Voltas to 'underperform' due to cost overruns: Bank of America-Merrill Lynch

Bank of America-Merrill Lynch has maintained the 'Underperform' rating on Voltas.

Even though FY13 is likely to be better than the dismal FY12, uncertainty about the business getting stronger beyond FY13 will likely de-rate the stock from PE of 12.5x FY13e.

Loss of Rs 260 crore reported in FY12 towards cost overrun in the Rs 1,000-crore Sidra Medical project in Qatar is unlikely to be reversed.

Other contractors working on the project, including OHL and Kentz, have not shown any cost overrun.

BoA-ML reckons that the cost overrun could be on account of the project being a first of its kind for Voltas. Voltas is likely to be affected by the ongoing slowdown in commercial real estate construction.

Also, rising interest rates are likely to hurt consumer demand for room ACs. Voltas is expanding its business in industrial construction in India and commercial construction in Saudi Arabia.

However, so far, the ramp-up is quite slow.