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UCP segment’s margin contracts; market share dips QoQ

* Voltas (VOLT)’s operating performance was broadly in line with our estimates despite higher revenue due to a margin contraction in the UCP segment (-2.4pp YoY/-1.5pp QoQ). UCP’s margin was 5.9% (the lowest in the last 10 years) vs. our estimate of 7.8%. Revenue grew 18% YoY to INR31.1b (10% above our estimate), fueled by 21%/19% revenue growth in the EMPS/UCP segments. EBITDA jumped 7x YoY to INR1.9b (+4% vs. our estimate), as the EMPS segment reported an EBIT of INR567m vs. a loss of INR1.2b in 3QFY24. OPM expanded 5.3pp YoY to ~6.4% (30bp below our estimate). Other income was down 44% QoQ and led to a lower profit of INR1.3b (-14% vs. our estimate) against a loss of INR304m in 3QFY24.

* Mr. Pradeep Bakshi, MD & CEO, will not seek reappointment after the completion of his term on 31st Aug ’25. Mr. Mukundan C.P. Menon, currently the Executive Director and Head - Room Air Conditioner Business, will be appointed as the MD (designate) from 1st Apr ’25 and subsequently as the MD from 1 st Sep’25 until 24th May ’27.

* We have a BUY rating on the stock. However, we will review our assumptions after the concall on 30th Jan’25.

UCP’s revenue above estimate; EBIT margin at 5.9%

* VOLT’s consol. revenue/EBITDA stood at INR31.1b/INR2b/INR1.3b (up 18%/7x YoY and up 10%/4% vs. our estimate) in 3QFY25. Adj PAT stood at INR1.3b vs. a loss of INR304m in 3QFY24 (14% below our estimates). Depreciation/interest costs grew 39%/15% YoY, whereas ‘other income’ grew 2% YoY.

* Segmental highlights: a) UCP – Revenue was up 19% YoY at INR17.7b, and EBIT declined 15% YoY to INR1.0b. EBIT margin contracted 2.4pp YoY to 5.9%; b) EMPS – Revenue rose 21% YoY to INR11.9b. It reported an EBIT of INR567m compared to the loss of INR1.2b in 3QFY25; c) PES – Revenue declined 16% YoY to INR1.3b, and EBIT declined 26% YoY to INR368m. EBIT margin contracted 3.8pp YoY at ~28.4%.

* In 9MFY25, Revenue/EBITDA/Adj. PAT stood at INR106.5b/7.8b/6.9b (up 29%/176%/191% YoY. The UCP segment revenue grew 38% YoY to INR71.5b, followed by EMPS/PES revenue growth at 17%/1% YoY to INR30.2b/INR4.4b in 9MFY25. UCP EBIT grew 29% YoY to INR5.5b and EBIT margin declined 50bp YoY to 7.7%.

* The company’s exit market share in RAC stood at 20.5% as of Dec’24 vs. 21.0% as of Sept’24. VoltBek had a loss of INR324m against a loss of INR361m/INR323m in 3QFY24/2QFY25. VoltBek reported volume growth of ~56% YoY in 9MFY25.

Valuation and view

* VOLT’s UCP business delivered strong revenue growth as RAC demand remained healthy in 3QFY25; the 9MFY25 volume growth stood at 42% YoY. However, the segment’s margin disappointed in 3QFY25. VoltBek too has seen strong volume growth of 56% in 9MFY25, with market share gain in the refrigerator and washing machine segments. Further, the project business has seen strong recovery with 9MFY25 EBIT of INR1.7b against a loss of INR2.2b in 9MFY24. We would seek management’s commentary on lower margins in the UCP segment, channel inventory before the start of the summer season, and the outlook for Voltbek margins.

* We have a BUY rating on the stock. However, we will review our assumptions following the concall on 30th Jan’25 (Concall Link).

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