Research Report Voltas Ltd - Nov 28, 2014/ CMP 270 Target Price:330
Voltas is India's largest air conditioning company, and one of the
world's premier engineering solutions providers and project
specialists.
• Voltas' operations have been organized into three independent
business-specific clusters viz.,
Electro-Mechanical Projects & Services (EMP)
• Electrical- Mechanical & Refrigeration Solutions.
• Electrical & Mechanical Solutions (international).
Engineering Products & Services (EPS)
• Textile Machinery.
• Mining & Construction Equipment.
Unitary Cooling Products (UCP)
• Air Conditioners, Commercial Refrigeration, Water Coolers &
Dispensers.
Each of these has its own facilities for market coverage and service to
customers.
• Over the years, Voltas has built up an enviable reputation and is
actively engaged in turnkey projects in fields such as
• electro-mechanical works comprising HVAC, electrical
systems for buildings, plumbing, fire fighting, ELV and
specialized systems, building security and other utilities.
• electrical power projects
• environmental and water pollution control, pumping stations
and water supply, and water and waste water treatment
projects.
Voltas has successfully undertaken and executed prestigious highvalue
projects in the Middle East, Far East and South East Asia, CIS
countries, and Africa.
With manufacturing units at Thane, Dadra and Pantnagar, Voltas
possesses total capability in the manufacture of room/split air
conditioners, industrial air conditioning and refrigeration
equipment, water coolers, commercial refrigerators, visicoolers
and freezers, cranes, and construction equipment. All these
products bear the stamp of state-of-the-art plant, machinery and
processes, resulting in consistently high quality and reduced costs.
Voltas Ltd
Voltas Limited was incorporated in 1954 under Tata group. As a Tata
enterprise, the company offers engineering
solutions for a wide spectrum of industries in areas such as heating,
ventilation and air conditioning, refrigeration, electromechanical
projects, textile machinery, machine tools, mining and construction
equipment, materials handling, water
management, building management systems, indoor air quality and chemicals,
the operations have been organized into
four independent business-specific clusters, such as Electro-mechanical
projects & services, Engineering products &
services, Unitary Cooling products for comfort and commercial use and
others. All core capabilities of the company arecertified under ISO 9001: 2000
and the company has executed projects in over 30 countries worldwide.
For the manufacture of machine tools, the company promoted Scottish Indian
Machine Tools Ltd during the year 1963 in
collaboration with Scottish Machine Tool Corporation of Glasgow. During the
year 1964, the company made a collaboration agreement with Eaton Yale and
Towns, U.S.A., for the manufacture of Yale forklift trucks.
Also in the same year, Voltas had joined the Mine Safety Appliances Co.,
U.S.A., and Associated Battery Makers (Eastern) Ltd., Calcutta
in the promotion of Mine Safety Appliances Ltd., Calcutta, a joint venture
for the manufacture of miners' electric safety
cap lamps and other types of safety and protective equipment, appliances,
detection and measuring devices. A new
division, the Agro-Industrial Products Division was added in the year 1966.
With effect from 1st July of the year 1979,
Tata-Merlin & Gerin Ltd (TMG) and the National Electrical Industries
Ltd (NEI) were amalgamated with the company.
Voltas had entered into an agreement with May & Christe of West Germany
in the year 1982 for the manufacture of dry
type transformers of cast-resin design. The machine tool division of the
company made an agreement with Fanuc of Japan in the year 1988 for the
technical collaboration to produce CNC drilling centers
With effect from 1st March of the year 1989, Volrho Ltd was amalgamated
with the company as per the order of BIFR.
The machine tools division of the company had introduced Fanuc CNC drilling
centers in the period of 1990. During the year 1991, the appliances business
division of the company had launched the ductable split air-conditioner,
specifically
needed for shops, showrooms and general office areas. Also in the same
year, an agreement was signed for updating technology and for the manufacture
of new models of P&H hydraulic cranes. During the year 1992, the company
restructured its operations into product group I comprising refrigerators,
pharmaceuticals and consumer products and beverages while product group I (A)
include textile machinery. Product group II consisted of machine tools,
materials handling facility, industrial machinery, air-conditioning pumps and
projects. Group III comprised of chemicals plant chemicals division and
agro-industrial products.
The cooling appliances business of the company had launched four new
products in the year 1993 viz., water coolers filled with purifiers
ductable and slim-line 3 tone air-conditioners, ceiling
mounted split in 1.5 and 3 tone capacities and 2 tonne room split units.
Also in the same year, the pharmaceutical and
consumer products division was closed and had also withdrawn from the
beverages business. In the year 1994, Voltas
had introduced 250 L refrigerator in the market under the home appliances
division.
Voltas bagged Good Corporate Citizen Award in the year 1995 and also the
company had introduced `Soft Look' models of refrigerator in 165 L. & 200 L
segments. Pumps and projected business division of the company had successfully
developed, manufactured and commissioned the largest sizes of horizontal
and vertical pumps in its range during the year of 1996.
Voltas had entered into a lease rental agreement with SIPL for lease of
factory premises of WNC in the year 1997 for a period of 18 months for a total
consideration of Rs 10.250 million and also in the same year, the company had finalized
yet another contract as original equipment manufacturer (OEM) with one of the
white goods majors,
LG Electronics, to manufacture and
supply direct cool refrigerators. The Company had commissioned Dadra
plant in the year 1998 and in end of the same year 1998, Voltas won two of
the world's biggest orders in the mining sector from Coal India Ltd (CIL), such
as Rs 9180 million 2 shovels (P&H) and 160 dump trucks (Unit Rig).
During the year 2000, L. G. Electronics India and Voltas had entered into a
tie-up for the 12,00,000 direct-cool
refrigerators from the latter for the next three years.
Voltas had entered into road construction equipment during the year 2001
under the engineering products and services segments.
Also in the same year of 2001, the company had re launched air conditioners
under the brand name
`Verdant', a premium model targeted at the retail segment. During the year
2002, Voltas made a Joint Venture agreement with Sermo Montaigu, France for
perfect moulds. The company entered into a distribution tie-up with the 62
million euro Italian air-conditioning major Unfair in the year 2004, which
specialises in the design, production and supply
of precision air conditioning and cooling solutions for telecom and
internet applications. Also in the same year, made tie up
with RBS Home Appliances Ltd for the use of 640 service centers that Voltas
had across the country for after sales service.
Simtools Ltd became a wholly owned subsidiary of the company in 2005. The
Company had launched new
range of water dispensers in the same year of 2005.
Voltas had entered into the water treatment business, had undertaken a
project at Salt Lake City in Kolkata during the
year 2007. The Company had launched a whole new range of Room ACs for the
premium and luxury segments in March
of the year 2008. Voltas had purchased 13,821,000 equity shares of Rs 10
each of Universal Co
mfort Products (P)
(UCPL) in 2008, a 50:50 joint venture company between Voltas and Fedders
International Air-conditioning (P) (FIACPL).
As at August 2008, the company entered into a definitive agreement to
acquire majority stake in Rohini Industrial
Electricals (RIE), a Mumbai-based company engaged in undertaking large
turnkey electrical and instrumentation projects
for industrial and commercial sectors.
Decline in commodity prices.
Worldwide commodity prices are under pressure. From copper to iron ore to
oil , all the world’s major commodity prices
have under gone massive correction. It can be said with ample assurance
that the commodity bull cycle has come to an
end. We expect the commodity market to remain sluggish as China is trying
to shift from an investment led economy to a
consumer led economy and the shale gas discovery in North America should
keep the crude oil prices in check.
This bodes well for the margins of Voltas. Voltas will benefit from this
decline in commodity prices leading to an increase
in operating profit margins
Solid Balance Sheet.
By observing the balance sheet of Voltas, it seems that the company has
managed one of the worst recessionary phases
that the world has ever seen quite well. The debt to equity ratio has been
in check. This has been possible due to the
management’s tight leash on expenditures and cash conservation policies.
The cost cutting exercises made it sure that
in a sluggish demand environment the company doesn’t go in the red. The
conservative approach towards cash
management avoided unnecessary leverage which would have strained the
balance sheet.
Thus by exercising cost cutting, being conservative and avoiding
unnecessary diversification the management has
ensured that the company has a solid balance sheet which will come in
handy, to exploit the opportunities that will be
available as the economy turns.
Improvement in Economic Environment.
With the new Govt. at centre which has been formed without the support of
any coalition partners, it is envisaged that
planned expenditure especially for improving India’s infrastructure will
happen. The Indian Government has targeted a
US $1 trillion investment in infrastructure as part of the Twelfth Five
Year Plan (2012-17), which can spur the demand for
EMP and EPS projects.
One of the worst casualties of the slowdown in Indian economy was consumer
durable segment. This hit the UCP
segment of Voltas severely, as people postponed their spending into the
future due to uncertainty regarding the present
economic state.
But with the supply side getting reformed and the new Govt’s focus on
investment rather than on subsidies, we believe
that the inflationary pressures tormenting the economy will begin to
subside in the medium to long term thus enabling the
Reserve Bank to cut interest rates. The subdued global commodity market
especially oil prices have already led to a
decline in the CPI index. If the pressure on oil prices persist, inflation
will come well within the RBI target, thus leading to
the beginning of a rate cutting cycle.
Risks & Concern
• The sluggish global growth harangued by deflation could affect the EMP
and EPS segment.
• Rupee volatility is a worry although Voltas’ raw material imports have a
natural hedge in its project exports.
• The mining ban issues, rise in inflation and geopolitics is also a cause
for concern.
• Delay in the anticipated recovery of the Indian economy will materially
affect the earnings growth.
