-current assets 92 156 177 177 177
Inventories 813 1,091 1,469 1,406 1,689
Sundry debtors 1,570 1,833 1,834 1,755 2,108
Cash and equivalents 284 321 308 834 745
Loans and advances 18 26 34 34 34
Other current assets 1,439 1,185 1,451 1,391 1,677
Total current assets 4,124 4,456 5,096 5,420 6,253
Sundry creditors and others 2,943 2,841 3,378 3,263 3,781
Provisions 273 215 234 234 234
Total CL & provisions 3,216 3,055 3,613 3,497 4,016
Net current assets 908 1,401 1,483 1,923 2,237
Net Deferred tax 5 99 71 71 71
Misc expenditure
Uses of funds 4,080 4,460 4,542 4,882 5,344
Book value per share (INR) 118 124 129 140 154

Cash flow statement

Year to March FY18 FY19 FY20 FY21E FY22E
Net profit 578 514 521 491 664
Add: Depreciation 24 24 32 32 32
Add: Deferred tax 15 -95 28 0 0
Gross cash flow 612 437 581 523 696
Less: Changes in W. C. 426 1,268 -605 -507 403
Operating cash flow 186 -831 1,186 1,030 294
Less: Capex 25 81 80 354 180
Free cash flow 161 -913 1,106 676 114

Edelweiss Professional Investor Research 6

Voltas Ltd Financials

Ratios
Year to March FY18 FY19 FY20 FY21E FY22E
ROAE (%) 16.0 12.8 12.4 11.0 13.7
ROACE (%) 60.0 39.8 32.7 26.0 30.2
Debtors (days) 89 94 87 87 87
Current ratio 1.5 1.8 1.6 1.6 1.6
Debt/Equity 0.0 0.1 0.1 0.0 0.0
Inventory (days) 107 96 113 113 113
Payable (days) 124 122 128 128 128
Cash conversion cycle (days) 72 68 72 72 72
Debt/EBITDA 0.2 0.5 0.3 0.4 0.3
Adjusted debt/Equity (0.6) (0.2) (0.4) (0.5) (0.4)

Valuation parameters
Year to March FY18 FY19 FY20 FY21E FY22E
Diluted EPS (INR) 17.3 15.6 16.8 14.8 20.1
Y-o-Y growth (%) 10.7 (9.7) 7.8 (11.9) 35.3
CEPS (INR) 18.2 16.3 16.7 15.8 21.1
Diluted P/E (x) 38.1 42.2 39.1 44.4 32.8
Price/BV(x) 5.6 5.3 5.1 4.7 4.3
EV/Sales (x) 3.0 2.9 2.6 2.7 2.2
EV/EBITDA (x) 29.3 32.6 29.2 32.1 23.9
Diluted shares O/S 33.1 33.1 33.1 33.1 33.1
Basic EPS 17.3 15.6 16.8 14.8 20.1
Basic PE (x) 38.1 42.2 39.1 44.4 32.8
Dividend yield (%) 0.6 0.6 0.6 0.6 0.8

Edelweiss Professional Investor Research 7

Voltas Ltd

Edelweiss Broking Limited, 1st Floor, Tower 3, Wing B, Kohinoor City Mall, Kohinoor City, Kirol Road, Kurla(W)
Board: (91-22) 4272 2200

VINAY
Digitally signed by VINAY KHATTAR
Vinay Khattar DN: c=IN, o=Personal,
postalCode=400072, st=MAHARASHTRA,
Head Research serialNumber=cd5737057831c416d2a5f70

vinay.khattar@edelweissfin.com KHATTAR 64cb693183887e7ff342c50bd877e00c00e

2e82a1, cn=VINAY KHATTAR
Date: 2020.08.24 15:24:13 +05'30'

Rating Expected to

Buy appreciate more than 15% over a 12-month period

Hold appreciate between 5-15% over a 12-month period

Reduce Return below 5% over a 12-month period

350

300

250
(Indexed)

200

150

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50

0
Mar-16

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Voltas Sensex

Edelweiss Professional Investor Research 8

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Edelweiss Professional Investor Research 9

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