Continue To Hold - Voltas

Voltas formed a part of our recommendations in the Analysis column in the issue dated September 13 - 26, 2010. The scrip was recommended at a price of Rs 218 and carried a one year target price of Rs 283. Since our recommendation, the scrip did go up and performed as per our expectations reaching a high of Rs 262.50, thereby giving an overall appreciation of 20 per cent. However, due to the recent market-volatility, the scrip shed its gains and is currently trading at Rs 216.55.

Voltas derives 61 per cent of its revenues from electro-mechanical projects and services (EMPS) segment, wherein it undertakes works related to air-conditioning, electrification, and plumbing. Nearly 26 per cent of revenues come from the consumer durable segment, while the balance 13 per cent comes from the engineering products and services (EPS). Factors such as consistent topline and bottomline growth, a strong presence in EMPS segment in the Middle East, a successful track record of executing iconic jobs, a good order book of Rs 5,500 crore, market leadership on the domestic front in both the EMPS and consumer durable products, huge growth opportunities both overseas and on the domestic front and last but not the least, fair valuations of PE of 15x and EV/EBIDTA of 10x at its FY11 estimates made us recommend Voltas. Voltas is a strong fundamentals counter and brings a unique business proposition to the table. Thus we believe it is only a matter of time before this scrip catches up with its valuations. In fact, considering that the scrip is at our recommendation price, one can even think of accumulating it at current levels and hold it for the long term.