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UCP margins on a steady recovery path

Voltas reported 18.7% YoY revenue growth to INR46.7bn, led by strong UCP growth, particularly 45% RAC volume growth, while EMPS revenue declined 27.1% YoY due to delayed international order bookings amid Middle East geopolitical tensions. EBITDA margin expanded 110bps YoY to 5.7%, supported by price hikes, deeper localization, cost optimization and higher manufacturing utilisation, despite 10-12% cost inflation, supported by price hikes, deeper localization and higher manufacturing utilisation. Management indicated further price hikes if costs rise materially, while lower channel schemes could support margins if costs moderates. Management guided UCP EBIT margins towards 7%+ over the next eight quarters, supported by cost-down initiatives and continued year-on-year improvement.

RAC market share stood at 17.3%, supported by strong brand investments, product innovation, wider channel reach and high manufacturing utilisation at Chennai and Pantnagar, while Voltas sold more than 1mn RACs during the quarter. Commercial refrigeration and air coolers remained muted, with the commercial refrigeration industry declining ~15% due to slower market uptake following price increases, while management focuses on institutional sales, channel development, customer diversification and new product launches to drive recovery. Voltas also proposed a 50:50 JV with Atomberg to manufacture 2.8mn RAC compressors, aimed at strengthening supply-chain security and reducing import dependence. Voltbek continued to strengthen its position in home appliances with YTD market share of 7.4% in refrigerators and 9.4% in washing machines, while maintaining its No. 2 position in semi-automatic washing machines with 15.6% market share.

We have downward revised our FY27E/FY28E earnings by 4.0%/1.9%, factoring in slower-than-expected growth in the UCP and EMPS segments going forward. We estimate FY26-28E revenue/EBITDA/PAT CAGR of 14%/45%/63.8%. we maintain our SOTP-based TP of INR1,308 (same as earlier), implying PE of 43x FY28E. Maintain ‘HOLD

Q1FY27 financial performance:

Revenues grew by 18.7% YoY to INR46.7bn (PLe: INR50.5bn). Gross margins remained in line YoY to 21.9% (PLe: 22%). EBITDA grew by 48.7% YoY to INR2.7bn (PLe: INR3bn). EBITDA margin expanded by 110bps YoY to 5.7% (PLe: 6%). UCP revenues grew by 32.3% YoY to INR37.9bn and EBIT margin expanded by 170bps YoY to 5.3%. EMPS revenues declined by 27.1% YoY to INR6.7bn and EBIT margin expanded by 30bps YoY to 5.6%. EPS revenues grew by 17.3% YoY to INR1.6bn and EBIT margin contracted by 370bps YoY to 25.9%. PAT grew by 52.2% YoY to INR2.1bn (PLe: INR2.1bn). VOLT’s share of loss from JV & associates stood at INR372mn

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