Voltas dips 4%, nears 52-week low on concerns of tepid growth in RAC biz

As per management, the Room Air Conditioner business did well in April, but Voltas saw below-expected volume growth in the key month of May due to unseasonal rain.

Shares of Voltas dipped 4 per cent to Rs 750.30 on the BSE in Friday’s intra-day trade amid concerns of April-June quarter (Q1FY24) growth likely to fall short of expectations as unseasonal showers dampened summer demand. The stock of household appliances company was trading close to its 52-week low of Rs 737.60 touched on January 27.

Voltas, part of the Tata Group, is engaged in the business of air conditioning, refrigeration, electromechanical projects as an EPC contractor both in domestic and international geographies (Middle East and Singapore) and engineering product services for mining, water management and treatment, construction equipment’s and textile industry.
 

The global geo-political tensions have caused significant impacts across various businesses, resulting in rising input costs and supply chain disruptions. In addition, the global policy measures such as interest rate hikes to control inflation resulted in weakened consumer sentiment.

However, the management remains very optimistic on the Room Air Conditioner (RAC) business which will reap the benefits of the growth drivers, including hotter summers, rising disposable incomes and aspiration for a better lifestyle. Easy access to consumer finance has provided a much-needed boost to this category and will continue to do so in the future.

Household consumption was resilient and rural demand is expected to pick up in the coming years on the back of stability in the overall macro-economic environment, including tapering of inflation and higher consumer confidence, Voltas said in its financial year 2022-23 annual report.

Voltas ended FY23 with 21.3 per cent market share but has begun taking a conscious approach to balance growth and margins. Thus, market share in March and April was around 18 per cent lower than the FY23 average. The objective is to hold onto share and also protect margins as far as possible.

As per management, the RAC business did well in April, but Voltas saw below-expected volume growth in the key month of May due to unseasonal rain. Sales in the first half of June have been healthy, but the company expects the slowdown in May to weaken the growth rate for Q1FY24 to single digits from double-digit growth anticipated earlier, analysts at BOB Capital Markets said.

Based on cues from summer season demand, Voltas does not expect to take any price hikes in Q1 – making June the 13 straight month without pricing action. The benefit of lower commodity prices will take time to flow in.

Also, due to a spillover of high-cost inventory, raw material cost is likely to move up in Q1. The company indicated that SG&A expense will also rise in Q1 as it has stepped up advertising spends. Hence, management is sticking to its guidance of high-single-digit EBIT margins in the unitary cooling product (UCP) segment despite a 10 per cent exit margin in FY23, the brokerage firm said in management meet update.