Consumer durable

Voltas Ltd (VOLT IN): Unitary cooling products performance takes the heat off in 1QFY20.

Dated:- 9th August 2019

1QFY20 Results

·       Voltas reported a 24% YoY growth in consolidated revenues to Rs 26,540 mn. The revenue growth was driven by 47% YoY growth in the Unitary Cooling Products (UCP) (main revenue earning air conditioners) segment at Rs 17,488 mn. The Electro-Mechanical Projects (EMP) segment revenues declined by 5% YoY to Rs 8,241 mn and the Engineering Product Services (EPS) segment revenues declined by 4% YoY to Rs 740 mn.

·       The EBITDA margin declined by 35 bps YoY in 1QFY20 to 11% from 11.35% in 1QFY19.

·       Voltas reported EBIT margin expansion of ~60 bps YoY in UCP to 13.1%. The EBIT margins declined by ~220 bps YoY and ~230 bps YoY in EMP (8%) and EPS (32.4%) respectively.

·       Voltas reported a one-time expenditure of ~Rs 430 mn towards a Voluntary Retirement Benefits Scheme. The adjusted Consolidated PAT for 1QFY20 stood at Rs 1,941 mn v/s Rs 1,839 mn in 1QFY19. The profit share in the joint ventures including was Rs 213 mn in this quarter v/s Rs 193 mn in 4QFY19.

Management Commentary

·       Voltas continues to be the market leader in Room Air conditioner business with a market share of 24.1% for 1QFY20 (25.3% for June 2019) at Multi-Brand Outlets. The Air Conditioning industry grew by 36% YoY; Voltas grew higher than the industry YoY growth of ~47%. The inverter ACs accounted for more than 50% of the total revenues.

·       Commercial Refrigeration products and Air Coolers witnessed increased demand in the quarter. The air purifiers too received an encouraging response.

·       Management guided for UCP segment EBIT margins to remain in the range of 11-12% for FY20E.

·       In the EMP segment, the order book stood at Rs 47,560 mn, higher by ~3% YoY. The domestic order intake during 1QFY20 was Rs 4,490 mn v/s Rs 1,500 mn in 1QFY19. On the International front, Voltas continues to be cautious.

Consensus Estimate (Source: market screener website)

·       The closing price of VOLT was Rs 606/- as of 09-Aug-2019. It traded at 33x / 28 x / 24x the consensus EPS for 20E /21E /22E EPS of Rs 18.2 / 21.8 / 25.1 respectively.

· Consensus target price of Rs 630/- implies a PE of 25 x on FY22E EPS of Rs 25.1/-

Varun Beverages Ltd. 2QCY19 – Hot summer boosts beverage sales

Dated: 2nd August 2019

Varun Beverages Ltd. (VBL) reported consolidated revenue growth of 36.5% YoY to Rs 28,105 mn in 2QCY19.
• Consolidation of South and West regions from 1St May 2019, extended summers, penetration into existing geographies and good growth from international geographies led to volume growth of 44% YoY. Out of total volume sales of 192 mn cases, 172 mn were sold in India and 24 mn cases in international markets (Sri Lanka, Morocco and Zimbabwe).
• Organic volume growth in India was 18.5% whereas it was 34.2% in international geographies. 
• Realisation per case declined by ~5% due to change in product mix in India post-acquisition of South and West sub-territories, the introduction of packages water in Morocco and lower sales realisation in Zimbabwe to avoid forex fluctuations. 
• Gross Margins declined by 70 bps as sugar prices increased by ~3%. Management expects raw material prices to be stable for CY19.
• Net debt stood at Rs. 37,295 mn as on June 30, 2019, as against Rs. 26,715 mn as on 31st December 2018. Debt: Equity ratio stood at 1.49x as on 30th June 2019 and Debt: EBITDA ratio stood at 2.95x for the trailing twelve months EBITDA. 
Management Commentary
• Company will start selling beverages in Zimbabwe in local currency now instead of USD. Hence, revenues may move up in the coming quarters, but there is a possibility of providing for higher currency depreciation. 
• Production of Tropicana Juices at its Pathankot plant has commenced from 1st Jul’19.
• The company plans to enter the dairy products market under its own brands in the coming quarters. It will be required to pay 1% royalty to Pepsi for selling these dairy brands.
• Capex for CY19 and CY20 is expected to remain less than depreciation cost.
• Company is running at ~60% capacity utilisation levels after the newly acquired regions.
• EBITDAM are expected to be in the range of 21-22% for consolidated business.
• Management expects ROCE levels to improve by 200-250 bps every year.

Consensus Estimate (Source: market screener website)
The closing price of VBL was Rs 623/- as of 02-August-19. It traded at 43x/ 34x the consensus EPS for CY 20E / CY 21E EPS of Rs 14.6/18.6 respectively· Consensus target price of Rs 713/- implies a PE of 38x on CY21E EPS of Rs 18.6