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Weak performance; eyes recovery in the festive season

Estimates a flat to moderate growth in FY26 amid 1Q pressure

* Voltas (VOLT)’s 1QFY26 earnings were below our estimate. Revenue dipped ~20% YoY to INR39.4b (-10% vs. estimate), due to ~25%/16%/3% YoY decline in UCP/PES/EMPS revenue. EBITDA declined ~58% YoY to INR1.8b (~43% miss, led by lower-than-estimated revenue/margin in the UCP segment). OPM contracted 4.1pp YoY to 4.5% (2.7pp below our estimate). PAT declined ~58% YoY to INR1.4b (~42% miss) for the quarter.

* Management highlighted that 1QFY26 was a challenging period as growth momentum turned adverse in May’25. The weak summer season led to a significant drop in peak season demand for ACs and other cooling products. VOLT believes the performance dip in 1QFY26 was temporary, and it is taking corrective actions, including cost-control measures, inventory realignment, and production adjustments. Management remains cautiously optimistic about a recovery in the coming quarters, aided by the upcoming festive season and the possibility of a second summer in certain regions. It expects industry to close FY26 flattish to modretae growth.

* We cut our EPS estimates for FY26/FY27 by ~9%/5% to reflect the 1QFY26 underperformance and lower margins in the UCP segment. We reiterate our Neutral rating on the stock with a TP of INR1,350, based on 45x Jun’27E EPS for the UCP segment, 20x Jun’27E EPS for the PES and EMPS segments, and INR22/share for Voltbek.

UCP’s EBIT margin contracts ~5pp YoY to 3.6% (lowest quarterly margin)

* VOLT’s consol. revenue/EBITDA/PAT stood at INR39.4b/INR1.8b/INR1.4b (- 20%/58%/58% YoY and -10%/-43%/-42% v/s our estimates) in 1QFY26. OPM contracted 4.1pp YoY to 4.5% (vs. estimate of 7.2%). Depreciation/interest costs increased 38%/39% YoY, whereas ‘other income’ inched up ~2% YoY.

* Segmental highlights: a) UCP – revenue declined 25% YoY to INR28.7b, and EBIT declined 68% YoY to INR1.0b. EBIT margin was down 5.0pp YoY to 3.6%; b) EMPS – revenue dipped 3% YoY to INR9.2b. EBIT declined ~27% YoY to INR492m. EBIT margin contracted 1.8pp to ~5%; c) PES – revenue was down ~16% YoY to INR1.4b, and EBIT decreased 11% YoY to INR401m. EBIT margin increased 1.7pp YoY to ~30%.

Highlights from the management commentary

* VOLT’s market share in RAC stood at 17.8% for 1QFY26 (vs. 19.5% in 1QFY25) and was 19.3% in Jun’25-exit (vs. 21.1% in Jun’24-exit).

* The order book was INR62.0b as of Jun’25, ensuring strong revenue visibility going forward. Management reiterated its cautious approach by stating that it would bid only for projects with assured margins and secured funding to avoid repeats of past international losses.

* Voltas Beko sustained its strong growth momentum, recording a 33% YoY increase in volumes, accompanied by notable gains in market share. Market share gains were recorded in both semiautomatic and overall washing machine segments, while the refrigerator category also improved its standing, particularly in direct cool models.

Valuation and view

* VOLT’s 1QFY26 performance was notably below our estimate due to weak UCP segment performance. Though it maintained leadership in RAC with a Jun’25- exit market share of 19.3%, this was lower than the Jun’24-exit market share at 21.1%. This was because of a weak summer in North India, which is a much bigger market for the company. It has scaled down factory operations to avoid overproduction, which led to under-absorption of fixed costs and put pressure on profitability.

* We estimate VOLT’s revenue/EBITDA/PAT CAGR at ~8%/12%/15% over FY25- 28E. We estimate the UCP segment’s margin to stand at 7.0% in FY26 (vs. 8.4% in FY25), though demand recovery will be crucial in 2HFY26, led by the festive season and change in energy rating norms. We maintain our Neutral rating on the stock with a TP of INR1,350 based on 45x Jun’27E EPS for the UCP segment, 20x Jun’27E EPS for the PES and EMPS segments, and INR22/share for Voltbek.

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