Voltas impresses street, scores over peers with strong show in Sep quarter

Better than expected performance, market share gains in room ACs improve earnings outlook

A strong September quarter (Q2) performance by Voltas impressed the Street, with the stock touching a 52-week high and closing up 5.06 per cent on Monday. 

While it gave up part of these gains on Tuesday (down 3.4 per cent), the same could be attributed to profit-booking after a near-35 per cent rise over the past three months, which has made valuations rich. With the outlook for Voltas remaining good, analysts believe a correction would be a better entry point.

The firm’s 14 per cent volume growth in Q2 was led by an increase of 11 per cent in room air conditioners (ACs), 20 per cent in commercial refrigeration products, and 28 per cent in air coolers — which together drove growth in its Unitary Cooling Products (UCP) segment. 

Voltas maintained its leadership in the room AC segment, with market share rising to 26.8 per cent by August, from 26.2 per cent in the June quarter (Q1). Helped by strong sales momentum, net sales grew 10.4 per cent year-on-year.

With this showing, it raced ahead of peers such as Blue Star. Being most comparable, Blue Star saw revenues decline 28 per cent YoY with its projects business, UCP segment, and professional electronics sales declining 31 per cent, 16 per cent, and 52 per cent, respectively. 

Lloyds (under Havells), on the other hand, saw a comparatively better performance, with revenues growing 56 per cent though on a much smaller base. Lloyds’ revenues stood at Rs 280 crore, compared to Rs 902 crore of Blue Star and Rs 1,651 crore of Voltas.

Voltas’ strength in the retail room AC segment continues to help. Blue Star, though a formidable player, has a higher component of commercial sales (offices, projects and others). It is, however, recovering and expects the momentum to continue through the festive season. 

Blue Star expects the market to reach 100 per cent of last year’s level by December. While Blue Star maintained market share in room ACs at 12.7 per cent in Q2FY21, analysts at Anand Rathi say the company’s ability to expand market share remains the key monitorable.

For Voltas, the strong Q2 — following the better-than-expected Q1 — has added to confidence, suggesting it is better placed than peers. 

Q1 sales remain crucial for AC players to drive annual performance, with the March-June period being peak summer. Voltas, having already reaped benefits of heat wave conditions (immediately after the easing of lockdown) in the north during Q1, is better placed on the inventory front.

In the projects segment (electro-mechanical projects and services), too, Voltas’ revenues grew 15 per cent YoY to Rs 928 crore, with a carry-forward order book of Rs 6,852 crore. For Blue Star, order book for the electro-mechanical projects business stood at Rs 2,070 crore.

Voltas beat estimates in operating performance, too. Operating profit at Rs 98 crore was ahead of Motilal Oswal Securities’ estimate of Rs 64 crore. Consequently, adjusted net profit at Rs 78.4 crore beat expectations of Rs 57 crore. 

Voltas is expected to further benefit from the launch of its white goods range under a joint venture with Turkey’s Arcelik (Voltas Beko). It is investing in a facility at Tirupati for the manufacture of white goods and cooling products, and should see benefits in margin as well as improved supplies of cooling products to South India. 

Investments are also positive, with an import ban of ACs and components from China taking effect. The AC import ban is expected to benefit all organised AC players, helping them gain market share.

The firm has also proposed restructuring of its domestic projects business into a separate wholly-owned subsidiary, for facilitating better focus on consumer-oriented businesses.

Overall, while Voltas continues to grow well, it has strong prospects in an under-penetrated AC market. 

In the consumer durables space, Emkay Global favours Havells and Voltas thanks to their businesses, market share strengths, and superior management execution capabilities. 

However, it cautions that valuations are expensive. Motilal Oswal, too, awaits a better entry point for Voltas.