Reliance Securities has given a buy recommendation on Voltas with a target price of Rs 681.
Shares of Voltas traded at Rs 621.2 around 12:40 pm on 21 June, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.
Key takeaways from the brokerage's interaction with the management of Voltas:
Following significant demand pick-up in April-May, the management expects room AC segment to deliver strong growth in FY20. The primary sales started picking up especially in the northern region, while the inventory level has declined to normal level from the peak level in the last few quarters.
The management expects margin from Unitary Cooling segment to sustain at 11 per cent. Notably, the Company has not been able to hike the prices due to competition. Further, it has nearly 10 per cent share in the e-commerce segment for room ACs. The management does not consider launch of private brands from Amazon and Flipkart as a big threat.
The JV with Beko has covered 50-55 per cent of Voltass distribution network. The management expects the JV to remain in the investment phase for the next 3-4 years. The Company is setting up a plant in Sanand (Gujarat), which is expected to commence production by Dec19. The products of VoltBek have been selectively available in metro cities and EBOs in Tier-II cities.
Voltas plans to invest Rs5bn over the next 5 years in Tirupati plant for room ACs, out of which Rs2bn is expected to be spent in the next 2 years under Phase-I. The plant will have initial capacity of 1mn and will add other products gradually. We believe the plant would aid Voltas to extend its reach in the Southern markets and reduce logistics cost.
Voltas has participated in Energy Efficiency Services (EESL) Super-Efficient Air Conditioning Programme. The ACs under this scheme are not comparable with general AC, as they are of higher tonnage and star rating.
The ordering activity in the projects business was led by rural electrification and urban infrastructure segments, while Voltas has been selective in taking new orders. Its current order book stands at nearly Rs 5,000 crore, out of which domestic order book stands at Rs 3,000 crore (40 per cent from rural electrification segment, 30 per cent from urban infrastructure segment and the balance from other segments). In the domestic maRead More – Source