Analysts' Pick: Voltas
Citigroup rates Voltas as ‘sell/medium risk’ with a target price of Rs 121.
By ET Bureau |
Voltas
Research: Citigroup
Rating: Sell
CMP: RS 132
Citigroup rates Voltas as ���sell/medium risk��� with a target price of Rs 121. Voltas, a Tata group company, is the market leader in India���s heating, ventilation and air-conditioning (HVAC) segment, having 28% market share in electromechanical projects.
But domestic demand is decelerating across all its divisions. Citigroup sees increased risk to the company���s earnings if the market environment worsens. It expects overall margins to be in the range of 7.5-8 .3% over the next three years. Voltas��� target price is set at 15x September ���09E forward EPS and is supported by forecasts of 27% earnings CAGR for FY07-10 E and 29-33 % return on equity (RoE). At 15x September ���09E, Voltas will trade at a discount to power equipment stocks like Bhel and engineering & construction companies such as L&T .
The 15x September 09E multiple is lower than the average one-year forward P/E of 22x over the past three years ��� reflecting reduced growth outlook. Key downside risks include: international projects risks, termination of principalagent relationships, increasing competition in domestic and international markets, manpower shortages and material prices. Key upside risks include : stronger-than-expected performance driven by the international business, and turnaround of the domestic operating environment.
Rating: Sell
CMP: RS 132
Citigroup rates Voltas as ���sell/medium risk��� with a target price of Rs 121. Voltas, a Tata group company, is the market leader in India���s heating, ventilation and air-conditioning (HVAC) segment, having 28% market share in electromechanical projects.
But domestic demand is decelerating across all its divisions. Citigroup sees increased risk to the company���s earnings if the market environment worsens. It expects overall margins to be in the range of 7.5-8 .3% over the next three years. Voltas��� target price is set at 15x September ���09E forward EPS and is supported by forecasts of 27% earnings CAGR for FY07-10 E and 29-33 % return on equity (RoE). At 15x September ���09E, Voltas will trade at a discount to power equipment stocks like Bhel and engineering & construction companies such as L&T .
The 15x September 09E multiple is lower than the average one-year forward P/E of 22x over the past three years ��� reflecting reduced growth outlook. Key downside risks include: international projects risks, termination of principalagent relationships, increasing competition in domestic and international markets, manpower shortages and material prices. Key upside risks include : stronger-than-expected performance driven by the international business, and turnaround of the domestic operating environment.
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