IGI Logo

Subdued quarter; impacted by aggressive competition and unseasonal rains

Subdued revenue growth: It was a subdued quarter for Voltas wherein revenue grew by 21.4% YoY/13.6% QoQ to Rs 3,360 Cr, largely impacted by aggressive pricing strategy implemented by peers while unseasonal rains in the northern parts of the country which is its key market impacted the overall growth. Amongst segments, Unitary Cooling Products (UCP) contributed 74.8% to the overall topline at Rs 2,514 Cr, up by 15.2% YoY/22.7% QoQ following by Electro Mechanical Product and Services (EMPS) at 20.2% of overall topline and revenue of Rs 679 Cr, up by 46.1% YoY while it declined by 8.9% sequentially. Its Engineering Product and Services segment revenue came in at Rs 142 Cr, up by 14.5% YoY and remained flat sequentially.

Incentivizing of dealerships impact margins: Gross profit for the quarter came in at Rs 709 Cr, up by 24.8% YoY/11.1% QoQ and a margin of 21.1% which expanded by 57bps YoY while it contracted by 48bps QoQ as the prices of key raw materials remained in a stable range. EBITDA stood at Rs 185 Cr, up by 4.7% YoY while it declined by 15% sequentially and a margin of 5.5% which contracted by 88bps YoY/186bps QoQ. The contraction is margins were attributable to incentivizing of dealerships to promote the sales of the products while strong competition from peers hampered the pricing actions on the products.

Future outlook: The RAC industry has seen many players entering the market which has increased the competition which has seen Voltas to lose its market share from 25.1% in FY21 to 20.6% as of Q1FY24. The new players have adopted the strategy of aggressive pricing to increase their brand presence in the new markets. Despite the competitive pressure and losing market share it still remains No.1 in the RAC segment. Going ahead, the real estate and overall infrastructure activities are anticipated to drive the volumes for the company which will aid in revenue growth.

Key concall highlights: (1) Volumes growth for the quarter was at 16% YoY. (2) Market share in the Room AC segment stood at 20.6%, declining by ~130 QoQ/350bps YoY. (3) It exited the Q1FY24 with a healthy order of book of Rs 755 Cr. (4) Witnessed 40% YoY growth in the VoltBeko, with good demand across category. (5) It had a market share of 3.5% in the refrigerator category

Outlook & Valuations: Voltas remains a leading player in the RAC segment with a market share of 20.6% while it also has presence in consumer white goods like refrigerators in which it has a market share of 3.5%. The medium term headwinds in the RAC industry is expected to see the company post a lean performance, however, given the robust real estate activities coupled with government impetus on infrastructure and rising aspirations of customers we anticipate the company to benefit from the industry tailwinds. Financially, we estimate its revenue/EBITDA to grow at a CAGR of 18%/40.1% over FY23-25E and recommend Buy rating with a target price of Rs 1,010.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.religareonline.com/disclaimer

SEBI Registration number is INZ000174330

Views express by all participants are for information & academic purpose only. Kindly read disclaimer before referring below views. Click Here For Disclaimer