Voltas

At A P/E Of 21.9, Stock Looks More Expensive Than Its Average In Past 2 Years

VOLTAS' results for the quarter to December '09 failed to impress the market despite an sharp improvement in its operating profit. 

   The main worry for the market seems to be a tepid 6% growth in Voltas revenues in Q3 compared to the same in the previous year. This is the third consecutive quarter of a sequential decline in net sales. For the first two quarters of FY10, while the revenues declined by an average of 6.3% Q-o-Q, for the latest quarter, the same has fallen by 16.5% compared to the pervious quarter. 

   However, the operating profit jumped by 70% to Rs 78.2 crore in the quarter from Rs 46.1 crore a year ago. The net profit grew by 62% compared to the same quarter last year. The quarter showed an impressive performance on a yearly basis as well. During the past four quarters, while the revenues saw a compounded annual growth of 5.1%, both the operating and net profits grew at a CAGR of 9.2% and 7.3%, respectively.

The major portion of revenues, about 70%, came from the EMPS (Electro-Mechanical Projects and Services) segment followed by UCP (Unitary Cooling Products) and EPS (Engineering Products and Services) segments. The profit contribution of these segments to the bottomline also maintained a similar order for the recent quarter. However, due to a steady growth in the UCP segment, it demonstrated a remarkable jump in its contribution to the total profits. After a 23% y-o-y decline in first half of FY10, the EPS segment still seems to be struggling as it reported 14% decline in sales while 4% decline in segment profit during the April-December '09 period.

Another concern for the company remains the falling order inflow for the EMPS segment, which stood at Rs 4,360 crore at the beginning of Q3FY10, down 22% YoY. The lower order backlog was due to a slowdown in orders in key international markets (the Gulf Cooperation Council region). 

   While the international order book primarily comprises projects from Abu Dhabi and Qatar, the company's stock experienced a decline of 4% on November 27, when the company announced that it is executing Rs 900-crore project project for Dubai-based Emaar through a joint venture in which Voltas has a 37% stake. At the current market price, the stock is trading with a P/E of 21.9, which is a bit higher than its average in the past two years and looks overvalued.