Buy Voltas Ltd for the Target Rs 1,500 by Emkay Global Financial Services Ltd
Voltas (VOLT)’s 1Q results were a mixed bag, with revenue growth accelerating to 19% yoy, led by a strong 32% yoy growth in UCP (RAC volume up 45% yoy), while EMPS declined 27% yoy due to execution challenges. EBITDAM rose by 120bps qoq to 5.7%, while PAT grew 52% yoy to Rs2.1bn. Management holds a constructive stance on RAC, with focus on market-share gains (~17.3% 1Q vs 16% in FY26) via premiumization, innovation, and distribution. On UCP margin, recovery toward >7% is expected to be gradual (vs immediate) over next ~8 quarters; EMPS is likely to be under stress in 2Q, with recovery only from 2H. While we remain positive on the RAC structural growth story, we believe slower margin normalization and near-term EMPS execution challenges warrant a 13%/7% cut to FY27E/FY28E EPS. We maintain BUY and our SOTP-based TP of Rs1,500, supported by Jun-28E roll-forward benefit. Current valuation remains supportive at 1YF implied UCP P/S trading at ~2.8x near its -1SD.
Strong UCP growth dragged down by EMPS
Voltas reported mixed 1Q results, with strong revenue growth of 19% yoy (vs 3%/-1% in 4QFY26/3QFY26) owing to robust growth in the UCP segment (up 32% yoy), which was dragged down by the EMPS segment (down 27% yoy) owing to project execution challenges. EBITDAM saw a sequential improvement of 120bps, but remains subdued at 5.7% (vs ~7-8% earlier). PAT stood at Rs2.1bn (up 52% yoy).
Earnings call KTAs
1) RAC saw a ~45% yoy volume growth spike in 1Q (vs estimated industry primary volume growth of ~20–22%), with VOLT’s secondary market share at 17.3% in 1Q (vs 15.9% in FY26).
2) Cost inflation remained significant (BEE changes, commodities, rupee depreciation, freight, and plastics drove a ~10-12% cost inflation); VOLT passed-on almost the entire cost increase, but the lag in pass-through/higher RM costs absorbed a meaningful portion of the operating leverage benefits.
3) VOLT aspires to achieve >7% UCP margins, but the recovery is expected to be gradual over next ~8 quarters, with focus on continuing market-share gains via premiumization, innovation, and distribution.
4) EMPS saw soft topline/profitability, affected by execution challenges – international projects hit by the West Asia conflict, which delayed new order inflows. VOLT expects 2Q to remain relatively soft, with recovery turning more visible in 2H. Voltas has now become more selective in order booking (shorter-gestation, private-sector, manufacturing, data center, MEP projects), to reduce risks related to execution, working capital, and fixed price.
5) Voltbek delivered its highest-ever quarterly sales in both value and volume (market share ~9.4% in WM and 7.4% in refrigerators). However, EBITDA breakeven has been pushed back by a few quarters from the earlier FY27 aspiration (mainly on account of commodity inflation not being fully passed on).
6) VOLT has entered a proposed 50:50 JV with Atomberg for RAC compressor manufacturing, initially targeting ~2.8mn compressors with commercial production expected in ~18M. Atomberg to contribute critical motor technology, while VOLT brings in RAC scale. Major capex ahead expected from Atomberg JV, with investment broadly expected to be shared 50:50
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