Voltas

Stock Seen Moving In Tandem With Financial Performance, Trades At A PE Of 21
THE stock price of the engineering service provider, Voltas, halted from a declining trend of the past two weeks. Since early March, the stock price has increased more than five times, with most of the gains coming in the quarter ended June 2009.

Thus, Voltas stock performance seems in line with the company’s financial performance in the past three quarters. The adjacent chart compares net sales against net profit margin since the year ended September 2007. As can be seen with a significant jump in net sales in the year ended March 2009, the profit margin has gained momentum during the past four quarters.

For the quarter ended September 2009, the company reported a jump of about 11% in the net sales to Rs 1,098 crore compared to last year. However, the operating profit — profit before interest and depreciation — during the period jumped by more than 60% to Rs 119 crore. Net profit for the quarter has increased by about 48% y-o-y to Rs 91 crore.

The biggest contributor to the revenues as well as profit was the electro-mechanical projects and services business segment, which showed an average contribution of about 49% to each. On the other hand, the engineering products and services division continued to show a dismal performance because of a slowdown in the demand for capital equipment. The company designs and manufactures machine tools, mining & construction equipment and sells textile machinery under this division.

The Unitary cooling division, under which Voltas manufactures and markets cooling appliances and commercial refrigeration products, grew by 25% in the past quarter. The division accounts for about 18% of the company’s revenue, but its contribution to bottomline is much lower. In coming quarters, the company expects the electro-mechanical projects and services to remain the growth driver as the order book for the same stood at about Rs 4,300 crore. At the current market price, the stock is however trading at P/E of more than 21, which is higher than its average for 2008.