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RAC delivers strong volume growth while recouping some of its lost market share; upgrade to Neutral

Result Synops

Voltas, after losing market share in Q4FY22, has recouped part of its lost market share; The company has regained its market share by strong performance from north region which was reeling under severe heat wave. South has seen better performance as compared to Q4. Margins in cooling products have taken a hit as competitive pressures and quest to re?gain its lost market share are resulting in company holding on to prices despite raw material inflation. Volt?Bek continues to do well on the revenue front with company achieving exit market share of 3.5% and 4% respectively in refrigerators and washing machines. The projects business which witnessed improved profitability has again gone back in losses on account of costs over?runs and higher provisioning. We continue to remain cautiously optimistic on the stock, however we upgrade the stock to neutral from REDUCE rating as 1) we feel worst margin pressure is built in stock price, 2) Further is confident of gradually re?gaining its lost market share and 3) Re?structuring of domestic project business and EPS business into wholly owned subsidiary would result in better focus in terms of growth and profitability

Voltas being a strong brand with solid distribution presence and increasing product offerings on the commercial refrigeration and RAC segments should see growth momentum returning as it has taken corrective actions to re?gain its market share. This along with better focus on project business will result in improved performance. Volt?Bek JV has stared gaining prominence in the market and localized production is expected to increase efficiency and bring down losses. We now factor in FY22?24E Revenue/EBITDA/PAT CAGR of 16%/25%/30% and upgrade to Neutral rating with SoTP based TP of Rs1,064 as we feel there is limited room for upside from CMP. We continue valuing the products business (UCP) at 50x (higher than peers) and value projects business at 25x (in?line with peers). We see strong momentum for RAC continuing in FY23 and with steady improvement in project business.

Result Highlights

Quarter summary – Voltas revenue grew 55% with strong growth in RAC while lower carry forward order book resulted in decline in project business. EMPS business declined 34% yoy. EPS business grew steadily at 8.1%

* UCP – UCP business grew 125% yoy on back of volume growth of 111%. Voltas has managed to recoup some of its lost market share by better performance in its key North market and improved performance in south market. Margin remained under pressure on back of higher input prices which are difficult to pass?on due to heightened competitive intensity.

* EMPS – Revenue decline was on account of lower order book. Carry forward order book stands at Rs58.1bn, down 5% yoy. Company is now judiciously bidding for selective order? inflow as company is currently undergoing restructuring.

* Volt?Bek – Higher A&P spends has affected margins of Volt?Bek. Brand salience and in? house manufacturing will lead to higher sales going forward. Company is sticking to its guidance of achieving 10% market share by FY25. Volt?Bek exit market share in refrigerators and washers stands at 3.5% and 4.0% respectively

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