Red-hot growth projections point to cooler outlook for Voltas stock

Voltas delivered excellent results in the April-June quarter of 2024-25 (FY25), which may have been partially driven by seasonal factors. Other refrigeration plays like Blue Star also did well. Apart from seasonal demand, there was growth from projects which indicates more general revival.

Voltas saw strong growth in both UCP (Unitary Cooling product) and EMPS (electro mechanical projects) segments. It reported a profit in EMPS versus expectations of loss.

Revenue stood at Rs 4,920 crore well above consensus. The Ebitda was Rs 420 crore again beating Street estimates. The Ebitda margin was up 310 basis point (bp) year-on-year (Y-o-Y) to 8.6 per cent. The adjusted PAT jumped 159 per cent Y-o-Y to Rs 330 crore.

The management indicated that UCP volume grew 67 per cent Y-o-Y, and Voltas maintained leadership position in the RAC segment (Room AC) with market share of 21.2 per cent as of June 2024.

 

Voltas sold 1 million units of ACs and the market share is a gain over 18.7 per cent in FY24-end. The UCP margin improved 35bp Y-o-Y to 8.6 per cent in Q1FY25.

In EMPS, domestic project demand grew and outlook remains positive. In international projects, UAE and Saudi Arabia led in terms of revenue growth, and strong execution and cost control led to profits, after losses in the last six quarters. All this has led to earnings upgrades by analysts. The maintenance of profits in EMPS is a key monitorable.

The consolidated revenue grew 46 per cent Y-o-Y to Rs 4,920 crore, while Ebitda grew 129 per cent to Rs 420 crore, and Adjusted PAT was up 159 per cent to Rs 330 crore. All this was well above expected levels. But the gross margin dipped 20bp Y-o-Y to 20.9 per cent.

Segment by segment, UCP revenue was up 51 per cent Y-o-Y at Rs 3,800 crore and earnings before interest and tax (EBIT) rose 58 per cent Y-o-Y to Rs 330 crore with an EBIT margin up 35bp to 8.6 per cent.

The EMPS revenue grew 40 per cent Y-o-Y to Rs 950 crore with an EBIT of Rs  67.5 crore versus an EBIT loss of Rs 51.9 crore in Q1FY24.

In PES (Planned Environmental Services), revenue grew by 13 per cent Y-o-Y to Rs 160 crore, while EBIT declined 17 per cent to Rs 44.8 crore and the EBIT margin was down sharply from 37 per cent to 28 per cent.

In the projects business, strong execution, good assessment of cost and profitability have led to a turnaround after challenges for many quarters. The project order book continues to grow, and the division has a positive outlook given increased infrastructure spend.

In comparison, Blue Star posted revenue growth of 29 per cent Y-o-Y in Q1FY25, with growth in UCP segment of 44 per cent Y-o-Y, led by strong demand for RAC.

The EMPS business grew 9 per cent Y-o-Y, led by orders from factories and data centres. The professional electronics and industrial systems (PE & IS) business grew 23 per cent Y-o-Y, due to traction in data security.

Industry and company-specific prospects seem good. Voltas could see an Ebitda CAGR of 50 per cent during FY24-27 along with adjusted PAT CAGR of 75 per cent due to a low base.

The return on equity (RoE) may rise to 15 per cent or more from a low of 4 per cent in FY24. The UCP margin has room for improvement. There’s visibility of high demand for ACs which could drive 15-20 per cent volume growth till FY26 at least. Inventory has been mopped up and PLI incentives could push up margins.