homebusiness Newscompanies NewsBoFA Securities downgrades Voltas as 70% of revenue faces multiple headwinds
BoFA Securities downgrades Voltas as 70% of revenue faces multiple headwinds
BoFA Securities said that it sees multiple headwinds for Voltas’ unitary cooling products (UCP) business that accounts for 70 percent of the company’s revenue.
Shares of Tata Group company Voltas Ltd. are under pressure on Thursday after brokerage firm BoFA Securities has downgraded the stock to underperform, from the earlier rating of buy.
BoFA also cut its price target on Voltas to Rs 781 from Rs 853 earlier. The revised price target cuts the potential upside on the stock to just 2.4 percent.
The brokerage said that it is seeing multiple headwinds for Voltas' Unitary Cooling Products (UCP) business, which accounts for 70 percent of the overall topline. "Lower sales in the important summer season due to unseasonal rains have become one of the key overhangs for the UCP business," the note said.
Also, Voltas is facing difficulty in regaining the lost market share (down 400 basis points in the last four quarters), even as margins drop to 8-9 percent from 13 percent earlier amid heightened competition.
Delayed profitability in Voltbek Home Appliances Pvt. Ltd, a joint venture between Voltas and Europe’s consumer durables brand Arcelik, is also dragging the company’s earnings per share (EPS).
Other than that, localization through production-linked incentive (PLI) schemes despite margin benefits is hurting return-on-equity (RoE) due to significantly higher capital expenditure.
Owing to these factors, BoFA Securities has cut the UCP business multiple to 25 times from 30 times earlier.
To recall, the air conditioner manufacturing company’s fourth-quarter profit and revenue had missed the Street’s estimates.
Voltas had posted a 21.7 percent decline in its consolidated net profit to Rs 143.2 crore in the March quarter compared to Rs 183 crore in the same quarter last year.
The company’s total revenue grew 10.9 percent to Rs 2,956.8 crore during the period from Rs 2,667 crore in the corresponding quarter of the previous fiscal year.
Shares of Voltas are trading 0.9 percent lower at Rs 755.30. The stock is down 6 percent on a year-to-date basis.
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