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Moderate quarter ahead for RAC segment

We attended VOLT’s analyst conference call wherein the management highlighted its focus on regaining sales momentum in cooling products, diversifying into a full-stack appliances portfolio, and driving cost saving measures across the value chain to ensure sustainable margins. VOLT anticipates a softer recovery in RAC demand with GST rationalization and festive demand due to inventory accumulation in Q1FY26. VOLT maintains the top position in RAC segment (18% market share) and aims to be the top player in air coolers from current #2 spot. Price hikes are anticipated in Jan’26 in 3 and 5 star RAC products. We introduce FY28 numbers and estimate revenue/EBITDA/PAT CAGR at 9.7%/11.5%/14.9% over FY25-28E. The stock is currently trading at 42x/37x of FY27/FY28E. There is no change in our estimates and roll forward to Sep’27E, revise SOTP-based TP to Rs1,441 (earlier Rs1,268), implying PE of 40x Sep’27E earnings. Maintain ‘HOLD’.

Key takeaways:

Muted revenue due to channel inventory & GST window

* Both primary as well as secondary sales have been impacted in Q2FY26. Primary because of the overhang of the inventory in the channel, and secondary because of the 5-week window which has created due to GST.

* Channel inventory stands at 2–3 months between industry and distribution channels.

Outlook on GST 2.0 and upcoming festive demand

* Recent GST reduction from 28% to 18% on RACs and dishwashers is expected to be a strong demand catalyst.

* The management highlighted that while Q2FY26 faced pressure due to channel inventory build-up and deferred purchases in anticipation of the GST cut, the festive season is expected to drive sequential recovery during Q3- Q4FY26.

Growth trajectory across cooling sub-segments

* VOLT continues to be #1 player in the RAC category with ~18% market share.

* The company will focus on its core 3 star products while expanding the premium portfolio, aiming to widen the gap with #2 player in the RAC segment.

* Its Air Coolers segment holds the 2nd spot in the industry and the company aims to reach the top position by Q4FY26.

* Commercial air conditioning business is expected to be a key growth driver from FY26–28, growing 15–20% annually with an expanding channel network across 150 cities.

* Commercial refrigeration segment saw a soft Q1FY26 and is expected to grow 15–18% in the coming quarters.

Price hikes in 3 and 5 star AC

* The company indicated a likely price hike in Jan’26, with 3 star AC prices rising by 3–5%. Further, primary sales are anticipated to increase in Q3FY26.

* A higher increase is anticipated in the 5 star category, with specific details currently under assessment.

Project business update

* Earlier, certain domestic projects, especially electrical and water related, faced temporary labor shortages, leading to higher labor costs.

* This challenge has now been resolved, and workforce availability is no longer a concern for ongoing and upcoming projects.

Strategic cost optimization and outsourcing of key sub-assemblies

* The company is aggressively implementing cost-saving initiatives, with benefits expected from Q4FY26 and Q1FY27 to enhance margins.

* The company will not prioritize in-house production of key sub-assemblies such as compressors, copper and aluminum components, DC motors and drives, and PCB drives, which together account for ~70% of total costs. Instead, it will rely on specialized contract manufacturers to supply these critical components.

Expanding reach across key sales channels

* The company is focusing on retaining its strong position in the traditional channel.

* Expansion in modern trade, regional retail, and e-commerce is expected to drive incremental market share gains.

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