Buy Voltas Ltd for the Target Rs. 1,500 by Emkay Global Financial Services Ltd
Voltas posted a weak Q4, with revenue at Rs48.9bn (up only 3% YoY); margins too disappointed, with EBITM at 5% (missed our estimate of ~7.8%; BLSTR posted 10.4% UP EBITM in Q4) and resilient UCP demand (up 1% YoY despite the high Q4FY25 base). However, margin missed our estimate on account of commodity price inflation/currency devaluation. EMPS grew ~6% YoY; segment margin was below estimate at ~6.4% (vs 8.4% in Q3FY26). Flattish growth/weaker margins, coupled with higher-than-expected taxes, led to a weak PAT performance (down 52% YoY). For FY27, the management expects UCP/overall EBITDAM to recover gradually via further targeted price hikes (~7- 8% blended price hikes taken post-BEE change, ~2-3% taken later in Q4 to factor in the commodity price inflation pre-Middle East crisis). FY27 RAC demand outlook is cautiously optimistic, given a decent start to CY26 summers (though some regions saw unseasonal rains), with the mgmt holding a waitand-watch stance (industry growth expected at ~15-20%, on a weak base). Factoring in the weaker-than-expected UCP margin delivery and expectations of a gradual rebound in profitability to FY25 EBITDAM levels (~8.4%), we cut FY27/28E EPS by ~18/11% and our SoTP-based TP by 9% to Rs1,500 from Rs1,650. However, current valuations remain supportive at 1YF implied UCP P/S trading at ~3.1x near its -1SD (Covid lows of ~2.8x); retain BUY.
Growth in-line; margins take a hit from the commodity price inflation
Consol revenue was Rs48.9bn (up 3% YoY), in line with our estimate (Rs49bn). 5% UCP EBIT margin was weaker vs Emkay’s at 7.8%, despite the seasonally strong Q4 for RACs hit by commodity price inflation/currency devaluation. EMPS revenue was up 5% YoY, but EBIT margin was a modest 6.4% (Q3FY26: ~8.4%). Consol EBITDA was Rs2.2bn; margin was at 4.5% (Street/Emkay: 6.7%/~7.7%); adj PAT at ~Rs1.1bn (down ~52% YoY).
Earnings call KTAs
1) RAC: VOLT remains cautiously optimistic on FY27 RAC demand, with industry growth expected at ~15-20% (weak base), backed by encouraging trends seen over March-early May.
2) VOLT has undertaken phased price hikes, including ~7-8% blended hikes linked to the updated BEE (5-Star RACs up ~10%; 3-Star RACs up ~5%), alongside additional ~2-3% hikes to offset the rising commodity/forex expenses. The mgmt pointed to a possibility of further price hikes, contingent on commodity/currency movements (pricing decisions reviewed weekly).
3) VOLT expects gradual recovery in profitability to FY25 levels, without any sharp deterioration in Q1FY27.
4) EMPS: Order book is at ~Rs62bn (domestic: ~Rs45bn; international: ~Rs17bn), granting healthy revenue visibility. Domestic orders are focused on margin-accretive segments like data centers and manufacturing projects. Domestic contracts continue to benefit from price variation clauses, limiting the hit on margin from commodity inflation.
5) Voltas Beko market-share continued to scale up, with refrigerators (6.2% YTD)/washing machines (8.6% YTD) seeing growth; maintains strategy of focusing on premiumization, higher localization, deeper channel penetration.
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