Voltas Ltd

Voltas Limited offers engineering solutions for a wide spectrum of industries in areas such as heating, ventilation and air conditioning, refrigeration, electromechanical projects, textile machinery, machine tools, mining and construction equipment, materials handling, water management, building management systems, indoor air quality and chemicals. The Company's strengths lie principally in the design and manufacture of industrial equipment, management and execution of air conditioning and public works projects, sourcing.

Key Points.

Engineering services and consumer durables segments have slowed down but visibility remains strong in the major revenue segment of Central Airconditioning projects.
Inventory liquidation in consumer durables in progress likely to reduce capital employed.

Order book growth has remained fairly stable on a sequential basis. Order backlog is up 53% yoy to Rs 53 bn providing 27 months of revenue visibility for the projects segment.

Debt free and cash on hand is Rs 3.0 bn (27% of market cap) and Return on Capital Employed is at 49.4%.

Valuation and Outlook.

Voltas is currently trading at 5.0x and 4.6x FY09 and FY10 earnings respectively. At the current price, dividend yield works out to 4.2% assuming the company maintains the same dividend rate. The company has increased dividend rate in previous four years and may increase in the current fiscal as well. This will further make the dividend yield attractive. Investors can accumulate the stock on declines for a price target of Rs 60.