Voltas Ltd

Overseas concerns

Current Price Rs. 178
Target Price Rs. 169
– Sell

Voltas Ltd is seeing a gradual improvement in businesses, especially in the unitary cooling products (UCP) and the domestic electro mechanical projects (EMPS) segments, besides some parts of the engineering products services (EPS) segment.

As growth in UCP and EPS segments (except textiles), along with domestic EMPS, is picking up, only the international EMPS segment is a concern: slack order inflows even with crude at over $70 (Rs3,276) per barrel. Voltas’ order backlog has declined for five consecutive quarters now. The current order backlog is Rs4,360 crore, down 22% year-on-year.

We expect the earnings before interest, taxes, depreciation and amortization margin to expand 146 basis points in FY2010 to 8%. We maintain our sell rating and new target price of Rs169 (Rs129 earlier) is at 15x one-year-forward estimated earnings (December 2011).

—Anand Rathi