Key takeaways of the call

Order book of Electro Mechanical Projects & Service (EMPS) as end of March 31, 2017 stood at Rs 4321, higher from Rs 3914 crore in the corresponding previous period. Of the total order book the domestic order book was Rs 2588 crore and international order book was Rs 1763 crore. Order intake in FY17 from domestic market was Rs 1695 crore and from international market was Rs 1100 crore.

Revenues of EMPS business in FY17 was hit by slower than expected progress on certain projects. Lower turnover of Engineering Products & Services (EPS) is reflective of the difficult environment for mining and textile industry in India coupled with other operational challenges. Voltas, despite severe competition, continues to be the market leader in the unitary cooling products business across all regions of India. The company has maintained its leadership position in room air-conditioners at multi brand outlets with improved market share of 21.4% for the year 2016-17.

MEPS - Had lot of legacy orders in MEA which is not closed due to various reasons ranging from claims etc., bulk of that has got commercially closed now. Current order book is of new orders with better quality. As we executing this new orders the margins will be better than. Expects MEPS margin to improve to 6% in next year and in-fact the MEPS division has done a margin of 5.7% in Q4FY17 even though it is not a representative for a year. The company continues to pick up orders that support its strategy of sustainable profitable growth for this business.

Progress on some of the currently ongoing domestic projects have been slower than anticipated, although a pick-up in pace of activity is expected. See lot more of positive energy in domestic projects business. Current investment to the tune of 68% comes from government in case of infra. But this scenario has to change going forward.

In Mining and Construction Equipment, Mozambique operations continue to drive the performance. On the domestic front, FY17 was challenging with slowdown in mining related activity. However, a gradual recovery appears to be on the horizon and the Company has re-prioritized the India business. The Government impetus on road development has been encouraging and we are beginning to see material orders especially in the Crushing & Screening equipment sector.

The Company has entered into a Joint Venture arrangement with a leading European home appliance company, Arcelik A.S. to form an equal partnership for entering the wider consumer durables market in India. The proposed entity will launch refrigerators, washing machines, microwaves and other white goods / domestic appliances in a phased manner. This provides the Company an opportunity to expand the established ‘Voltas' brand and tap into India's growing consumer durables market. The JV will set up manufacturing facilities in the country, leveraging the technological excellence and global capabilities of our Joint Venture partner.

Both the partners jointly will bring in equity of Rs 680 crore as of now. If the business requires more additional investment it will be considered. The JV Company wants to be in the market before the Deepawali season.

While Voltas brings in local knowledge, strong sales & distribution network and strong brand presence in India, the JV partner brings technology, R&D, manufacturing capability, global brand building expertise, European brand and global sourcing expertise.

The JV expects 10% market share in reasonable time.

GST rate for AC was fixed at 28%. Currently accounting for imports etc. the tax works out to 25-26% and that will goes up to 30% in case of AC. So upward adjustment in price is expected once GST is rolled out, but how the competition behaves could not be predicted as of now.

About 14% of the Room AC market is inverter AC.

UCP – Industry growth for Room AC was good with hot weather in current summer season. Industry grew by 31% in Q4FY17 and the company grew by 33%.

In the project space, the company is thoughtfully focus on building a stronger order book, in a risk mitigated way.