12 August 2015
1QFY16 Results Update | Sector:
Capital Goods
Voltas
BSE SENSEX
27,512
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
S&P CNX
8,349
VOLT IN
330.7
98.9/1.5
360/199
-4/20/38
n
CMP: INR299
n
TP: INR360 (+20%)
Buy
Operating performance above estimates; UCP reports margin expansion
1QFY16 performance in line: Revenue down 9.1% YoY to INR15.9b (estimate of
INR16.3b) and EBIDTA down 0.7% YoY to INR1.3b (above estimate of INR1.2b).
Adjusted net profit stood at INR1b, down 8% YoY (in line with estimate).
UCP
reported revenue decline of 5.2% YoY as unseasonal rains led to muted
demand for ACs; we had modeled a revenue decline of 4.5% YoY. Still, EBIT
margins stood at 11.9% v/s 11.6% in 1QFY15 despite negative operating leverage.
VOLT continues to maintain its market leadership position.
EMP
business reported revenue of INR5.6b (in line), a decline of 11% YoY—led by
slow pace of execution of projects, given the constrained macro environment.
EBIT margins stood at 1.3% (estimate of 1%)—this is the fifth consecutive quarter
of positive EBIT in the EMP business. Time and cost overruns on legacy projects
are impacting margins. Importantly, capital employed corrected meaningfully from
INR6.9b in 1QFY15 to INR5.4b in 1QFY16 (stable QoQ). Thus, asset turn improved
from the lows of 3.1x in 2QFY15 to the present 4x.
Avg Val,(INRm)/Vol ‘000 765/2804
Free float (%)
69.7
Financials & Valuation (INR Billion)
Y/E MAR
Net Sales
EBITDA
Adj PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
Estimate change
TP change
Rating change
2015 2016E 2017E
51.8
4.1
3.4
10.2
51.1
63.6
16.1
21.9
22.6
3.6
58.2
4.7
3.9
11.9
15.9
72.1
16.4
22.3
25.2
4.1
66.9
6.0
5.0
15.1
27.7
82.7
18.3
24.5
19.8
3.6
n
Project business sustains intake run-rate; book-to-bill ratio at 1.9x
Calculated order inflow for 1QFY16 stood at INR7bn and is similar to the run-rate
witnessed in the last six quarters. Order book stands at INR40.4b and is up 7% YoY.
Book-to-bill stands at 1.9x and is near its highest levels in the last 5-6 years.
Maintain earnings; retain Buy
We maintain
Buy
with a SOTP-based price target of INR360 (UCP business at 25x
FY17E EPS, MEP at 16x, and engineering products at 20x). We expect growth rates in
UCP business to rebound in the medium term, led by i) possible inflexion point in the
AC segment, ii) pent-up demand in FY16 and iii) incremental growth from air coolers.
At CMP, VOLT trades at 25.2x/19.8x its FY16E/FY17E EPS.
Satyam Agarwal
(AgarwalS@MotilalOswal.com); +91 22 3982 5410
Amit Shah
(Amit.Shah@MotilalOswal.com)
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

Voltas
Consolidated Performance in-line; UCP margins expands despite negative
operating leverage
n
n
n
n
n
1QFY16 performance in line: Revenues down 9.1% YoY to INR15.9b (estimate. of
INR16.3b) and EBIDTA down 0.7% YoY at INR1.3b (above estimate of INR1.2b).
Adjusted net profit stood at INR1b, down 8% YoY (in-line with estimate).
Unitary Cooling Products (UCP)
segment witnessed a revenue decline of 5.2% as
unseasonal rains led to muted demand for ACs . We had modeled UCP revenue
decline of 4.5% YoY, Also UCP margins at 11.9% vs 11.6% YoY despite negative
operating leverage. UCP margin has witnessed margin expansion trajectory over
the last four years supported by: scale economies and operating leverage, shift
in product mix towards split ACs (~74-76%+ of revenues vs 70% in FY13) /
commercial refrigeration (30%+ of sales vs 26% in FY13), improved logistics and
procurement, improved product quality (leading to lower provision
requirements for warranty) etc. Margins have also been supported by forex
volatility and commodity prices. VOLT has maintained the market leadership
positioning in this segment.
Electromechanical Projects (EMP)
business reported revenues of INR5.6b (in-
line), while EBIT margins stood at 1.3% (estimate of 1.0%). Margins continue to
remain impacted by several factors including i) new project wins (at better
commercial terms) yet to contribute meaningfully ii) time and cost overruns on
ongoing projects, etc.
Engineering products
reported revenue decline of 37%, as the revenues in both
mining and construction business was impacted by the macro headwinds and
also on account of transition of agency lines pertaining to mining business.
Despite revenue decline of 37% EBIT margins improved by 1253bps. Margins in
1QFY16 have been robust at 34.2%.
Tax rates
have declined to 28.2% in 4QFY15, vs 24.9% YoY.
Exhibit 1: Revenue growth impacted by EMP / Engineering Exhibit 2: EBITDA expansion led by UCP / Engineering
products/UCP
Products
Revenues (INR b)
Growth (%)
EBITDA (INR b)
EBITDA (%)
Source: MOSL, Company
Source: MOSL, Company
12 August 2015
2

Voltas
Exhibit 3: Quarterly performance (INR m)
Segmental Revenues
2QFY14 3QFY14 4QFY14 1QFY15 2QFY15 3QFY15 4QFY15 1QFY16
FY14
FY15 1QFY16E Var %
EMP & Services
6,709 6,429 6,857 6,222 5,253 4,613 5,997 5,559 26,924 22,085
5,600
(0.7)
Engineering products and services 1,265 1,118
988 1,109
872
810
811
700 4,482 3,601
909 (23.0))
Unitary cooling business
2,643 3,470 6,543 10,014 3,449 3,835 7,807 9,490 20,524 25,105
9,563
(0.8)
Others
151
134
125
181
117
134
229
205
520
661
172 19.2
Total
10,767 11,151 14,512 17,526 9,690 9,392 14,844 15,954 52,451 51,452 16,245
(1.8)
Segment PBIT
EMP & Services
Engineering products and services
Unitary cooling business
Others
Total PBIT
Segment PBIT (%)
EMP & Services
Engineering products and services
Unitary cooling business
Others
Total PBIT
51
275
299
6
631
(42)
361
450
1
770
(139)
302
1,102
1
1,266
44
240
1,163
31
1,478
49
319
427
7
802
92
235
510
5
842
43
287
1,391
28
1,749
75
239
1,132
16
1,461
(396)
1,414
2,567
6
3,592
228
1,081
3,491
70
4,871
56 33.9)
273 (12.5)
1,128
0.4
7 128.6
1,464
(0.1)
Bps
30
420
10
370
80
0.8
21.8
11.3
3.9
5.9
(0.7)
32.2
13.0
1.0
6.9
(2.0)
30.6
16.8
0.8
8.7
0.7
21.6
11.6
17.0
8.4
0.9
36.6
12.4
6.3
8.3
2.0
29.0
13.3
3.4
9.0
0.7
35.4
17.8
12.0
11.8
1.3
34.2
11.9
7.7
9.2
(1.5)
31.6
12.5
1.1
6.8
1.0
30.0
13.9
10.6
9.5
1.0
30.0
11.8
4.0
8.4
Capital Employed
EMP & Services
6,290 5,793 6,237 6,897 8,041 6,653 5,264 5,410
Engineering products and services 950 1,068 1,073
895
846
800
668
759
Unitary cooling business
1,889 2,678 2,747
(703) 2,577 3,963 2,900 1,373
Others
248
289
249
286
234
236
301
312
Unallocated
8,066 8,264 8,025 11,985 8,167 9,301 12,048 14,430
Total Capital Employed
17,443 18,092 18,331 19,361
19,864
20,953 21,181
22,284
Source: MOSL, Company
Project business sustains intake run-rate; Book-to-bill ratio at 1.9x;
Capital
Employed has corrected – a positive surprise
Calculated order inflow for 1QFY16 stood at INR7bn, and is similar to run-rate in the
last six quarters. Order book stands at INR40.4b and is up 7% YoY. Book-to-bill
stands at 1.9x and is near its highest levels in the last 5-6 years.
Exhibit 4: BTB has improved from lows
Order Book (INR b)
Book to Bill (x)
Exhibit 5: Project business EBIT margins at breakeven levels
Revenues (INR b)
PBIT (%)
Source: MOSL, Company
Source: MOSL, Company
Capital employed has corrected meaningfully from INR6.9b in 1QFY15 to INR5.4b in
1QFY16 (stable QoQ). Thus, asset turn has improved from lows of 3.1x in 2QFY15 to
4x now. We understand that the normative asset turn in the business stands at ~5x,
12 August 2015
3

Voltas
and thus the current levels are a positive surprise, given that a substantial part of
the capital employed continue to be locked as claims on legacy projects.
Exhibit 6: Order book composition
International (%)
Domestic (%)
Exhibit 7: CE has corrected in 4QCY15, positive surprise
Capital Employed (INR b)
Asset Turn (x)
31 34 40 42 41 38
46 48 53 54
58 60 52 54 56 57 60 53 52
69 66 60 58 59 62
54 52 47 46
42 40 48 46 44 43 40 47 48
Source: MOSL, Company
Source: MOSL, Company
UCP business reports strong margins, maintains Number 1 position
Exhibit 8: EBIT margins near to high levels
Revenues (INR b)
PBIT (%)
Exhibit 9: Market share gains have been sustained
Market Share (%)
Source: MOSL, Company
Source: MOSL, Company
Valuation and view
We model PAT CAGR of 14% over FY15-17, largely led by profitability improvement
in MEP business, 15% EBIT CAGR in UCP business and 4% EBIT CAGR in Engineering
Products business.
We maintain
Buy,
with a SOTP-based price target of INR360 (UCP business at 25x
FY17E EPS, MEP at 16x, and Engineering Products at 20x. We expect growth rates in
UCP business to bounce back in the medium term, led by i) possible inflexion point
in AC segment ii) pent up demand in FY16 and iii) incremental growth from air
coolers. At CMP, VOLT trades at 25.2x/19.8x its FY16E/FY17E EPS.
Key triggers / risks
n
n
Projects business:
Negotiations with customers on time / cost overruns; pick-up
in ordering will be important monitorables. Further provisions on the Sidra /
other legacy projects remain a key risk.
UCP business:
Maintaining the number-1 position in India and expanding the
market share gap is a challenge. Success in air-coolers would an important
driver.
4
12 August 2015

Voltas
Exhibit 10: Operating Metrics
INR M
Order Book
Domestic
International
YoY
Order Inflows
Revenues
India Contract
ME Contract
Product
EMP Revenues
India Contract, % YoY
ME Contract, % YoY
Segmental Revenues
Electro mechanical projects
Engineering Products
Unitary Cooling products
Total Revenues
EMP, % YoY
Engg Products, % YoY
UCP, % YoY
Segmental PBIT, %
Electro mechanical projects
Engineering Products
Unitary Cooling products
Total PBIT
EPS (INR/sh)
NWC (Days)
EPS Composition (INR/sh)
Electro mechanical projects
Engineering Products
Unitary Cooling products
FY10
46,780
15,000
31,780
-1.7%
30,730
FY11
48,870
19,630
29,240
4.5%
32,501
FY12
42,920
19,560
23,360
-12.2%
25,882
FY13
37,190
21,610
15,580
-13.4%
26,265
FY14
36,120
20,200
15,920
-2.9%
22,410
FY15
38,930
20,220
18,710
7.8%
22,380
FY16E
40,345
26,108
14,237
3.6%
20,110
FY17E
46,682
31,937
14,746
15.7%
24,531
9,513
17,483
4,134
31,130
17.1%
15.9%
10,053
15,843
4,515
30,411
5.7%
-9.4%
9,511
17,627
4,695
31,832
-5.4%
11.3%
8,634
18,381
4,980
31,995
-9.2%
4.3%
7,213
14,408
5,302
26,924
-16.5%
-21.6%
5,169
11,293
5,623
22,085
-28.3%
-21.6%
6,222
12,473
6,186
24,881
20.4%
10.5%
8,703
9,491
6,742
24,936
39.9%
-23.9%
31,130
4,680
11,860
48,060
12.8%
-13.7%
28.9%
30,411
5,638
15,608
51,783
-2.3%
20.5%
31.6%
31,832
4,121
15,388
51,768
4.7%
-26.9%
-1.4%
31,995
4,311
18,356
55,163
0.5%
4.6%
19.3%
26,924
4,482
20,524
52,451
-15.8%
4.0%
11.8%
22,085
3,601
25,105
51,452
-18.0%
-19.7%
22.3%
24,881
3,780
28,415
57,803
12.7%
5.0%
13.2%
24,936
4,347
36,410
66,493
0.2%
15.0%
28.1%
9.9
16.4
10.1
10.7
10.3
8.2
7.9
18.3
10.2
9.7
9.5
30.4
-3.3
16.7
8.4
1.9
9.5
55.9
-1.5
19.0
9.0
3.6
5.9
53.4
-1.5
31.6
12.5
6.8
6.8
52.6
6.8
-2.2
2.8
6.2
1.0
30.0
13.9
9.5
10.2
40.7
10.2
-0.3
2.1
8.4
3.3
27.0
13.2
9.7
11.9
37.2
11.9
0.8
2.0
9.0
4.8
27.0
12.7
10.6
15.1
31.6
15.1
1.6
2.3
11.2
Source: Company, MOSL
12 August 2015
5

Voltas
Financials and valuations
Income Statement
Y/E March
Total Revenues
Change (%)
Raw Materials
Staff Cost
Other Expenses
EBITDA
% of Total Revenues
Other Income
Depreciation
Interest
Exceptional Items
PBT
Tax
Rate (%)
Adjusted PAT
Extra-ordinary Income (net)
Reported PAT
Change (%)
Adj. Consolidated PAT
Change (%)
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Minority Intetest
Loans
Deferred Tax Liability
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Goodwill
Curr. Assets
Inventory
Debtors
Cash & Bank Balance
Loans & Advances
Current Liab. & Prov.
Creditors
Other Liabilities
Net Current Assets
Application of Funds
E: MOSL Estimates
2010
48,059
11.1
32,992
5,357
5,118
4,592
9.6
214
98
250
4,529
1,472
32.5
3,057
-
3,057
93.1
3,397
51.5
2011
51,914
8.0
36,808
5,563
4,914
4,629
8.9
210
165
402
4,656
1,725
37.0
2,931
-
2,931
(4.1)
3,147
(7.3)
2012
51,857
(0.1)
37,800
5,995
4,698
3,365
6.5
985
340
314
(1,505)
2,191
571
26.1
1,620
-
1,620
(44.7)
3,126
(0.7)
2013
55,310
6.7
41,670
6,325
4,934
2,380
4.3
901
278
326
121
2,798
728
26.0
2,070
-
2,070
27.8
1,955
(37.5)
2014
52,660
(4.8)
38,543
5,947
5,515
2,656
5.0
1,002
248
225
215
3,399
941
27.7
2,458
-
2,458
18.7
2,238
14.5
2015
51,831
-2
35,975
5,899
5,857
4,100
7.9
1,087
280
233
462
5,136
1,276
25
3,860
0
3,860
57
3,381
51
2016E
58,178
12
40,841
6,400
6,230
4,708
8.1
1,181
272
117
106
5,605
1,580
28
4,025
0
4,025
4
3,920
16
(INR Million)
2017E
66,887
15
46,955
7,190
6,779
5,963
8.9
1,416
326
127
0
6,926
1,922
28
5,005
0
5,005
24
5,005
28
(INR Million)
2017E
331
27,011
27,342
161
1,217
(349)
28,371
6,228
3,393
2,835
-
10,939
798
47,796
11,036
24,907
7,927
3,925
33,997
29,477
4,520
13,798
28,371
2010
331
10,521
10,852
139
352
(202)
11,140
3,890
1,821
2,069
193
2,339
764
28,267
11,441
10,060
4,689
2,078
22,493
19,848
2,645
5,774
11,140
2011
331
13,287
13,618
196
1,367
(152)
15,029
4,198
1,987
2,211
10
2,686
894
35,475
8,215
19,948
4,890
2,422
26,246
23,084
3,163
9,228
15,029
2012
331
14,469
14,800
170
2,214
(242)
16,941
4,451
2,448
2,003
46
3,116
890
35,271
8,334
20,977
2,710
3,249
24,384
21,593
2,790
10,887
16,941
2013
331
15,926
16,256
118
2,612
(222)
18,765
4,678
2,568
2,110
0
4,074
888
38,352
9,784
21,927
3,498
3,142
26,658
23,947
2,711
11,694
18,766
2014
331
17,863
18,193
138
2,629
(239)
20,722
4,696
2,611
2,086
18
7,320
798
36,973
9,010
22,039
2,818
3,107
26,476
23,686
2,790
10,497
20,720
2015
331
20,690
21,021
161
1,217
(349)
22,049
4,824
2,889
1,935
-
10,939
798
34,844
8,671
21,051
2,516
2,606
26,466
22,925
3,541
8,378
22,049
2016E
331
23,508
23,839
161
1,217
(349)
24,867
5,624
3,067
2,557
-
10,939
798
40,100
9,599
22,632
4,554
3,314
29,526
25,689
3,838
10,573
24,867
12 August 2015
6

Voltas
Financials and valuations
Ratios
Y/E March
Basic (INR)
Adj EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation (x)
P/E
Cash P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors. (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
Cash Flow Statement
Y/E March
PBT before EO Items
Add : Depreciation
Interest
Less : Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
(Inc)/Dec in FA
Free Cash Flow
Investment in liquid assets
CF from Investments
(Inc)/Dec in Debt
Less : Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
2010
10.3
9.2
10.9
32.8
2.0
20.3
2011
9.5
8.9
10.2
41.2
2.0
21.5
2012
9.5
4.9
10.5
44.7
1.6
38.0
2013
5.9
6.3
6.8
49.2
1.6
29.8
2014
6.8
7.4
7.5
55.0
1.9
29.2
2015
10.2
10.2
11.1
63.6
2.3
22.7
2016E
11.9
11.9
12.7
72.1
2.9
30.0
2017E
15.1
15.1
16.1
82.7
3.6
30.0
23.8
38.3
20.0
1.0
2.9
1.1
22.6
20.9
18.3
1.5
3.6
1.0
25.2
23.6
20.3
1.6
4.1
1.0
19.8
18.6
15.5
1.4
3.6
1.2
31.3
39.3
23.1
29.4
21.1
23.3
12.0
15.8
12.3
16.3
16.1
21.9
16.4
22.3
18.3
24.5
76
87
151
4.3
140
58
162
3.5
148
59
152
3.1
145
65
158
2.9
153
62
164
2.5
148.2
61.1
161.4
2.4
142.0
60.2
161.2
2.3
135.9
60.2
160.9
2.4
0.0
0.1
0.1
0.2
0.1
0.1
0.1
0.0
2010
5,318
214
98
(1,472)
(965)
3,193.0
3,193
35
3,228
(777)
(741.6)
(1,463)
(98)
(772)
(2,333)
119
4,571
4,689
2011
5,240
210
165
(1,725)
(3,300)
590.9
591
(125)
466
(346)
(471.4)
1,016
(165)
(769)
81
201
4,689
4,890
2012
2,191
340
314
(571)
(3,651)
(1,378)
(289)
(1,666)
(430)
(719)
847
(314)
(615)
(83)
(2,179)
4,890
2,710
2013
2,798
278
326
(728)
(202)
2,472
(181)
2,291
(957)
(1,139)
399
(326)
(619)
(546)
787
2,710
3,497
2014
3,399
248
225
(941)
596
3,528
(36)
3,492
(3,247)
(3,283)
17
(225)
(716)
(925)
(680)
3,497
2,817
2015
5,136
280
233
(1,276)
1,425
5,798
58
5,856
(3,619)
(3,561)
(1,412)
(233)
(894)
(2,539)
(302)
2,818
2,516
2016E
5,605
272
117
(1,580)
414
4,829
(1,466)
3,363
-
(1,466)
-
(117)
(1,208)
(1,325)
2,038
2,516
4,554
2017E
6,926
326
127
(1,922)
148
5,606
(604)
5,002
-
(604)
-
(127)
(1,501)
(1,629)
3,373
4,554
7,927
12 August 2015
7

Voltas
Corporate profile: Voltas
Company description
Voltas (VOLT) is a Tata group company and is
India's largest air conditioning company and is one
of the leading engineering solution provider across
GCC nations as well. VOLT’s business portfolio
comprises of providing HVaC & MEP solutions.
VOLT has a proven track record of delivering MEP /
HVaC solution across iconic projects like Burj Al
Arab, F1 track in Bahrain etc. VOLT’s product
business comprises of unitary cooling division, in
which VOLT is the market leader with ~20% market
share. Other product business would include,
marketing of textile machinery.
Exhibit 11: Sensex rebased
370
315
260
205
150
Aug-14
Nov-14
Feb-15
May-15
Aug-15
Voltas
Sensex - Rebased
Exhibit 12: Shareholding pattern (%)
Jun-15
Promoter
DII
FII
Others
30.3
27.3
21.5
20.8
Mar-15
30.3
27.0
21.6
21.1
Jun-14
30.3
29.2
18.6
21.9
Exhibit 13: Top holders
Holder Name
LIC of India
Franklin Templetion Investment Funds
HDFC Mutual Fund
Hasham Investment & Trading Company Pvt Ltd
IDFC Mutual Fund
% Holding
7.5
4.5
2.9
2.5
2.0
Note: FII Includes depository receipts
Exhibit 14: Top management
Name
Ishaat Hussain
Sanjay Johri
Designation
Chairman
Managing Director
Exhibit 15: Directors
Name
Ishaat Hussain
Sanjay Johri
N N Tata
R N Mukhija*
Nani Javeri*
*Independent
Name
Vinayak Deshpande
Bahram Navroz Vakil*
Debendranath Sarangi*
Anjali Bansal*
Exhibit 16: Auditors
Name
Deloitte Haskins & Sells LLP
Sagar & Associates
Type
Statutory
Cost Auditor
Exhibit 17: MOSL forecast v/s consensus
EPS
(INR)
FY16
FY17
MOSL
forecast
11.9
15.1
Consensus
forecast
12.0
14.9
Variation
(%)
-0.5
1.3
12 August 2015
8

Voltas
NOTES
12 August 2015
9

Voltas
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§
Analyst ownership of the stock
§
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VOLTAS
No
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