Voltas Limited …..set to beat the heat

Business Model

Revenue Mix – FY08-12

Investment Arguments  EMPS Projects – Key growth driver  We expect the segment to grow by 16.5% and 18% in FY10E and FY11E respectively; at a CAGR of 31% (FY09-12E) Key Drivers Order book of Rs.50bn in the EMPS segment; having 18 months’ earnings visibility Exposure to the Middle East countries like Qatar, Abu Dhabi bodes well for the growth Comfortable oil price of US$60 per barrel for these countries; infra spend likely to increase Opportunities in the metro rail and airport projects and healthcare industry in India;

Unitary Cooling Segment  We expect the revenues to grow by 10% and 25% in FY10E and FY11E respectively Key Drivers  Launch of more cost effective and energy efficient AC models- 70% of the revenue of the segment  Volumes to increase by 25%  Lower penetration in the air conditioner industry in India  Voltas expects to increase market share to 20% by FY11 from 16.5% currently

Other key points  Engineering products and services- Sluggish growth expected in FY10; recovery from 2011  Acquisition of Rohini Electricals will give an opportunity to bid for electrical works for industries such as steel, metals and power

Income Statement FY2007FY2008FY2009AFY2010PFY2011PFY2012P Sales OPBDIT Depreciation PBT PAT Sales Growth %29%27%35%14%25%22% Op. Profit Growth %70%40%20%18%28%19% PAT Growth %174%3%21%10%31%23%

Ratios RATIOSFY2007FY2008FY2009PFY2010PFY2011PFY2012P Current Ratio Inventory turnover Debtors (sale days) Asset Turnover RONW(%)48%36%32%27% 26% ROCE(%)32%38%36%34% 31% OPM (%) NPM(%)

Recommendation- Buy Rs.122  Voltas trades at 15xFY10E and 11xFY11E; at 40% discount to the historical P/E of  We recommend Buy with a target price of Rs.165 based on EPS of Rs.11 in FY11E