Buy Voltas; target of Rs 600: Motilal Oswal

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Motilal Oswal 's research report on Voltas

Voltas' (VOLT) 4QFY20 earnings were 37% ahead of expectation led by the UCP segment's outperformance. VOLT has further cemented its leadership position with its market share improving 50bp to 24.2% YTD. It also achieved the No. 1 position in Inverter ACs for the Jan-Feb'20 period. The AC industry is perhaps one of the worst hit due to the COVID-19 led lockdowns, especially owing to the shutdowns coinciding with the peak summer season. This is likely to result in higher inventory for the entire supply chain across dealers, brands (incl. in-transit goods) and manufacturers. As the lockdown eases, we are witnessing pent-up demand. We expect system-level inventory to normalize by Nov-Dec'20, and hence, FY22E should turn out to be a normal year.

Outlook

We cut our FY21/FY22E earnings by 28%/6% as FY21 is likely to be a washout year. We have also built in lower revenue and profitability for the EMP business given the weak macro environment for the Projects' business. However, the cut in our TP is limited as the EMP business commands lower valuation multiple. Maintain Buy with revised TP of INR600 (earlier: INR620).

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