Voltas

Voltas Ltd is another successful Tata company. And another investment opportunity. The stock now trades at around Rs. 50-55, with FV of Re.1. I recommend investors to enter into an SIP with this scrip, if they are cautious about the market fluctuations, or jump into it at one go if they are the orthodox type of long term investors.


What is spectacular about this company is its diversification, and what it does not share with other diversified companies of similar size is the debt position. With near zero debt, and good margins, Voltas’ profit is seen to grow regularly. Its core business revolves around Electro-mechanical projects & services, Engineering products and services, and Cooling products for comfort and commercial use. There is also the Textile Machinery Division, another profit making vertical. It gave a dividend of Rs. 1.35 /share last year, which may not decrease this year. As on the last year end, Voltas had orders worth Rs 8 billion, and with newer infrastructure projects coming in, like airports, hospitals – just to name a few, domestically, the air conditioning industry is estimated to grow by 25%. A detailed analysis is found in a wonderful PDF I found at the Voltas site. It reaffirms faith in this Tata firm. Another analysis by KR Choksey can be found here.

Excerpts from that report:
"We met the management of Voltas Ltd to understand the company’s strategy in the midst of the global economic slowdown. Key takeaways of the meeting are as follows:

Huge orders from the international market to provide strong revenue visibility
The total order backlog of the company stands at Rs 5,334 crore at the end of Q3FY09. In domestic business the order book stands at Rs 1,085 crore, a growth of 35% y-o-y and in international projects the order book stands at Rs 4,200 crore, a growth of 58% y-o-y. The domestic projects have timeline of 9-12 months and international projects have timeline of 24-30 months thereby providing good revenue visibility. The company has not witnessed any cancellation of orders as most of the projects are government or semi-government funded.

Diversified business model
Voltas has primarily three business lines where Electro Mechanical Projects & Service (EMPS) is the biggest business segment contributing 54% to the topline in FY08. In this segment Voltas serves both international as well as domestic clients. Going forward we expect the international projects to contribute ~60% to the segment revenue (45% in FY08). The company is now a fully integrated player from a mere HVAC (Heating, Ventilation and Air-conditioning) to MEP player in domestic market on acquiring Rohini Electrical (Mumbai based turnkey electrical and instrumentation projects contractor). Thus being well diversified would ensure revenue growth inspite of economic slowdown.

Competitive Advantage over others
Civil work constitutes 65% of the total construction cost of an In-built environment and 30-35% is MEP works. Voltas is a contractor of choice in MEP (Mechanical which includes HVAC, Electrical & Public health which includes plumbing) in the international market. Thus being a well established player and having strong track record of projects, Voltas has an edge over other players in domestic and international markets.
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Oh, and not to mention the recent announcement: a new alliance with M/s Thies of Germany, to offer enhanced value to customers, and support the growth of Indian textiles to the extent it matches its potential, by selling & servicing Thies products in India. Which means, it has to earn here, not lose any money! This is one company whose results I’ll be watching with confidence. Happy earnings!