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UCP margins surprise; risk reward attractive

Voltas clocked a healthy Q4 performance (revenue up 13% YoY at Rs47.7bn; largely inline) backed by stellar execution in the UCP business (up 17% YoY) with a standout EBIT margin of ~10% (much ahead of our estimate of 7.1%) owing to better product mix and improving scale benefits. However, it missed our PAT estimate by ~8% due to the projects business turning negative. While April was muted given unseasonal rains and the delay in onset of Summer-25 impacting both, primary/secondary sales, the mgmt. remains hopeful of a recovery in May–Jun (expects a longer and stronger tail to the summer season). We cut FY26E/FY27E PAT by ~9-10%, given the near-term uncertainty in Summer-2025. At current valuations and with UCP P/sales at 3.1x (below 10Y average of 3.6x), the stock trades at attractive valuations (refer to our IC: Cooling curve turning vertical); hence, we retain BUY while revising down our TP by ~9% to Rs1,450, implied at ~41x FY27 PER and Voltbek at Rs33/sh.

Q4: UCP division surprises on the margin front

Consolidated revenue stood at Rs47.7bn (up 13% YoY, at a ~2 miss on consensus/Emkay estimates) for Voltas in Q4FY25. The UCP division’s revenue growth was robust at ~17% YoY, with a phenomenal EBIT margin of ~10% in Q4 (much ahead of Emkay estimate of ~7.1%) owing to better product mix. EMPS (projects) growth was flattish at ~4%, with margins turning negative in Q4 owing to Rs400mn contingent provision created during Q4 on account of payment delays for international projects. Consol EBITDA for FY25 stood at Rs11.1bn (up 135%YoY), with margin at 7.2% (miss on Emkay of ~7.4%)

Earnings Call KTAs

i) During FY25, Voltas sold ~2.5mn RAC units in FY25, retaining market leadership with ~19% market share; industry volume estimated at ~13-14mn units. ii) UCP margins saw improvement on a better product mix (premium 5-star RACs, industrial air coolers), scale benefits, and labor/productivity gains. iii) While April was muted, with unseasonal rains and a delayed start to the summer impacting both, primary and secondary sales, the management remains hopeful of a recovery in May–Jun (expects a longer and stronger tail to the summer season) partially offsetting the April weakness. iv) No significant price hikes were taken in Q4. Also, no major discounting was undertaken by peers, although elevated channel inventory is a concern due to early stocking in anticipation of a strong summer and supply constraints. v) CAC demand is expected to remain strong in FY26, driven by higher capex, better AMC conversion, and strong retrofit demand, while Com Ref saw a weak FY25 due to QCO-related issues, though recovery is expected in FY26 as factory ramp-up normalizes and order pipeline improves. vi) A Rs400mn provision was created during Q4 on account of payment delays beyond contractual timelines, made for international receivables (mainly UAE and Saudi projects). vii) Voltas Beko YTD market share is ~15.3% in semi-automatic washing machines, making it the #2 in India, while refrigerator share is up, at 5.3%; plans to fully localize refrigerator manufacturing.

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