Voltas Ltd: Breaks Out

CMP: Rs.112.05

Voltas Ltd, a Tata Group enterprise, is one of the world's premier engineering solutions providers and project specialists. Founded in India in 1954, Voltas Limited offers engineering solutions for a wide spectrum of industries in areas such as heating, ventilation and air conditioning, refrigeration, electro-mechanical projects, textile machinery, mining and construction equipment, materials handling equipment, water management & treatment, cold chain solutions, building management systems, and indoor air quality.  Voltas Ltd,  is India's largest exporter in the field of electro-mechanical projects. Voltas Ltd manufactures one of India's leading air conditioner brands. Voltas Ltd leads in sourcing, installing and servicing state-of-the-art textile machinery in India. Voltas Ltd is also a leader in forklift trucks, manufactured to in-house design .

The Company's strengths lie principally in: 

(i) management and execution of electro-mechanical projects, including air conditioning and refrigeration;

(ii) the design and manufacture of industrial equipment, cooling appliances and materials handling equipment;

(ii) sourcing, installation and servicing of diverse technology-based systems serving Indian industry through representation of global technology leaders. 

The company has an enviable order book of around Rs.3000 Cr. The company continues to outperform in the following businesses: Textile Machinery, Materials Handling,  Mining and Construction  projects, etc. In the Mining  business, the focus has been more on maintenance and operation  contracts and stock and sale of spares and accessories. A significant  achievement of the business during the year, FY11 was its entry in Mozambique  for providing the Maintenance and Operations Services. 
In FY11, exceptionally severe summer and the generally upbeat consumer  sentiment in the early part of the year helped in significant  improvement in volumes of Airconditioners, where the growth in  Company''s volumes continued to be higher than the industry, resulting  in an increase in the market share, from 15% to around 18%. With the summer in the offing, the company's products will be in demand in the near future. In FY11, some  large projects like Burj Khalifa were completed. The  liquidity position of the Company continues to be satisfactory with liquid investments of Rs.225 crores as of 31st March, 2011. The Company also ensured that surplus funds are used to reduce borrowings of its  subsidiary companies so that the overall cost of funds is minimized. 

What is interesting is that higher interest  rates in India, is benefiting the company in terms of interest earnings on surplus funds.  Management will focus its attention in the future to bring down the  levels of inventories and receivables and thereby release cash in the system.  Investment of surplus funds, is being regularly monitored by  the Investment Committee of the Board, so as to maximize the returns  while ensuring low risk.

The Company has taken various IT initiatives and SAP modules implemented for the international Electro- mechanical business have  started showing benefits in terms of better budgetary control. The Primavera project management system has yielded better visibility of project schedules and variances. Customer Relationship Management (CRM) software for the domestic  Electro-mechanical business helped in better tracking of service calls  and service SLAs for maintenance projects. Project dashboards prepared  in SAP Business Objects yielded better control on project costs and  working capital of domestic Electro-mechanical as well as Mining &  Construction Equipment businesses.

Any reduction, in tension in the Middle East, where most of the  Company's subsidiaries/joint ventures (JV) operate, will help improve the company's financials.

If we look at the shareholding pattern of the company we would see that  Tata Sons Ltd and Tata Investment Corporation Ltd respectively holds, 26.64% and 2.86% of the shares of the company. Also, the fact that, Government Pension Fund Golbal holds 3.73% of the shares of the company indicate, the level of safety of investing in the shares of the company for the longer term horizon. Moreover, many insurance companies are holding shares of the company including LICI,  ICICI Prudential Life Insurance Ltd, LIC of India Market Plus, General Insurance Corporation of India Ltd,  New India Assurance Company Ltd and Birla Sun Life Insurance Company Ltd. This speaks lot about the company's fundamentals.