Thursday, February 16, 2012

Voltas Sold by ICICI Prudential, on the Surge Despite Poor Q3


By Special Correspondent

Voltas  Ltd (BSE: 500575, NSE: VOLTAS) on Wednesday had  a significant sell of 19.87 lakh shares by ICICI Prudential Life Insurance Company Ltd, amounting to 0.60% of the total shares in the company. Offloads by ICICI Prudential Life Insurance occurred in NSE. 

Interestingly, there were no identifiable institutional buyers or promoters, as counterparties to the sale, which means that the massive sell by the DII was picked up by the wider market.

Voltas Ltd’s promoter, Tata Group, now has a 30.32% stake which is reasonable but relatively low by Indian standards. In the fiscal year-to-date, Tata Group entities had shed 0.29% stake in Voltas to reach the current stake.

Despite the significant sell by ICICI Prudential Life Insurance, Voltas scrip soared by 24.42% in NSE and by 25.07% in BSE, and was the top gainer in both the exchanges on Wednesday. ICICI Prudential’s sell was at Rs. 111.05, when the scrip was up by 17.40%, and was worth Rs. 22.06 crore.

Voltas Ltd is a leading India based player in the air-conditioning, refrigeration, heating, & ventilation projects space. As part of this expertise, it also manufacturers the Voltas brand of air-conditioners. Voltas Ltd is also a leading exporter in the field of electro-mechanical projects, supplier for mining & construction equipment, supplier of textile machinery, and a leading manufacturer of forklift trucks.

ICICI Prudential Life Insurance Company is a leading private sector life insurer in India, and as is the norm with many life insurers in India and abroad, is also a leading capital markets investor. ICICI Prudential Life Insurance is a joint venture between ICICI Bank, a leading private sector bank in India, and Prudential plc, - a leading international financial services group headquartered in UK. ICICI Bank is the majority partner in the JV with 74% stake. 

Some listed Indian companies where ICICI Prudential holds more than 5% stake include Kansai Nerolac Paints, Infotech Enterprises, Emco, IVRCL, Omax Autos, Advanta India, Kalpataru Power Transmission, NRB Bearings, Madhucon Projects, and Gujarat Industries Power Co. Apart from these, the insurance major holds 1-5% stake in several more companies.

Voltas Ltd, on the fundamental side, had been a slow but steady performer during the past five fiscals, with its consolidated revenue doubling and net profit growing by 74%. However, in the current fiscal year-to-date, Voltas has been experiencing serious hiccups. In Q1, revenues slipped both on a YoY and QoQ basis, while profit growth was maintained. In Q2, profits more than halved on a year-on-year basis, while revenue slipped sequentially and improved only marginally on a YoY basis.

This weak fundamental performance was reflected in Voltas Ltd’s market performance too, with the scrip  falling from a 52-Week High of Rs. 188.50 in BSE on 6th April 2011 to a 52-Week Low of Rs. 71.50 on 29th December, losing over 62% in value. Institutional Investors had shed 1.22% stake in the October-December quarter.

However, Voltas rebounded reasonably with the recent market recovery, aided also by the anticipation of a good set of third-quarter numbers.

But when the Q3 results came, there was huge disappointment, at least in the headline numbers. Voltas Ltd announced its Q3 results on Tuesday, and from net profit the company has swung to a whopping net loss of Rs. 115.41 crore. Thought it was due to an exceptional item of Rs. 276.63 crore loss booked due to time overruns in a Middle East project, the development is hard to digest, and it seems that it was enough of a sell cue for ICICI Prudential Life Insurance.

But the wider market seems to have taken a buy cue from the 6% YoY up-tick in ‘Profit Before Tax and Exceptional Items‘, which sent the scrip soaring on Wednesday. But how far this logic is sound remains to be seen as the margin for this profit-account too has gone down from 8.02% in Q3 of FY’11 to 7.65% now.

The only silver linings over here is that Voltas has managed to grow its revenue by 11% year-on-year, and that it has made a strong recovery in operating profit from the abysmal lows of Q2.

It remains to be seen how other large institutional investors in Voltas react to the significant sell by ICICI Prudential Group which is the second-largest institutional investor in the company. These decisions will decide the future of the Voltas scrip, as the stock has significant institutional participation of over 47.62%, dominated by DIIs with over 30% stake and FIIs with 17.50% stake. 

Major institutional investors in the scrip include LIC of India, Government Pension Fund Global, PCA India Equity Open, General Insurance Corporation of India, New India Assurance Company, Franklin Templeton Investment Funds, Birla Sun Life Insurance Company, and British Columbia Investment Management Corporation.

With a 4.58% combined stake, two ICICI Prudential funds were only behind LIC of India’s 8.72% stake in Voltas. It will be also interesting to watch whether ICICI Prudential itself will do follow-up sells in the coming days.

Voltas Ltd opened slightly up in NSE today, but soon lost momentum, and is now trading around 5% down.

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