Voltas Rating: Buy and demand outlook bodes well for the company


Demand Outlook: 1) Due to severe heat wave in many parts of India, demand for room air conditioning products was robust in the second half of March-22 and April -22. Demand softened in May-22 months due to a) a high base in April-22, 2) the seasonality of the category as well as 3) some underlying slowdown. We remain confident that the room air conditioning industry will post 25% volume growth in FY23 and that the overall demand scenario for the room air conditioning category will be much more resilient than other durable goods. .

Market share: At a recent analyst meeting, management pointed out that early indicators suggest the company gained about 200 basis points in market share in Apr-22. This gain is on an upwardly revised market share of 19.6% on March 22, from 18.5% earlier. In our recent note, we sequentially highlighted the strong prospects for market share gains for Voltas. Voltas aims to recoup all of the market share loss it suffered in Q4FY22 by June 22.

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Profitability: The competitive environment remains difficult. There were no significant price increases by players despite very low profitability in Q4FY22. Voltas continues to balance its market share and profitability. It still expects to report a double-digit margin in its bedroom AC segment in the 23rd fiscal year. That said, next quarter’s margin is expected to be lower due to higher investments in A&P spending.

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Voltas-Beko JV: Management reiterated that the JV continues to target 10% market share (~4% currently) and EBITDA breakeven by FY25e.
HSBC View: The two main investor concerns about Voltas currently are: a) market share headwinds b) and possibly lower profitability over the forecast years for its control room air conditioning segment . We believe these concerns will start to look less structural and much less pronounced as quarterly results materialize, with the company sequentially gaining market share as well as margin in the room air conditioning segment returning to double-digit levels. figures. The profitability of Voltas peers was much more impacted than Voltas.

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Maintain buy, reduce TP to Rs 1,160 (instead of Rs 1,200): Our revenue estimates are unchanged, although we assume about 50-70 basis points lower profitability in the air-conditioning segment rooms during FY23e-25e (~12.0% in FY24 and FY25). This, coupled with slower industry growth assumptions for Voltas Beko JV, led to a reduction of approximately 3% in our TP.



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