IGI Logo

Headwinds in projects business to recede, RAC to outshine; upgrade to ADD

Result Synopsis

Voltas has delivered better than expected revenue growth with UCP growing by 44% (higher than peers like BLSTR and Lloyd) and EMPS segment growing 47% on improved execution as order backlog continues to be robust. Voltas has outperformed industry in terms of revenue growth in UCP. It’s YTD market share of 18.7% is expected to improve in Q1 as secondary sales will be higher in Q1 and will track primary sales. RAC margins at 10% continues to remain leading margins, segment margins are lower as commercial Ac and refrigeration margins were impacted on higher RM prices. Volt?Bek continues to see strong traction with washing machine and refrigerator market share standing at ~8% and 4% respectively. The projects business continues to be marred by provisioning related to international geography (QATAR) arising out of delay in collections and costs overrun. The company has provided for most of the cost overruns and FY25 will start on clean slate. On the positive side order book continues to remain robust. We now become positive on the stock and upgrade he stock to ADD rating as 1) Company will focus on volumes with margins at ~10%, 2) Provisioning in project business is largely done with and robust order? book tilted towards domestic projects will give and edge; 3) Volt?bek to continue with strong revenue growth and 4) Commissioning of new plant for RAC and commercial AC will aid in increased efficiency. Voltas being a market leader with solid distribution presence and increasing product offerings on the commercial refrigeration and RAC segments should see growth improving. Q4 has seen improved performance with outperformance on RAC front with strong volume growth. Volt?Bek JV has stared gaining prominence in the market and localized production is expected to increase efficiency and bring down losses. Management is guiding for 4?5% margins in the project business as provisioning is largely done with. We now factor in strong RAC revenue growth in FY25with margins of 9%. We have increased our multiple in the products business (UCP) to 60x as company is focusing on volume growth without significantly compromising on the margins and value projects business at 30x (in line with peers) resulting in SoTp based PT of Rs1,538 with ADD rating. We see strong momentum for RAC continuing in the upcoming summer season and steady improvement in project business.

Result Highlights

* Quarter summary – Voltas delivered 14% beat on revenue growth with revenue growing 42.1% yoy. UCP registered revenue growth of 44.2%, EMPS (Electromechanical Projects and services) registered growth of 47.2%, while EPS (Engineering product and services) saw growth of 9.8%.

* UCP –: Revenue grew 44.2% yoy. UCP business has outperformed industry and peers. Volumes in its RAC segment grew by 35% for FY24. Its market share in RAC stood at 18.7% as on YTD March’24.

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

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