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Robust sequential growth: Voltas’ revenue from operations came in at Rs 2,957 Cr, up by 10.9% YoY and 47.4% QoQ. The growth in revenue was driven by robust demand scenario on the back of record heat level in earlier part of the quarter while
onset of summer season also aided the growth. Amongst segments, its Unitary Cooling Products segment grew by 12.7% YoY and 68.5% QoQ followed by Electro Mechanical Products And Services (EMPS) which was up by 7.8% YoY and 15% QoQ
while its Engineering Products and Services (EPS) reported a growth of 15.3% YoY and 20.7% QoQ.

Elevated raw material cost impacted the gross margins: The cost of raw materials remained elevated during the quarter which was up by 120bps YoY and 246bps QoQ, on the flipside the mixed trend of employee cost and other expenses aided
sequential margin improvement by 357bps to 7.4% for Q4FY23 however it was still lower by 241bps YoY. Going ahead, management believes the margins could be in high single digits during the peak seasons while the margins could drift lower during off season due to volatility in commodity prices and lack of price hikes.

Highly competitive environment in RAC segment: The competitive environment in the AC segment has been increasing over the past few years with new players entering the market as a result the company has been losing market share consistently from 25.1% in FY21 to 21.9% in FY23. Going ahead, the market share could remain under pressure due to discounts offered by the competitors to penetrate new markets. On the flipside, the inverter RAC category market share rose to 75% inFY23 from 63% in FY22 which was led by competitive pricing, portfolio expansion especially in Window AC category.

Outlook & Valuations: Voltas remains the leading player in the RAC segment with a market share of 21.9%, its profitability from is Electro Mechanical Products And Services would witness slow recovery. Correction in raw material prices, softening of inflation, aggressive pricing strategy as well as government impetus on infrastructure and PLI schemes could aid in revenue and margin expansion for the ncompany. Voltas witnessed challenging operating environment in FY23 and is expected to witness some pressure in the near term factoring the impact we have revised our forward estimates and expect its Revenue to grow at a CAGR of 15.5% over FY23-25E while profitability is expected to see strong improvement post 2 quarter of losses. Factoring this, we recommend Buy rating with a revised target price of Rs 1,010.

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