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UCP margin surprises positively

Voltas’ consolidated revenue grew by ~13% YoY (5% lower vs. JMFe) to INR 47.6bn, led by growth in unitary cooling products (17% YoY) largely driven by better channel fill. EMP business saw muted growth of 4% YoY but the losses have reduced significantly led by improved order booking, better project execution and better working capital management. Even though the management remains optimistic on all product categories, we believe that the delayed summer season, leading to a subdued 1Q, which is their best quarter, can dampen the company’s growth in FY26. Baking in the same, we cut our EPS estimate for FY26 by ~4%. But we increase FY27 EPS by ~1% as believe growth will bounce back once the situation normalises, and Voltas being the market leader will continue to benefit. We maintain our BUY rating, with a revised target price of INR 1,405 (earlier INR 1,470).

* Quarter update: Revenue was INR 47.7bn, up 13% YoY (5% lower vs. JMFe), driven by 17% YoY growth in the UCP (unitary cooling products) business. EBITDA at INR 3.3bn (10% lower vs. JMFe) was up 75% YoY as margin expanded 245bps YoY to 7% (40bps lower vs. JMFe); margin expansion was primarily led by 170bps YoY expansion in GM to 21.4% (70bps lower vs. JMFe) and 20/60 bps lower staff cost/other expenses. PBT at INR 3.8bn was up 77% YoY (4% below JMFe), while PAT at INR 2.7bn was up 80% YoY (9% below JMFe) as tax rate declined 120 bps YoY to 28.7%

* Segmental update: UCP revenue rose 17% YoY (2% lower vs. JMFe) to INR 34.6bn continuing its growth momentum, maintaining the company’s leadership in both split and window AC, recording YTD market share of ~19% as of Mar’25. UCP EBIT margin at 10%, up 408bps YoY, came as a positive surprise, despite the sharp increase in RM costs and also higher spends on AP. MEP revenue at INR 11.4bn was up 4% YoY (12% lower vs. JMFe); business outlook remains positive as domestic projects continue to expand the order book and recovery is visible in the international project business. EMP revenue at INR 13.2bn was down 16% YoY (20% lower vs. JMFe). The segment faced headwinds due to challenging macro-economic factors. Voltas Beko also recorded sales of over 1mn refrigerators and washing machines (FY25) and established itself as the fastest growing home appliances brand in the country.

* Valuation & Outlook: We expect Voltas’ UCP business/ EMP business/ EPS business revenue to grow at a CAGR of 14%/12%/5% respectively over FY25-27. Overall, this will result in EBIT CAGR of 13%/25%/19% over FY25-27. We now value Voltas on FY27 SOTP, UCP PE of 40x due to advantage of being market leader, EMP PE of 20x due to improved order booking and EPS PE of 15x and Voltbek at INR 196 (1.5x on FY27 sales). Our SOTP target is INR 1,405, up ~15% from CMP; we maintain BUY.

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