Accumulate Voltas Ltd for Target Rs. 1,440 by Elara Capital
Pre-buying may prop revenue, but margin strained
Revenue from Voltas ’ (VOLT IN) room air conditioner (RAC) segment may rise QoQ , led by pre -buying in December , given a sharp rise in commodity prices (copper price up 27% YoY) and change in Bureau of Energy Efficiency (BEE) norms from January . However , overall RAC revenue may fall , and margins strained by lower volumes, higher c ommodity prices and rupee depreciation.
Thus, we remain cautious on VOLT ’s near -term outlook . However, we retain Accumulate with TP maintained at INR 1, 44 0, based on 3 7x September FY27E P/E , driven by lower penetration of RACs, anticipation of better summers and low er base auguring well for FY27 and beyond . Key risk s to our thesis are muted sales in December and prolonged winter s impacting Q4 sales as well .
RAC muted so far; hopeful of respite in December: RAC has posted muted sales due to severe winter s. However, VOLT expects some respite in December on account of pre -buying by channel partners owing to a rise in copper prices (up 27% YoY ) and a change in BEE norms for RACs from January 2026 . VOLT is calibrating pric ing strategies for the existing old table inventory as well as new table inventory as costs have risen due to the impact of rupee depreciation on imported raw material. Key monitorable will be price hike s by VOLT. However, the focus is still on market share gain over margin expansion. Also , c urrent channel inventory level is at 45 days, double the average level YoY.
Margin to be strained by under-absorption of fixed cost and higher raw material costs: Margin is likely to continue its downtrend in Q 3 on account of under -absorption of fixed cost, due to heavy channel inventory and a surge in raw material prices . Additionally, a change in BEE Star rating may trigger a surge in the cost of three -star AC by 3 -5% and five -star AC even higher.
Non-RAC segments – Mixed impact: The weather has impacted VOLT ’s non -RAC segment in a mixed fashion . The commercial refrigeration and CAC segment s have remained muted but expect a revival from Q4. Voltas Beko has seen robust growth with market share gain s in semi -automatic washing machines, almost catching up with the no. 1 player . VOLT expects market share gain to continue but profitability may be still clouded by higher raw material costs with optimum leverage still not achieved. On the EMP front , VOLT expects positive growth in domestic demand while it remains selective in terms of order booking in international projects.
Maintain Accumulate; TP retained at INR 1,440: We maintain our EPS estimates for FY26 E - 28E and retain our TP at INR 1, 44 0 on 37x September FY27E P/E . H owever, we remain cautious on near -term outlook but lower penetration of RACs, anticipation of better summers and a lower base augur well for FY27 and beyond . We e xpect an earnings CAGR of 20% through FY25 -28E with an average ROE and ROCE of 15% and 14%,respectively . Key risk s to our thesis are muted sales in December and prolonged winter s impacting Q4 sales as well.
Please refer disclaimer at Report
SEBI Registration number is INH000000933
