Rising demand for room air-conditioners pushes up Voltas's stock

Distribution expansion, launches may perk up firm's showing

The stock of Voltas, the country’s largest room air- conditioner (RAC) maker, is up 22 per cent in the past three months. Robust demand on the back of a sweltering summer, distribution expansion, slew of launches and backward integration are expected to forge a good operating performance for the company.

In the core RAC segment, there are multiple triggers for the company. Lower inventories (due to severe summer season) and strong demand (50 per cent higher than off season) have helped AC majors to raise the prices of their products. Voltas, according to Prabhudas Lilladher Research, has hiked prices by 3-5 per cent.  
 

Praveen Sahay of the brokerage expects volume growth in Q1FY25 for the company to be robust considering a 9.5 per cent annual revenue growth of over Q1FY20-24 and 16.3 per cent year-on-year (Y-o-Y) growth in Q1FY24 in the cooling segment.
 

The domestic Electro-Mechanical Projects (EMP) and services business saw a 38 per cent growth Y-o-Y given the healthy carry forward order book position. The company highlighted that timely execution, focus on certification and other related project management initiatives have led to a robust bottom-line growth over the previous year. 

 

The company has maintained a positive outlook for the domestic projects business given the increased infrastructure spending in the country.
 

The international business within this segment, however, was impacted due to a delay in receivables largely from Qatar which impacted overall profitability. 
 

Given the delays, the company made further provisions, which resulted in a loss of Rs 108 crore for the quarter. The order book for the international business, however, remains robust at Rs 3,000 crore as of FY24.  
 

JM Financial Research expects the company to post an annual revenue growth of 19 per cent and earnings growth of 114 per cent (low base) over FY24-26. 
 

Deepak Agarwal and Bhavanishankar Kumawat of the brokerage believe that the growth (in the cooling products/consumer business) will mainly be on account of long-term demand drivers for AC, PLI on components, market leadership position and Beko (home appliances). 
 

Further, the increasing its penetration through channel expansion and improving its sourcing through backward integration and localisation would enhance the overall growth trajectory. 
 

In the EMP business, strong domestic order book and revival in the international market will add to growth/margins, say analysts from JM Financial Research. 
 

The brokerage has a buy rating with a target price of Rs 1,770 per share. The key risk for the cooling products category, however, is the high level of competition which could cap margins, says the brokerage.
 

Elara Capital has lowered its FY25 earnings by 6 per cent post the March quarter results due to weak profitability in RAC. 

It has, however, increased its FY26 earnings by 6 per cent as it expects break-even in the Voltas Beko joint venture. 
 

It has revised its rating to sell from reduce as installed capacity in RAC at the industry level is likely to jump significantly compared to an annual demand growth in RAC of 12 per cent during FY24-26E. 
 

The rise in RAC exports, faster turnaround in Voltas Beko and recovery of provision in the EMP business would propel a rerating for the company, say analysts led by Harshit Kapadia of the brokerage.