IGI Logo

Annual report analysis: Negative EVA generation and decline in market share

Voltas struggled to generate positive economic value during FY22 due to a decade-low RoE. We note its EVA creation was impacted for first time in past decade. It also lost market share by 180bps in FY22 after gaining for a decade. Voltas Beko customer acceptance has increased and it reported 45% volume growth in FY22, to claim ~3% market share in home appliances segment. We model Voltas to report revenue and PAT CAGRs of 15.3% and 24.2% over FY22- FY24E, driven by: (1) high single-digit price hikes, and (2) likely market share recovery. At current valuations, we believe stock price upside is capped. Hence, we maintain HOLD rating with a DCF-based target price of Rs1,033 (implied P/E 44x FY24E).

* EVA generation remains impacted: Voltas’ return ratios were lower than cost of capital in FY22, which resulted in negative EVA generation. We believe decline in profitability and lower asset turns resulted in lower RoE for the company and expect it to improve in FY24. We model return ratios to remained muted even in FY23.

* Market share loss: While Voltas retained the top spot in the RAC market, it lost 180bps market share in FY22. It also lost 30bps market share in window ACs. We believe aggressive investments in distribution and trade spends by Korean/ Chinese brands has impacted the market share of Voltas.

* Strong growth in Voltbek: We note: (1) Voltas Beko (Voltbek) enjoys a cumulative ~3% market share in home appliances segment as of FY22; (2) it continued to invest in distribution network and reached 7,000+ retail touchpoints during the year; and (3) it registered 45% volume growth YoY. We believe its affordable range of products, strong brand and distribution synergies will likely help the company gain further market share.

* Distribution expansion continues: Voltas has grown its distribution network at 12.5% CAGR over FY18-FY22. Currently, it has over 24,000 retail touchpoints across India. We note the company is investing extensively in creating an omni-channel ecosystem and launched a D2C e-commerce platform Voltas Lounge in FY22.

* FCF generation impacted in FY22: Voltas’ FCF generation in FY22 fell to 87% from 97% in FY21. Its investment in inventory and receivables days also increased to 76 and 97 respectively in FY22.

* Maintain HOLD: We model Voltas to report revenue, EBITDA and PAT CAGRs of 15.3%, 14% and 24.2% respectively, over FY22-FY24E, and RoE to move to 12.5% in FY24E from 9.7% in FY22. While we remain positive on the company, we believe upside is capped at current valuations (42x of FY24E EPS). Maintain HOLD on the stock with a DCF-based target price of Rs1,033 (implied P/E of 44x of FY24E).

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

Above views are of the author and not of the website kindly read disclaimer