Voltas outperforms peers in a challenging quarter marred by lockdowns

The company gained market share in room air conditioners, improved margins

Voltas impressed with its June quarter performance, outperforming peers in a challenging quarter marred by lockdowns. Though the impact on revenues and profits was visible, the positive was its ability to expand its market leadership in the air conditioner business. Voltas' year-to-date market share stood at 26.2 per cent at the end of June quarter (24.2 per cent in previous quarter).

Within segments, Voltas also gained share in inverter ACs.
 

The unitary cooling products segment (primarily AC’s) saw revenues decline almost 60 per cent year-on-year as sales were impacted by the lockdown in the seasonally strong summer season. What helped was its strong position in the North India market of 40 per cent. The heat wave spell helped AC sales aiding Voltas’ share gains compared to peers such as Blue Star which have a stronger presence in South India, feel analysts.
 

Notably, the company has also gained share in the inverter AC segment which aided segment margins. The 240 basis points year on year expansion to 15.5 per cent surprised the street . Among other things, the lower promotional spends and carry forward of low cost inventory too have benefitted the company.
 

While sales and the outlook are gradually improving, the September quarter could be a dull one given it is a seasonally weak one and is impacted by the monsoons. Nevertheless, analysts say that strong market share gain means that channel inventory position too must have come down compared to peers and should bode well for Voltas.
 

The company’s projects segment (electro-mechanical projects and services) too saw sales decline by 37 per cent year on-year.

The slow pace of execution of projects apart from conservative time-based provisions, amidst liquidity constraints  meant that the  segment reported a loss of Rs 39.28 crore at the operating level during the June quarter. The outlook for the project's business remains weak in the near term nevertheless analysts say that the segment should bounce back ahead of peers.
 

Blue Star too felt the heat and saw its project (electro-mechanical projects and commercial air-conditioning sales) business decline 49.9 per cent. Analysts say the pace of project executions was slower, subject to clients’ ability to support execution with cash flows and labour. Blue Star, though, is well placed to navigate the challenging situation, given its strong balance sheet. What will take time are cooling projects related to malls and other real estate segments where the recovery is expected to be slow.
 

Tarang Bhanishali at Yes Securities points out that Voltas may see a faster recovery than Blue Star given that its order book is dominated by Metro cooling, rural electrification and other government projects. He prefers Voltas over Blue Star.
 

Analysts at Motilal Oswal Financial Services too prefer Voltas over Blue Star as a play on the underpenetrated AC market in India. Voltas has witnessed a strong rally of 44 per cent from May lows and is now trading at 30 times its FY22 earnings estimates. Thus investors may accumulate the stock on corrections. Blue Star on the other hand is trading at a premium to these valuations. The stock trades at 33.6 times its FY22 earnings estimates.