Buy Voltas Ltd For Target Rs. 1,450 By Emkay Global Financial Services Ltd
Voltas’ (VOLT) Q1FY26 results were weaker than expected, with UCP revenue down 25% YoY (~8% below Emkay estimate) on a weaker-than-usual summer. EBIT margin contracted sharply (3.6% vs 8.1% in Q1FY25) due to elevated A&P and warehousing expenses to sustain market leadership. The mgmt flagged 3- 4M of channel inventory; however, it is hopeful of demand recovering from Q3 owing to the festive season, a ‘second summer’, and pre-buying ahead of the BEE norm change as it refrains from deep discounting. In EMPS, VOLT remains focused on long-term strategic growth, maintaining order-booking discipline with 5% EBIT margin seen as sustainable ahead. Also, tactical cost-reduction steps are underway to support profitability. The significantly weaker-thanexpected summer and its resultant impact on revenue/margins drove a meaningful cut (~13%) in our FY26E EPS. However, we expect growth/margins to rebound in FY27E (refer to our report: Untimely rain: Killjoy for AC demand, apt time to BUY AC stocks). We maintain BUY, with an unchanged TP of Rs1,450 as valuations remain supportive (UCP P/S trades at 3.3x – below the LTA), and expect earnings traction to improve as seasonality normalizes from H2.
UCP margins take a major hit due to higher A&P
Q1 consolidated revenue was Rs39.4bn (down 20% YoY; 8% miss on Emkay estimate) owing to weak UCP revenue growth (down ~25% YoY). UCP EBIT margin dipped to ~3.6% (vs 8.6%/10% in Q1FY25/Q4FY25) on intensified efforts to drive secondary sales through A&P, as elevated inventory levels persisted in Q1. EMPS revenue fell 3% YoY; EBIT margin was 5.3% (7.1% in Q1FY25); consolidated EBITDA at Rs1.8bn, with margin at 4.5% (miss on our estimated ~6.7%). PAT was a miss at -Rs1.4bn (down 58% YoY).
Earnings call KTAs
1)The RAC industry saw a sharp ~35-40% YoY decline in volumes in Q1, impacted by an unseasonably mild summer in the North and the high base of Q1FY25. 2) Per VOLT, it retained leadership with a 19.3% market share in Jun-25 and 17.8% in Q1FY26. 3) Inventory levels in the channel remain high at ~3-4M, putting pressure on primary sales. 4) VOLT increased A&P spends in Q1, leading to a more-than-anticipated EBIT margin compression. The management expects recovery in the RAC industry from Q3, led by the festive season, supported by the possibility of a ‘second summer’. 5) While certain brands are resorting to discounting to clear inventory, VOLT has maintained its stance of avoiding price wars to protect its brand equity. 6) The Jan-26 BEE rating change will have a cost impact, although the extent of price hike will be clearer by Nov/Dec-25; the company indicated that it would try to pass on costs through value addition/mix, while protecting margins. 7) The VoltBek JV continues to operate at a loss, though its market share has improved to ~8.6/7.2% in washing machines/refrigerators. Profitability remains a medium-term goal, with no firm timeline provided for breakeven. 8) The EMPS division is treading cautiously with a long-term strategic view, maintaining discipline in orderbooking with ~5% EBIT margin seen as sustainable.
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