PL Stock Report: Voltas (VOLT IN) - Q1FY24 Result Update - Sequential market share gain, volatile margins continue - HOLD

Voltas (VOLT IN) - Praveen Sahay - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: HOLD | CMP: Rs829 | TP: Rs831

Q1FY24 Result Update - Sequential market share gain, volatile margins continue

Quick Pointers:

§ Sequentially improvement in RAC marketshare, reached 20.6% end of Jun-23.

§ Healthy revenue growth of 49.3% in EMPS segment.

Voltas (VOLT) has reported reverse trend in its RAC market share, reach to 20.6% at the end of Jun-23 (vs 18.2% in Feb/Apr-23) driven by incentive schemes across sales channel, healthy tie ups with modern trade and organized channels, growing network of EBOs, which is directionally positive for company. Also, it reported volume growth of 15% in RAC mainly with aggressive consumer finance schemes, wide SKUs, strong channel & network presence coupled with revival of the demand in Jun-23 while price competition continue in sector. Management expects good volume growth in upcoming festive season and we believe with competitive pricing, margins will be impacted. Besides that - challenges related lower margins in project business and losses in Beko JV, will also continue. Yet better traction in order flow from domestic project business and healthy order book of Rs 81.9bn provides visibility for EMPS segment. We estimate FY23-25E Sales/EBITDA/PAT CAGR of 14.2%/30.2%/43.8%, with RAC volume CAGR of 12.0% and EBITDA margin of 7.8% in FY25E. Maintain to ‘HOLD’ at SOTP based revised TP of Rs831 (earlier Rs 813).

Revenues grew by 21.4% YoY; PAT up by 18.8% YoY: Revenue grew 21.4% YoY to Rs33.6bn, led by growth in UCP (16.3% YoY) and EMPS business (49.3% YoY). EPS business revenue grew by 14.5% YoY. Gross margin expanded by 60bps YoY to 21.1%. EBITDA grew by 4.7% YoY to Rs1.85bn (PLe: Rs2.18bn). EBITDA margin contracted by 90bps YoY to 5.5%. (PLe:7.4%) vs cons est 8.3%, due to increase on overhead expenses as %rev. to 10.2% from 8.7% in Q1FY23. In terms of segmental EBIT margin, UCP segment margin came at 8.2% (+60bps YoY), whereas EMPS reported loss of Rs125mn. PBT grew by 22.3% YoY to Rs2.34bn (PLe: Rs2.26bn), due to higher other income (up 161.6% YoY). PAT grew by 18.8% YoY to Rs1.3bn (PLe: Rs1.5bn). VOLT’s share of loss from JV stood at Rs310mn. EMPS’s carry forward order book grew 53% YoY at Rs81.9bn (majority from domestic).

Concall Takeaways:.1) Q1 consider to be high growth quarter, however, erratic weather conditions in April and May, especially in North and West India, strongest markets for Voltas, dampened the demand. 2) Voltas achieve volume growth of 15%, higher than the overall industry growth on YoY, mainly with aggressive consumer finance schemes, wide SKUs, strong channel & network presence coupled with revival of the demand in Jun-23. 3) Voltas improved market share at the end of Jun-23 to 20.6% (vs 18.2% in Feb/Apr-23), driven by incentive schemes across sales channel, healthy tie ups with modern trade and organized channels, growing network of EBOs. 4) Commercial refrigeration reported lower growth on a higher base & also impacted due to disruptive weather. 5) Air cooler grew by 49% in volume with improved gross margins. 6) Order book for domestic projects stands at Rs. 5.2bn containing orders across Water, HVAC, Rural Electrification and Urban infra activities.7) Voltas Beko securing a market share of 5%/3.5% in the Washing Machine/refrigerators. 8) Inverter RAC contribution reached to 80% of overall RAC sales.

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