Tata Group Stock To Buy From The Consumer Durables Space That Can Rally

Broking firm Prabhudas Lilladher has recommended buying the stock of Tata Group company, Voltas in its latest report on the consumer durables space. Praveen Sahay - Research Analyst, Prabhudas Lilladher Pvt Ltd sees a good upside in the stock from current levels.

Buy Voltas stock with a target price of Rs 1030

Prabhudas Lilladher has resumed coverage on Voltas Ltd with 'BUY' rating at SOTP based target price of Rs 1030 (valuing UCP business at 45x FY25 EPS). "We are positive on the company for long term given 1) leadership position in high potential RAC segment 2) balance sheet comfort (Rs8.6bn net cash H1FY23) and 3) better traction in order flow from domestic as well as international side in EMPS segment. However, near term challenges related to demand and margins expected to continue due to price competition, high cost inventory & demand slowdown in UCP segment and slowdown in order flow from international side. We estimate a 20.9% EPS CAGR over FY22-25E. Resuming coverage with a 'BUY' rating," the brokerage has said.

Weak numbers likely

According to Prabhudas Lilladher, Voltas is estimated to report weak numbers. "We expect the company to register a sales growth of 2.1% YoY and EBITDA/PAT decline of 26.1%/ 15.6% YoY in 3QFY23. "UCP segment expected to report 1.9% YoY growth due to subdued primary demand from channel partners in a seasonally weak quarter for RAC. The festive demand was not so great during four weeks of Diwali and 3Q is generally winter (which is seasonally weak quarter for RAC," the brokerage has said.

Voltas had reported year to date market share of 22.8% in August 2022 (vs 25.9% year to date Q2FY22 and 24.1% year to date Q1FY23) and continues to maintain the same. In terms of market share, this quarter is insignificant because it was seasonally weak.

EMPS segment to grow 5%

According o Prabudas Lilladher, the EMPS segment expected to grow 5% YoY and maintained sequential operating margin of 2.5% in 3QFY23. "We believe, project business should recover from 3QFY23 with respect to growth and margins, as restructuring of projects division is completed. The management expects good order flow from international geography, better than last year in 2HFY23," the brokerage has said.

Near term slowdown likely in consumer durables space

Prabhudas Lilladher has said that it is resuming coverage on consumer durables sector with optimistic view for long term, while near term slowdown prevails. In 3QFY23 companies are expected to register sales growth of 5.2% YoY with EBITDA/PAT decline of 4.0%/ 6.8% YoY. "The sector has huge opportunity given low penetration and consolidation in the market, which we believe, will increase long-term demand. However, demand softness was witnessed in a seasonally weak quarter, due to winters affecting both RAC and fan sales along with no demand uptick in festive season. Rural demand has been poor, due to inflationary environment and outlook remains weak," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Prabhudas Lilladher on the consumer durables space. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.