Voltas Ltd (Q2 FY17): Near term pain built-in - Accumulate
CMP (Rs) 293, 12-mts Target (Rs) 327, Upside 11.5%
Voltas' Q2 FY17 results were below par due to miss in revenues from both, UCP and EMPS segment. UCP segment growth of 13.5% yoy was quite lower than our estimate due to high competitive intensity. EMPS business performance was weak due to delay in execution of international orders. Near term demand outlook for UCP business looks challenging due to demonetization as 40% of the purchase is on cash basis. The management expects demand to normalise by end-Q4 FY17 as the summer season sets in. Orderbook stood at Rs.42.5bn, lower by 4% qoq as order inflow was subdued in international market. We have cut our earnings estimate factoring in de-growth in H2 FY17 due to the demonetization. Post the announcement, the stock has corrected sharply, which we believe is already factoring in slower growth for the company. We maintain our accumulate rating on the stock with a revised target price of Rs.327.
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