Voltas margins rev up as business mix gets better2 min read . Updated: 23 Nov 2014, 11:43 PM IST
Margins are expected to improve as the electro-mechanical products division completes some slow-moving orders
Tata group company Voltas Ltd put up a good show during the September quarter as an improving product mix and lower costs translated into strong profits.
True, the net revenue surprised negatively. At ₹ 984.6 crore, it was significantly below the Street’s expectations and 8.9% less than in the year-ago period. The dip was on account of the electro-mechanical products (EMP) segment where net revenue fell by a steep 23% from the year-ago period. Analysts say that delays in international project execution led to the revenue drop.
Fortunately, this was partially offset by the robust 30% expansion in the unitary cooling products (UCP) segment, which comprises a little over one-third of the consolidated revenue. Air-conditioner sales did well, aided by improving customer sentiment and favourable weather conditions. Voltas also retained its market share of around 22% in room air conditioners during the quarter.
A strong revenue surge in the UCP segment, along with a favourable product mix, helped offset fixed and variable costs. Hence, operating profit shot up by 79% to ₹ 77.7 crore, nearly 46% higher than Bloomberg’s consensus estimates.
Profitability improved across the board as costs were lower both in absolute terms and as a percentage of sales. Operating margin at 7.9% was about 390 basis points higher than a year ago. One basis point is one-hundredth of a percentage point. Specifically, the UCP segment’s margin improvement was the result of a focus on global markets and optimum procurement costs. But the engineering products segment saw the highest margin expansion, albeit on a small revenue base.
That’s not all. Margins are expected to improve in the coming quarters as the EMP division completes some slow-moving orders. Meanwhile, analysts forecast that fresh orders from some emerging countries and the Middle East will come in at higher margins. But the September quarter’s order inflows did not echo the positive sentiment on its order book as order inflows declined 18%. However, a higher tax rate and lower other income thwarted net profit growth, which was a tad lower than the Street’s forecast but 18% higher than a year ago.
Voltas shares have more than doubled from January on improving business fundamentals across its markets and business segments. At ₹ 267, Voltas shares trade at nearly 23 times fiscal 2016 estimated earnings per share. A key positive from the investor standpoint is its healthy balance sheet with positive cash flows—a rarity among capital goods manufacturers during these trying times.