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RAC traction improves; near-term challenges key monitorable

Inventory remains high amid expectations of a strong summer season

We interacted with management of Voltas (VOLT) to understand the current demand trend, channel inventory, cost and supply-chain pressure, and key strategic initiatives. VOLT management highlighted a healthy start to the summer season, with a delayed onset in the South largely offset by strong traction in the North and West (till first half of Mar’26). Channel inventory remains elevated at ~6-7 weeks and is expected to further rise to 8-10 weeks during the peak season. Demand continues to be driven by first-time buyers, while the transition to new BEE star-rated models is on track for full rollout by Mar’26-end. Competitive intensity remains high with aggressive discounting by peers. On the strategic front, the company is strengthening its channel tracking through its digital program, SNAP, and based on that, it takes actions to increase its sell-out share. In the EMPS segment, the business mix is increasingly domestic-focused with batter margin and faster execution cycles. We maintain our estimates for FY27/FY28. We reiterate our Neutral rating with a TP of INR1,430, based on SoTP.

Seasonal ramp-up drives volume in 4QFY26, margin recovery gradual

* Management highlighted that the summer season in India commenced in the first week of Mar’26, with a relatively delayed onset in the southern region. However, this lag was largely offset by stronger demand in the North and West, while the East also remained resilient. VOLT, given its strong presence in North and East India, remains well positioned and has not seen any adverse impact from the delayed southern demand. Primary sales have picked up steadily, with a sharp acceleration visible in Mar’26, which is expected to deliver volumes equivalent to the combined sales of Jan-Feb’26, aligning well with internal targets.

* Inventory remains elevated currently at 6-7 weeks, in line with seasonal trends, and is expected to rise to 8-10 weeks during the peak season. While first-time buyers remain a key growth driver, demand could be temporarily impacted by volatility in summer intensity. The transition to new BEE starrated models is underway, with full-scale rollout expected by Mar’26 end. The new BEE-rated products offer ~7-8% electricity savings. Given the frequent upgrades in energy norms, replacing a 10-year-old unit can result in up to ~40% reduction in power consumption, reinforcing the long-term value proposition for consumers.

* The industry continues to witness increasing competitive intensity, with new entrants adopting aggressive discounting strategies to capture share in a low-penetration market. VOLT is focusing on balancing margin expansions and gradual market share gains. The company is comfortable operating at ~17-18% market share and aims to grow to ~19-20%. While the company targets high single-digit margin in the medium to long run, margin volatility continues in the near term due to commodity inflation and higher competitive intensity.

AI-led branding, channel digitization, and pricing action amid higher costs

* VOLT rolled out its 2026 flagship campaign, “Har Ghar Voltas,” anchored around delivering tailored comfort for every member of the household. By highlighting AI-enabled appliances that learn and adapt to daily routines, the campaign targets younger, tech-savvy consumers while reinforcing the brand’s longstanding reliability among existing customers.

* In sales/distribution initiatives, VOLT has designed a digital structured network acquisition program (SNAP) to strengthen its channel tracking. It aims to track market share across its 30k touchpoints (26k has already been covered), enabling better monitoring of secondary sales and improving sell-out share.

* From a cost perspective, input pressures have modestly increased. So far, it is not seeing any supply issues in sourcing LPG, and if there is any such concern, it may shift toward alternative sources such as electricity and oxy-acetylene. Gas costs (LPG) account for ~1% of BOM cost. However, broader cost pressures, including plastics, freight, and INR depreciation, have led to a ~2% increase in BOM in recent weeks. Copper, constituting ~15% of BOM, remains a key cost driver. In response, the company has implemented price hikes in the range of ~5-15%, factoring in both BEE rating changes and raw material cost inflation.

* The company is also implementing cost optimization initiatives (has tie-up with a third-party consultant), including procurement efficiencies and value engineering, through a structured program initiated ~6-7 months ago. It expects benefits to start reflecting from 2QFY27.

Disciplined order intake and data center push to drive EMP

* In the electro-mechanical project (EMP) segment, the company has adopted a more disciplined approach to order intake, focusing on projects with better margin visibility and faster execution cycles, particularly within the MEP space and data center opportunities. With refined bidding criteria and improved execution capabilities, management expects order inflows to pick up going forward. Importantly, increasing investments in data centers by large corporates present a structural opportunity, where VOLT’ engineering capabilities position it well to capture higher-margin, technically complex HVAC projects.

* Geographically, the business is increasingly domestic-focused, with international order book contributing ~15-20%, primarily from the Middle East. However, this share is gradually declining due to working capital challenges, subcontractor positioning and geopolitical concerns. The company is consciously prioritizing domestic opportunities, particularly in infrastructure, industrial, and data center segments.

* In the emerging data center segment, the company sees a strong opportunity across cooling solutions, including RAC-based, liquid cooling, and high-capacity chillers. While large players typically supply core cooling systems, the company can participate through product supply, customization, and installation (including MEP and piping work). Moreover, data center projects have a faster turnaround (~9-12 months) compared to government-led water and solar projects (~3-4 years).

* It has already invested over INR5.2b in its Chennai plant, which currently has a capacity of 1.5m units and is being further increased to ~2m units with small incremental investment. In addition, it is investing INR1.0b in its Waghodia plant.

Valuation and view

* Management remains optimistic about the demand outlook, supported by seasonal tailwinds and structural growth drivers. The focus remains on driving strong growth, improving margin and market share, and capitalizing on emerging opportunities in high-growth segments such as data center and domestic infrastructure.

* However, unseasonal rains in multiple cities (Karnataka, North, MP) in the second half of Mar’26 reduced the summer intensity initially (vs. the first half). Moreover, higher channel inventory, increased competitive intensity (aggressive discounts, schemes and services offered by peers) and cost pressure remain near-term challenges. We maintain our earnings estimates for FY27/28.

* We estimate a CAGR of ~15%/45%/54% in VOLT’s revenue/EBITDA/PAT over FY26-28, albeit on a low base. In UCP, we estimate a revenue CAGR of ~17% over FY26-28 and margin of 7.8%/8.3% in FY27/FY28 (vs. 3.8%/8.4% in FY26/FY25). The stock is currently trading at 45x FY27E EPS (vs. long-term P/E average of ~55x). We maintain our Neutral rating on the stock with a TP of INR1,430, based on 45x FY28E EPS for the UCP segment, 20x FY28E EPS for the PES and EMPS segments (each), and INR20/share for Voltbek.

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