This Tata Group stock rallied 60% in six months; brokerages see up to 30% fall after Q4 results

09/05/2024

Tata Group-owned Voltas Ltd reported a muted performance in the March 2024 quarter and the brokerages remain mixed on the stocks. Brokerage firms believe that the company has missed the estimates on the certain parameters and is likely headed for a 30 per cent upside. However, those who are positive on the stock, see up to 15 per cent rise in the counter.

Shares of Voltas tumbled more than 2.13 per cent to Rs 1290.90 on Thursday, compared to its close at Rs 1,319.10 on Wednesday. However, the stock has rallied more than 60 per cent in the last six months, while it has gained 78 per cent from its 52-week low at Rs 745, hit in July 2023.

Voltas on Tuesday reported a 22.75 per cent on a year-on-year (YoY) basis fall in consolidated net profit to Rs 110.64 crore in the fourth quarter ended March 31, 2024, impacted by higher expenses. The Air conditioning and engineering services provider had posted a consolidated net profit of Rs 143.23 crore in the same period previous fiscal.

Consolidated revenue from operations during the quarter under review stood at Rs 4,202.88 crore as against Rs 2,956.8 crore in the year-ago period, it said. The engineering products and services division clocked revenue of Rs 156 crore as compared to Rs 142 crore in the year-ago period, it added.

The unitary cooling products (UCP) business segment revenue grew 44 per cent YoY to Rs 2,955 crore on the account of a better product mix enhancement approach. Similarly, electro-mechanical projects and services (EMP) segment comprising both domestic and international projects businesses grew by 38 per cent YoY due to a healthy carry forward order book position.

Voltas reported a strong Q4FY24 top line leading to a top-line beat, but disappointed on EMP as the provisions/write-offs in the segment persisted and continued to hurt profits. The upshot of the operational margin miss in UCP and EMP meant a drag on Q4FY24 PAT. That said, RAC volumes stood out, management indicated share in the primary RAC market, said Nuvama Institutional.

Voltas is poised for growth with RAC capacity addition, leadership moats and likely improvement in the project business. We are raising FY26E PAT by 5 per cent, yielding a target price of Rs 1,539, valuing the stock at 48 times FY26E EPS, it added with a buy call.

Its UCP revenue was up 44 per cent YoY due to strong RAC volume growth on back of strong summer, while EMP, domestic business grew 38 per cent YoY due to healthy order book while International business continues to face challenges, said JM Financial with a ‘buy’ rating target price of Rs 1,515.

“Ebitda margin was significantly below our estimate by 252 bps due to lower-than-anticipated expansion in UCP margins,” said Nirmal Bang Institutional Equities in its note. “Healthy order book timely execution led to strong growth in domestic business by 38 per cent YoY, along with positive bottom-line growth in FY24. International business continues to face headwinds,” it said.

Nirmal Bang maintained an ‘accumulate’ rating on the stock with a with a revised SOTP-based target price of Rs 1,265, valuing it at 43 times on FY26E EPS. Growth on the back of deep channel discounting with continued headwinds in the international projects order book is expected to keep margins under pressure in the near-to-medium term, it added.

Voltas’ 4QFY24 results were yet again marred by large Ebit losses in the EMP segment, while the UCP segment’s margins also disappointed, despite seasonal strength in demand. While the near-term demand outlook is positive, margins remain subdued; meanwhile, competitive pressures loom, said Kotak Institutional Equities with a ‘sell’ tag and a fair value of Rs 930 on the stock.

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