Voltas share price rose over 4 per cent in morning trade on BSE on Wednesday as domestic brokerage firm Motilal Oswal Financial Services reinitiated coverage on the stock with a buy rating, pegging the target price of ₹1,000, implying a 15 per cent upside potential in the stock.
“We reinitiate our coverage on Voltas with a buy rating and a target price of ₹1,000 premised on 40 times FY25E earnings per share (EPS), (similar to last 10 years’ one-year forward average price-to-earnings ratio (P/E) multiple, before losses of Voltbek), and ₹38 for Voltbek,” said Motilal Oswal.
The stock opened at ₹893.45 against the previous close of ₹866.50 and rose 4.10 per cent to hit the intraday high of ₹902.05 in trade so far. Around 10:30 am, the stock was 3.40 per cent up at ₹896 on BSE.
Voltas share price has seen strong traction in the last few months. It has gained about 11 per cent in the last three months. Equity benchmark Sensex has gained nearly 5 per cent in the same period.
Brokerage firm Motilal Oswal believes Voltas will maintain its leadership position in the room air conditioners (RAC) segment.
“Voltas is a market leader in the room air conditioners segment. Its share had gradually risen to 25.2 per cent in FY21 from 20.8 per cent in FY15, before declining to 23.4 per cent and 21.6 per cent in FY22 and FY23, respectively. We estimate Voltas to lead the RAC segment with a market share of 21-22 per cent in FY24/25,” said Motilal Oswal.
The brokerage firm pointed out that the losses of Voltbek (Voltas Beko) continue but there is strong traction in revenue. Motilal expects Voltbek to be profitable at the operating level in FY26 and it should start contributing to profits in FY27.
Voltbek is a joint venture between Voltas and Turkey’s largest industrial and services group, Ardutch B.V. (a subsidiary of Arçelik A.S.). Beko is the global brand of Arçelik. Voltas Beko deals in kitchen and home electronic appliances such as refrigerators, microwaves, washing machines and dishwashers.
Motilal further added that the electrical, mechanical and plumbing solutions (EMPS) segment was hit in FY23 and Q1FY24 led by write-offs in the international business. However, the brokerage firm believes the strong order book of ₹8,190 crore ( ₹5,240 crore of domestic and ₹2,950 crore of international orders) will drive revenue growth and the margin should improve in the second half of the financial year (2HFY24).
Motilal Oswal expects Voltas’ EBITDA and adjusted profit to report a CAGR of 30 per cent and 38 per cent, respectively, over
FY23-25, supported by a recovery in margins of both EMPS and RAC segments and reduced losses for Voltbek.
“Return on equity (RoE) should be at 11.4 per cent in FY25E versus 6.9 per cent in FY23 (average of 12.3 per cent over FY13-23), while return on capital employed (RoCE) is likely to be at 11.9 per cent in FY25E versus 6.9 per cent in FY23 (average of 12.8 per cent over FY13-23),” said Motilal Oswal.
Voltas reported an 18.7 per cent year-on-year rise in its consolidated net profit (attributable to owners of the company) for the first quarter of the current financial year (Q1FY24) at ₹129.29 crore. The company had reported a profit of ₹108.88 crore in the year-ago period.
The company’s consolidated revenue from operations rose 21.4 per cent on year to ₹3,359.86 crores during the quarter ended June from ₹2,768 crore in Q1FY23.
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Updated: 06 Sep 2023, 11:04 AM IST