VOLTAS

King of cooling solutions

The six decade-old, Mumbai-headquartered Voltas Ltd, belonging to the illustrious industrial house of the Tatas, is an Indian multinational company engaged in the manufacture of home appliances and consumer electronics. The company designs, develops, manufactures and markets products including air conditioners, air coolers, refrigerators, washing machines, dishwashers, microwaves, air purifiers and water dispensers. Interestingly, the company also enjoys a strong position in the projects business both at home and abroad.

Voltas has joined hands with Beko, an international home appliances brand of the Arcelik group owned by KOC Holding – a Fortune Global 500 company in Europe. The company’s collaboration with Beco’s state-of-the-art R&D patents and best-in-class technology will ensure that Voltas-Beco is a brand that designs and services with a consumer-first approach.

The company is doing very well in its financial performance with sales CAGR during the last five years being 8 per cent and profit growing at a CAGR of 16 per cent. What is more, its prospects going ahead are all the more promising. Consider:

• Voltas is an undisputed market leader in a highly competitive residential air-conditioner market dominated by domestic as well as global players. The company offers a comprehensive range of cooling solutions, including not only air-conditioners but also air coolers, water coolers, water dispensers and commercial refrigeration products. What is more, the company enjoys a dominant position in this market for the last seven years and is likely to maintain its lead for several years as the number two is still far away from it.

TURKISH TIE-UP

• The company has entered the booming Rs 76,400- crore white goods market through a joint venture with Arcelik, a leading Turkish company, whose appliances are being sold under the brand name Voltas-Beko and include refrigerators, washing machines, microwave ovens and dish washers. Today, the consumer durables market is highly underpenetrated in the country and Voltas is wellpositioned to capture the opportunity with more than 19,000 consumer touch points and 130+ EBOs.
• esides a strong market presence, Voltas has a vast distribution network. During the last ten years, its distribution network has grown 15 times to more than 19,000 consumer touch points across the length and breadth of the country. The company is focusing on expanding its footprint through more exclusive brand outlets across tier 2 and 3 cities. The Voltas and Voltas-Beko brands are now available at 130+ EBOs in the country
• Besides cooling solutions and home appliances, Voltas is also engaged in providing engineering solutions. As a project specialist, it enjoys a strong presence in India, the Middle East, South East Asia and Africa. Recognised throughout the world for its engineering prowess, the company’s projects business provides MEP (mechanical, electrical and plumbing) and HVAC (heat, ventilation and air-conditioning) solutions and has successfully implemented several landmark projects in India and overseas. The company also works closely with the Government of India for various rural electrification and water management projects. The engineering products and services business represents leading equipment manufacturers in textile machinery and mining & construction equipment for sale, distribution and after-sales service.

STRONG BUFFER

• The company is steadily growing on the financial performance front. During the last 12 years, its consolidated

PERFORMANCE INDICATORS (Rs. in crore)

PORWAL AUTO COMPONENTS

Slowly coming out of the red

With its registered office in Indore and factory in Pithampur (both in Madhya Pradesh), Porwal Auto Components was incorporated in 1992 as an ancillary unit of Eicher Motors (now VE Commercial Vehicles Ltd, a Volvo group and Eicher Motors joint venture). The company has established itself as a trusted supplier of quality castings and gained recognition from its customers for outstanding contribution to the parts development supply chain management.

The company’s quality management system is ISO 9001-2008 and ISOI-IS 16949-2009 certified by TIJV NORD. It also has RDSO certification and is approved by Integral Coach Factory to supply steel, SG grey iron, castings and components for Indian Railway. The company plans to get certifications in environment, health and safety via ISO 14001-2004 and OHSAS 18001-2007.

Today, Porwal operates in the B2C and B2B space in the auto market segment and manufactures different parts of axles, engines and chassis. However, even after three decades of impressive performance, the company has put up a dismal show on the financial performance front. Sales amounted to just Rs 141 crore with operating profit of just Rs 8 crore in fiscal year 2023, while at the net level there was a loss of Rs 1 crore.

POLICY PUSH

Now, changes are coming which can have the company stage a turnaround. It is likely that within the next three years, the company will be able to cheer its shareholders who have been denied a return on their investment all these years. Consider:

• Of late, the government has evolved certain policies which are highly beneficial to auto component companies like Porwal. Four of these are worth taking note of: (a) The production-linked incentive (PLI) scheme for components, green vehicles and advanced auto chemistry cells, and indirectly for semi-conductors and electronics. The Indian automotive OEM industry, which is already strong globally, aspires to triple vehicle sales by 2026 across segments. These could be definitive tailwinds for the Indian automotive components industry, whose target for 2026 is to double the contribution to manufacturing GDP with a four-fold growth in size and a six-fold growth in exports; (b) Exports present a significant opportunity for the company to tap into the growing global demand for automotive components. Following the government policies of export promotion and import restrictions, the company has pursued export opportunities aggressively and is enhancing import substitution. (c) The Union budget 2023 has rolled out several measures that will benefit the auto components industry. Some of them include: (1) Enhanced allocation of capex; (2) EV battery policy; (3) Support for MSMEs, and (4) Emphasis on the rural economy.
• The global automotive market is growing at a fast pace and is expected to witness significant growth in the coming years, creating opportunities for auto components manufacturers to expand their customer base and increase s

‘FUEL’ FUTURE

• There has been an increasing demand for fuel-efficient vehicles not only in India but throughout the world. Auto components manufacturers can capitalize on this trend by developing and supplying components that improve fuel efficiency. Whatever may be the reason, Porwal has not been able to take advantage of all these opportunities and its net profit for the last 4-5 years has been negligible or even negative. However, for the new and Rs 49 crore the next year (2021). In fiscal 2022, it earned a net profit of only Rs 6 crore. But in fiscal 2022, the situation underwent a change on account of government intervention. Prices of ammonium nitrate started cooling down and PEL also received a licence for storage of ammonium nitrate (solid) and ammonium nitrate (melt), at Mushyala village of Godavarikhani, Telangana. Apart from this, prices of other raw materials like steel, aluminium and magnesium also started coming down. Declining prices of raw materials have helped the company improve margins and at the same time its share of the defence business is on the rise. Little wonder, the management has guided that the company is aiming to achieve a 20 per cent margin this financial year.
• Prospects for explosives have brightened of late. The Russian war on Ukraine has changed the dynamics of the global energy business. Almost every country was talking of moving away from fossil fuels like coal and shifting to renewable energy. But with the Russian move to curtail the gap in supply forced the European Union to rethink about going for renewal energy and consider generating coal-based power. China has also decided to increase its reliance on low-cost coal to help boost its economy. These developments have increased the demand for coal and consequently led to a rise in the demand for explosives. This trend is visible in India and prices of coal have shot up. Demand for explosives is also on the increase. This is a good development for companies like PEL.

BUOYANT ORDERS

• There have been tremendous defence opportunities in India such as the import embargo on defence items under the ‘Atmanirbhar Bharat’ programme, promotion of defence products for export purposes, strategic partnerships and generous budget outlays. The government has started showering orders on the private sector. Premier is well placed to take advantage of this new policy stance. On July 10, 2023, the Ministry of Defence placed an order of Rs 552.26 crore on Premier to supply flares and chaffs. The order is to be completed within 12 months. The company’s order book as on August 31, 2023 stands at Rs 750 crore. This ensures revenue visibility for three years and nine months (on the basis of the FY2023 turnover). With a thickening order book, the share price of PEL has moved up from Rs 430 in July 2023 to cross the Rs 1,000 mark. The scrip has still some steam left. Discerning investors will do well to accumulate at every decline.
• revenues have expanded from Rs 5,186 crore in fiscal 2012 to Rs 9,499 crore in fiscal 2023, with operating profit inching up from Rs 165 crore to Rs 454 crore. However, the profit at net level has dropped from Rs 162 crore to Rs 136 crore. The company’s financial position is very strong, with reserves at the end of March 2022 standing at Rs 5419.558 crore – around 165 times its equity capital of Rs 33 crore.
• Some analysts have expressed concern about the huge debt of Rs 393 crore that the company’s balance sheet carries. At the same time, it has liabilities of Rs 3,480 crore falling due within a year and liabilities of Rs 155 crore due beyond that. However, offsetting these obligations, it has cash of Rs 1,230 crore as well as receivables valued at Rs 2,600 crore due within 12 months. This means the company actually has Rs 194 crore more liquid assets than total liabilities.
• Realising the future growth potential of the company, Life Insurance Corporation, the giant investor in the stock market, has raised its stake in Voltas to 2,93,95,224 equity shares, which works out to 8.884 per cent of the company’s equity capital. In short, Voltas is a good investment bet. It has a diversified revenue stream with a strong presence in unitary products, engineering projects and engineering products. It also has a portfolio of rural electrification and water treatment plants across the government as well as private sector. This is a stock worth including by every invester.

fiscal year 2024, the company has started on an encouraging note by earning an operating profit of Rs 3.35 crore against a small profit of Rs 22 lakh in the March 23 quarter, while at the net level it has earned a profit of Rs 1.20 crore in striking contrast to a loss of Rs 1.09 crore in the previous quarter. This is a happy sign for the company and its shareholders. If the profitability trend seen in Q1 FY2024 continues, Porwal should stage a remarkable turnaround within a couple of years. The company’s shares (FV Rs 10) are quoted around Rs 37. We feel they can cross the Rs 50 mark within a year or so.

PERFORMANCE INDICATORS (Rs. in crore)