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Our RAC coverage stocks (VOLT/BLSTR) have seen sharp correction in CY25 (~30%+ CY25 YTD), as nationwide unseasonal rains dented demand during the peak summer quarter (Q1), which typically contributes ~30-35% of annual UCP revenue. Contrary to street expectations of a significantly weak Q1 (~20-25% volume drop expected, per industry executives - Link) and thus a muted FY26E, we view this as an opportunity to ‘Buy’ AC stocks. Our past 15-year analysis suggests three similar periods of weak summers (CY12-13, CY15, and CY18), where UCP revenue growth was soft (down 3%/up only 7%), while stocks fell ~30–40%. Notably, each weak summer was followed by a sharp rebound, with UCP revenue rising ~15–20% amid structural tailwinds like premiumization, low penetration, and improving affordability driving stock rallies of ~40–160% over the next 12-18M. While FY26E is likely to be a muted year (we build in ~3% RAC volume decline), we believe that after the recent correction in stocks, the risk-reward is attractive, with current valuation of VOLT’s implied 1YF UCP P/S (~3.2x) near its Covid lows (~2.9x) and BLSTR at 1YF ~46x PER below its +1SD (~50x).

Softer summers than usual lead to sharp slides historically

Over the last 15Y, weak or erratic summers have consistently disrupted RAC demand and triggered sharp stock corrections (~30-40%) for UCP players. In time-periods such as CY12-13, CY15, CY18, and CY25YTD, unseasonal rains and below-normal temperatures resulted in flat or negative UCP revenue growth. For instance, FY12 saw ~20% industry volume de-growth, with VOLT/BLSTR UCP revenue down 3.2%/up 6.6% YoY (refer to Case Study 1 ahead). In Q1FY16, erratic rains in the North pulled down VOLT’s UCP by ~7% YoY, while slowing down growth for BLSTR to 17% (vs 28% in Q4FY15; Case Study 2). Q4FY18 saw muted ~15% industry growth (vs over 20% expectations), with UCP revenue declining ~2%/8.3% YoY for VOLT/BLSTR (Case Study 3). While H1CY24 brought one of the harshest summers, H1CY25 summers began on a softer note due to unseasonal rains during Apr/May ’25, leading to sharp stock corrections (Case Study 4).

Structurally intact; rising heat often fuels sharp rebounds post weak summers

In the past, the RAC sector has rebounded sharply after a weak summer. In CY14, CY17, CY20, and CY24, pick-up in summer intensity led to strong double-digit volume growth (~15–20%) and even higher UCP revenue growth. For instance, H1CY14 marked a turnaround after 2 muted summers, driving ~11% industry volume growth and UCP revenue growth of ~12%/16% for VOLT/BLSTR in Q4FY14, triggering stock rallies of ~120%/157% by CY15 (Case Study 1). In Q4FY16, warmer conditions in the South lifted UCP growth to ~9%/19%YoY for VOLT/BLSTR, with the impetus extending into Q1FY17 (~29%/34%YoY; Case Study 2). H1CY19 saw more intense heat (Mar-19), leading to a Q1FY20 surge in UCP revenue (~47%/9% YoY) despite Q4FY19 softness due to elevated inventory (Case Study 3). Recently, harsh H1CY24 summer led to sharp demand uptick, with UCP growth of ~44%/35% YoY in Q4FY24 and ~51/44% in Q1FY25 for VOLT/BLSTR, leading to stock rallies of ~86%/120% between Jan-24 and Oct-24 (Case Study 4).

Summer-induced volatility is cyclical not structural

Our analysis suggests that weather-related demand volatility is cyclical in nature and not a structural issue. While CY25 marks the fourth major weak summer over the past 15 years, the consistent pattern of sharp stock corrections has also been followed by stronger rebounds in both—volumes and stock prices, when summer intensity returns. Recent stock corrections in CY25 (~30%+ CY25 YTD) appear driven more by temporary weather disruptions than by deterioration in the long-term fundamental story.

Apt time to ‘Buy’ RAC stocks

Given the unseasonal weather outlook in CY25, we model ~3% RAC volume decline for the industry in FY26E and a recovery-led ~18% rebound in FY27E; we trim FY26E/27E EPS by ~7%/2% for VOLT and by 8%/10% for BLSTR. The risk-reward seems favorable hereon for Voltas, with valuations near the Covid lows; hence, we reiterate BUY on VOLT with unchanged TP of Rs1,450 (based on ~50x/15x/15x FY27E PER for UCP/EMPS/EPS, assigning Rs33 to Voltbek); we retain BUY on BLSTR with our TP cut by ~11% to Rs1,850 (based on 45x/60x/15x FY27E PER for EMP&CAC/UCP/PEIS).

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