PL Stock Report: Voltas (VOLT IN) - Q2FY24 Result Update – Margins contracted, focus on RAC market share - HOLD

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

Rating: HOLD | CMP: Rs819 | TP: Rs909

Q2FY24 Result Update – Margins contracted, focus on RAC market share

Quick Pointers:

§ Remains leader in RAC Market with market share of 19.5%.

§ Losses in EMPS segment continue, due to delay in collections.

We downward revise our FY24/25E adjusted earnings by 16.6%/1.0% to factor in margin contraction in EMPS business from delay in collections and higher overhead expenses. Voltas continues to be a market leader and has sustained leadership position in overall RAC business with its exit market share of 19.5% in Aug-23 (v/s 20.6% in Jun-23) driven by 1) incentive schemes across sales channel, 2) healthy tie ups with modern trade & organized channels and 3) growing network of EBOs. The company also reported volume growth of 20% in RAC, despite lower consumer spend towards discretionary spend in a generally lean quarter. Management expects good volume growth in the upcoming festive season and expects downtrend of inflation, stagnant interest rates and fulfilling monsoon season to help revive rural demand. Voltas Beko saw a volume growth of 40% YoY, outperforming the industry. We estimate FY24-26E Revenue/EBITDA/PAT CAGR of 14.9%/25.1%/35.6% with RAC volume CAGR of 12.0% and EBITDA margin of 7.8% in FY26E. Maintain ‘HOLD’ at SOTP based TP of Rs909.

Revenues grew by 29.7% YoY; Adj. PAT down by 63% YoY: Revenues grew by 29.7% YoY to Rs22.9bn (PLe: Rs20.3bn), led by growth in Unitary Cooling Products (UCP) business (+15.4% YoY) and EMPS business (66.8% YoY). EPS revenues decline by 2.1% YoY to Rs1.3bn. Gross margins expanded by 10bps YoY to 24.5%. (PLe: 21.2%). EBITDA declined by 30% YoY to Rs703mn (PLe:Rs1.2bn). EBITDA margin contracted by 260bps YoY to 3.1%. (PLe: 6%), due to increase on overhead expenses as %rev. to 13.0% from 8.8% in Q2FY23. In terms of segmental EBIT margin, UCP segment margin came at 7.6% (-40bps YoY), whereas EMPS reported loss of Rs490mn.PBT declined by ~21% YoY to Rs1.2bn (PLe:Rs1.6bn). Adj. PAT declined by 63% YoY to Rs366.8bn (PLe:Rs918mn). VOLT’s share of loss from JV and associates stood at Rs332mn, vs our est. loss of Rs258mn. EMPS’s carry forward order book grew 45% YoY at Rs86.8bn, increased QoQ from Rs81.9bn in Q1FY24 (up 6% QoQ).

Concall Takeaways: 1) Q2 is considered a lean quarter for UCP segment, however, Voltas achieved volume growth of 20% YoY mainly with focus on the retail channel and product mix within the UCP category, in spite of a higher base of Q2FY23, 2) RAC accounted 80% of UCP business in Q2FY24, 3) Mgmt is confident that focus on customer retention and retrofit jobs will continue to support overall growth, 4) Though market share is below Jun’23 levels (20.6%), Voltas maintained market leadership with exit market share of 19.5% in Aug’23, 5) Commercial refrigeration vertical witnessed muted growth, on account of cautious investments by B2B due to lower demand of cold beverages, chocolates and ice-creams, 6) Air Cooler vertical witnessed >50% YoY volume growth with an exit market share of 7.7% as of July’23, 7) EMPS order book for domestic projects stood at Rs5.3bn containing orders across Water, HVAC, Rural Electrification and Urban infra activities; International order book stood at 3.3bn largely in UAE, Qatar and Saudi Arabia, 8) Voltas Beko secured a market share of 5.4%/3.3% (vs 5%/3.5% in 1QFY24) in the Washing Machine/refrigerators.

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