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Strong growth in Q4. Looking up for market share gain in Q1

In Q4FY24, Voltas posted revenue of INR 42.0bn up 42% YoY, 4 years CAGR of +19%. Its UCP revenue was INR 29.5bn up 44% yoy due to strong RAC volume growth on back of strong summer (4 years CAGR c.+25%). Overall UCP volumes was up c.27% in FY24 with RAC volume growth of c.+35% in FY24. EMP, domestic business grew c.38% yoy due to healthy order book while International business continues to face challenges. We transfer the coverage to Deepak Agarwal with a BUY rating at a target price of 1,515.

* Strong UCP growth led by RAC: Voltas has sold c.2mn RAC for FY24, whereas the industry has sold c.10mn units resulting in a primary market share of c.20%; however secondary market share as of FY24 was c.18.7% vs 19% YTD Dec-23. Management expects strong growth in RAC with channel expansion and supportive demand. Expects UCP margins at high single digit. In Q4FY24, Overall RAC margins have improved to 10% from 9% yoy, however commercial Ref. + AC capped overall UCP margins.

* In EMP, strong domestic order book while provision continues in Qatar: Domestic business continue to do well, however headwinds in the international business especially Qatar continue to impact profitability due to delay in receivables. Domestic order book was c.INR 50.24bn down 13% YoY and international was c.INR 30bn up 27% YoY Q4FY24. In international business, strong order book from Saudi for water theme park, hospitals, etc. Management expects EBIT margin of 4%-5% in this segment.

* Voltbek continues to deliver strong growth: In FY24, Voltbek revenue was INR 15.85bn up 46% YoY mainly on the back of strong manufacturing capabilities and channel expansion. As of Mar,24 Voltbek market share in Refrigerator was c.5.3%, Total Washing Machine was c.8.5% and Semi-Automatic was c.15% (vs 12.2% in Dec-23). Expect Voltbek to EBITDA breakeven in FY25 and profitable post FY26.

* Capacity expansion on the cards: Voltas with its Chennai plant first phase will add c.1mn units starting May’24 which will be further scale up to 2mn units after FY25 end leading to overall RAC capacity of 3.3-3.5mn units by FY26. Voltas has done c.INR 5bn capex for Chennai RAC plant out of which c.2.5bn is already done in FY24 rest to be done in FY25.

* We resume coverage with BUY rating and TP of INR 1,515: We expect VOLT revenue/earning CAGR of c.18%/107%(lower base in FY24) over FY24-26 mainly led byIn UCP (1) Benefit from long-term demand drivers for AC, PLI on components, marketleadership position and Beko (home appliances), (2) Increasing its penetration through channel expansion and (3) Improving its sourcing through backward integration and localisation. However high levels of competition may cap margins in this segment. In EMP: strong domestic order book and revival in international market will add to growth/margin. At CMP VOLT trades at PE of 55x/43x on FY25/FY26, we transfer coverage to Deepak Agarwal and value VOLT at SOTP – UCP 50x to INR 1,202, EMP 15x to INR 76, EPS 20x to INR 132 and Voltbek at INR 105 on FY26 and arrive at TP of 1,515 up 15% from CMP and hence maintain BUY.

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