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Voltas Ltd>
  • CMP : 837.9 Chg : 5.35 (0.64%)
  • Target : 870.0 (12.11%)
  • Target Period : 12-18 Month

28 Apr 2023

On track for recovery…

About The Stock

Started in 1954, Voltas Ltd is part of the Tata Group and the largest air conditioning company in India. The company operates mainly in three business segments, viz. unitary cooling products (UCP), electro mechanical projects and services (EMPS) and engineering products & services (EPS) with topline contribution of 68%, 25%, 7%, respectively, in FY23. It has one of the largest distribution networks in India with more than 24,000 touch points in FY22. It was a leader in the room ACs segment with ~22% market share in FY23, whereas, in air coolers, it held the second position, with 12% market share (inFY22).

Q4FY23 Results

Margin recovery was led by the UCP segment.

  • Revenue increased ~11% YoY to ~₹ 2957 crore on a favourable base. UCP segment saw a recovery in demand thereby leading to increase in revenue by ~13% YoY to ₹ 2049 crore
  • EBITDA margin declined 241 bps YoY (up 357 bps QoQ) to 7.4%. QoQ recovery in margin was led by improved profitability in UCP segment. EBIT margin of UCP remained flat YoY (up 268 bps QoQ) to 10%
  • Voltas reported a net profit of ₹ 143.2 crore, down ~21% YoY due to losses in the EMPS segment
What should Investors do?

Voltas’ share price has grown by ~1.3x over the past five years (from ~₹ 614 in April 2018 to ~₹ 776 levels in April 2023).

  • We maintain our HOLD rating on the stock
Target Price and Valuation

We value Voltas at ₹ 870 using SOTP i.e. 7x P/E for EMPS, 8x P/E for EPS and 44x P/E for UCP on FY25E EPS for each

Key Triggers for future price performance
  • Structural demand owing to changing consumer lifestyle (work from home) post pandemic is likely to drive near term demand for RAC
  • On a long term basis, we believe rising income and aspirations of middle class household in India will be a key demand driver for cooling products. AC’s penetration at 7% is lowest among white goods segment
  • Higher demand for energy efficient products would help drive premiumisation in the air conditioner industry
Alternate Stock Idea

We like Havells in our coverage.

  • Havells has a strong presence in the organised product category across its segments. Havells’ market share ranges between 6% and 20% across these segments. It has a robust balance sheet with five-year average RoE & RoCE of 19% & 24%, respectively
  • BUY with a target price of ₹ 1420

Key Financial Summary

(| Crore) FY20 FY21 FY22 FY23 5 Year CAGR (18-23) FY24E FY25E 2 Year CAGR (23-25E)
Net Sales 7,658.1 7,555.8 7,934.5 9,498.8 8.4 10,814.3 12,238.7 13.5
EBITDA 686.7 641.4 681.6 572.4 -2.2 881.8 1,104.4 38.9
EBITDA Margin (%) 9.0 8.5 8.6 6.0 - 8.2 9.0 -
Net Profit 521.0 528.8 506.0 136.2 -22.0 660.4 844.1 148.9
EPS (|) 15.8 16.0 15.3 4.1 - 20.0 25.5 -
P/E(x) 49.3 48.5 50.7 188.4 - 38.9 30.4 -
Price/Book (x) 6.0 5.1 4.7 4.7 - 5.2 4.6 -
RoE (%) 13.0 10.6 9.2 4.5 - 13.3 15.1 -
RoCE(%) 19.5 15.0 14.0 11.4 - 17.6 19.8 -
- - - - - - - - -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q4FY23 Results: UCP segment drives Q4 performance

  • Voltas reported a topline growth of ~11% YoY to ~| 2957 led by revenue growth across segments. UCP segment reported revenue growth of ~13% YoY to | 2049 crore led by strong demand of cooling products at the onset of summer season. The YTD volume market share of the company was at 21.9% as of February 2023
  • The EMPS segment revenue grew ~8% YoY to | 746 crore led by faster execution of domestic orders
  • Engineering products & services (EPS) segment revenue grew 15.3% YoY to | 142 crore led by launch of new products along with OEM and better demand for crushing and screening equipment
  • On the margin front, the gross margin dipped 120 bps YoY amid volatile commodity costs and delay in price hikes. However, EBITDA margin recovered to 7.4% (up 357 bps QoQ) supported by better operating leverage
  • Net profit declined 21.6% YoY to | 143.2 crore mainly due to losses in EMPS segment

Q4FY23 Earnings Conference Call highlights:

Unitary cooling products 

  • Voltas witnessed improved demand in the segment at the onset of summer in March initially, although, unseasonal rain in latter part of March deferred the demand for cooling products. However, the weather forecast for strong summer and rising temperatures in April 2023 has increased footfall for UCP products across India
  • The split inverter category of air-conditioner is witnessing high demand as a result of consumers’ desire to have products with advanced features and its long term advantage of saving in energy cost
  • The expanded product portfolio of Voltas with in-house designed SKUs and competitive pricing has resulted in increased share of the inverter category to 75% from 63% in FY23 and its contribution is in excess of 80% in Q4FY23
  • The company has expanded its inverter portfolio in the window category as well at strategic price points during the current summer season as a result of success of inverter split category
  • Voltas continues to remain the market leader in the multi brand outlet (MBO) for the overall air-conditioner category with YTD February market share of 21.9%. The market share for February was at 18.2%
  • Going forward, the management aims to strengthen the company’s market share in air conditioner category along with maintaining profitability
  • Within the commercial refrigeration category, higher demand was witnessed in water coolers, water dispensers and Visi coolers. The category is expecting to grow further considering a rapid urbanisation, change in dietary preferences, demand for the frozen foods and market expansion by the OEM of ice-creams, chocolates and beverages. Voltas has expanded its product SKUs to cater to the demand for each segment
  • In Q4FY23, the company made inroads for medical refrigeration (MR) products in a small way and will enhance its focus to take advantage of the increasing demand for MR products
  • Expansion of commercial establishments across various sectors and a growing demand for light commercial & ductable products resulted in growth for the commercial air-conditioning category with improved margin in Q4FY23
  • The company has not done any price revisions in April 2023
  • The channel inventory in the segment has started clearing up from April 2023 onwards
  • The company announced termination of its joint venture with Highly International for compressors due to non-receipt of regulatory approvals

Electro-mechanical projects and services

  • Domestic projects business witnessed an order booking of | 1910 in Q4FY23 crore compared to | 848 crore in Q4FY22  comprising single largest order of | 1200 crore in electrical
  • As per the management, the planned and timely execution of projects resulted in achieving threshold for recognising margin as per internal policy and thereby contributing to results. In addition, it is monitoring of working capital and focus on collection improved return on capital for the domestic project business
  • International project business continued to witness a delay in certification and thereby collection of the outstanding amounts resulting in provisions
  • The carry forward order book for domestic projects was at | 5799 crore containing orders across water, HVAC, rural electrification and urban infra activities. The international order book as on March 31, 2023 was at | 2356 crore largely in UAE and Saudi Arabia region. Total carry forward order book of the segment was at | 8154 crore vis-à-vis | 5360 crore of outstanding orders as at March 31, 2022
  • The management guided for EBIT margin in the range of  5% in FY24E


Engineering Products and Services 

  • In Q4, better average billing hour rate and customer focused approach has supported the growth in Mozambique territory
  • The removal of export levy on iron-ore and increased focus on infrastructure sustained the demand for crushing and screening equipment.
  • Textile sector continued to witness challenging environment on account of lower than usual utilisation of spinning mills due to lower export order and high prices of key raw materials; cotton and yarn
  • According to the management, despite challenges, the vertical’s performance was led by strong order book and introduction of various innovative products along with OEM. The focus on after sale service has also supported the overall revenue growth

Voltas Beko

  • Voltas Beko brand reported volume growth of 26% during the quarter. Cumulatively, more than 3.3 million units were sold since its launch
  • According to the management, the expansion of distribution reach, focus on more energy efficient star rated products with wider range of product SKUs and in-house manufacturing of the high value added products is supporting the overall growth
  • Leveraging the strength of joint venture partner both in manufacturing and distribution, Voltas Beko has been able to achieve market share of 5.3 %, increase from 4.4% in March with a market share of 8.9% in the sub-segment of washing machine category of semi-automatic washing machine
  • The company aims to have more value added products to be manufactured from own factory and thereby control and strengthen the supply chain to improve overall margin



I/We, Hitesh Taunk, MBA (Finance), Sanjay Manyal, MBA (Finance) and Ashwi Bhansali, MBA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. It is also confirmed that above mentioned Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months and do not serve as an officer, director or employee of the companies mentioned in the report.

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