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Sales soars on strong Summer demand

RAC Q4 volume growth at 72%, FY24 at 35%

Voltas (VOLT IN) unitary cooling products (UCP) revenue rose 44% YoY to INR 29.6bn in Q4FY24. This was primarily driven by RAC volume growth of 72% in Q4FY24 and 35% in FY24, as split AC sales doubled in Q4, and grew 50% in FY24. A strong Summer coupled with the rise in distribution network and new launches propelled UCP revenue surge. Revenue from commercial air conditioning experienced robust growth; however, the inability to pass on price hikes in raw material prices and increased competition dragged margin. Commercial refrigeration saw muted demand, owing to lower offtake in the chocolate industry. Air coolers growth was driven by acceptance of the high-end product portfolio, channel expansion and tactical distributor schemes.

RAC market share woes continue 18.7% as on March 2024

The market share in room AC (RAC) continues to decline for VOLT, with an exit share of 18.7% as on March 2024 (19.0% in December 2023 and 19.5% in August 2023). Despite huge volume growth, VOLT continues to lose market share on the back of increased competition in the RAC industry, as brands, such as Lloyd and Daikin resort to aggressive pricing to increase market share while VOLT seeks to maintain the balance between market share gains and margin.

EMP sales surges 47% YoY; collection problems persist

Revenue from the electromechanical project (EMP) surged 47% YoY to INR 10.9bn in Q4, led by healthy orderbook and timely execution. The domestic segment rose 38% YoY in Q4 and 73% for FY24 on healthy backlog. However, collections in Qatar may continue to face delays for some quarters. Total losses from Qatar amounted to INR 3.4bn in FY24.

Valuation: revise to Sell with a higher TP of INR 1,190

We lower our FY25E EPS by 6% on weak profitability in RAC but raise our FY26E EPS by 6% as we expect break-even in Voltas Beko JV. We raise our TP by 14% to INR 1,190 from INR 1,040 based on 35x (unchanged) March 2026E P/E as we roll forward. We revise our rating to Sell from Reduce as installed capacity in RAC at the industry level is likely to jump significantly compared to a demand CAGR in RAC of 12% during FY24-26E. We expect an earnings CAGR of 38% during FY24-26E and an average ROE of 13%. The rise in RAC exports, faster turnaround in Voltas Beko and recovery of provision in the EMP business would propel rerating.

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