Voltas Limited offers engineering solutions for a wide spectrum of industries in areas such as heating, ventilation and air conditioning, refrigeration, electro-mechanical projects, textile machinery, machine tools, mining and construction equipment etc.
The company’s strengths lie principally in the design and manufacture of industrial equipment, management and execution of air conditioning and public works projects, sourcing.
The effect of the credit crisis have been felt in Middle East with several high profile projects getting cancelled, prolonged or put on hold indefinitely.
Dubai is clearly the worst hit though Kuwait and Saudi market has also not been spared from slowdown in construction.
Abu Dhabi and Qatar are among the least affected. Projects in these two locations are still going ahead as planned and new tenders are coming as well.
A recent report from the International Monetary Fund (IMF) has said that there are almost $2.2 trillion worth of projects in the GCC.
The bulk of the projects ($961 billion) are in the real estate sector, followed by infrastructure ($431 billion), petro-chemical ($142 billion) and power and water ($175 billion).
Some $918 billion of the projects are in the UAE, with Saudi Arabia accounting for $632bn. While prevailing economic may result in many projects not getting materialised, the report highlights the long-term growth potential of the region.
Voltas is currently trading at 5.0x and 4.6x FY09 and FY10 earnings respectively. At the current price, dividend yield works out to 4.2% assuming the company maintains the same dividend rate.
The company has increased dividend rate in previous four years and may increase in the current fiscal as well. This will further make the dividend yield attractive.
Debt free and cash on hand of Rs3 billion (27% of market cap). Despite the low downside, the stock may not post an upmove in the near-term as business outlook for global real estate investment continues to be negative.
Furthermore, outlook on its other business segments are not encouraging either. We upgrade recommendation to BUY from Accumulate with a price target price of Rs55.