Voltas Ltd (Voltas), air-conditioning and engineering company, engaged in the field of air conditioning and refrigeration. It is also in the business of electromechanical projects as engineering, procurement and construction (EPC) contractor both in domestic and international geographies (Middle East and Singapore). Voltas is also in the business of engineering product services for mining, water management and treatment, construction equipment and textile industry.
Valuation and view
With improving market share in Indian AC industry, we believe that Voltas is the best proxy to play the growth in the AC industry. Improving margin and focus on high margin domestic orders in the EMPS business segment of the company will further support earnings. We believe that with new launches across the UCP segment and entry into air cooler industry, the company is expected to perform well in the coming quarters. Considering the strong performance of the UCP business and recovery in the EMPS segment, we remain positive on the stock.
At the current market price (CMP) of Rs. 306, the stock trades at an EV/EBITDA of 19.5x FY16E and 14.7x FY17E. We recommend ‘BUY’ with a target price of Rs. 348, which implies a potential upside of ~14% to the CMP from 12 months perspective.
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