By Suhani Adilabadkar

From the house of the Tatas, Voltas (which is in six stock screeners today) the market leader in room air conditioners, was jointly promoted with the Volkart Brothers of Switzerland in 1954. The name is of course synonymous with cooling products, but the firm has climbed back to market leadership after losng it conclusively post liberalization, falling to a market share of just 7% in 2001. Since then, the firm has reinvented itself with energy efficency and new technologies to win back its crown.

Voltas is also an electromechanical solution & services provider, with projects such as Burj Khalifa and Formula One race track in Abu Dhabi among its hottest names.  The firm has a diversified revenue basket as the Numero uno AC brand in India; it has also expanded its horizons through Electro-mechanical and Engineering Projects & Services across India, Middle East, Singapore and Africa.  

The Unitary Cooling Division (one of three divisions) encompassing ACs, commercial refrigeration and air coolers, the mainstay business for the company contributes more than half of its revenues and in spite of its seasonality, is the major growth driver for Voltas with large distribution networks of more than 15,000 touch points across India.

The electro-mechanical division contributes two fifths to the revenue basket and has expanded to rural electrification and water treatment projects as well.

The third business cluster, Engineering Division spans across designing, installation, commissioning,  maintenance of textile, mining and construction equipment. After 20 years, Voltas’s foray into white goods industry has both surprised analysts and bemused investors creating both anxiety and expectations for the number one AC brand of India.

Quick Takes

• Unitary Cooling Division, the mainstay business for the company contributes more than half of its revenues and is the major growth driver. March and June are seasonally strong quarters for Voltas, with the summers in full swing across India, and the unitary cooling division reports its high sales and strongest margins during these six months.

• Voltas has improved its market share from 23.20% to 25.60% YoY in September quarter FY19.

• Joint venture with Turkey’s Arcelik (Koc group), one of the top three European brands has launched, Voltas Beko brand for refrigerators, washing machines, microwaves and dishwashers.

• Voltas aims to achieve Revenue of Rs. 10000 cr in the next 6-7 years and garner around 10% market share in consumer durables industry.  

Financial Strength

After robust growth in FY16-17 with consolidated PAT and EBDITA rising 39% and 31% respectively, momentum dipped in FY17-18 as PAT was reported with just 6% YoY growth stung by GST upheaval and migration to higher energy efficient norms.

March and June are seasonally strong quarters for Voltas, with the summers in full swing across India, and the unitary cooling division reports its high sales and strongest margins during these six months. In the current September quarter FY19, operating margins were impacted by higher input costs, depreciating currency and severe competition, leading to a 60 basis points fall YoY at 7.64%.

The cooling business grew with a flattish flavour of 8% YoY whereas quarterly growth was maintained by the Electromechanical business rising 1.6 times YoY on the back of efficient execution both in domestic and international business, coupled with favourable foreign exchange impact. The order book of the Segment stood at Rs. 4883 cr.

Engineering Products Division reported 9% YoY growth contributing just 5% to the total quarterly revenues.  With respect to headline numbers, PAT grew 16% YoY Rs. 109 cr with Revenue of Rs. 1421 cr reporting 37% YoY growth in Q2 FY19. Operating Profit at Rs. 108.50 cr was on a stronger footing with 27% YoY growth and margin coming out at 7.64% against 8.26% same period previous year. Over the last five years, CAGR for PAT and EBDITA stands at 23% and 22% respectively from FY13-18 for Voltas. The company stands debt free with strong balance sheet, cash flows and low working capital requirement.

Voltas Re-engineered – Return Of the King

One out of every five ACs sold is Voltas, no doubt, and the company is regarded as ‘India Ka AC’. Voltas has improved its market share from 23.2% to 25.60% YoY in the September quarter FY19. Going in flashback mode, some 25 years, the weather was not so pleasant for the six decade old company. With the onset of liberalization in 1990s and the advent of Korean, Japanese, American companies namely LG, Samsung, Hitachi and Carrier with deep pockets, the demographics of the cooling industry shifted. The company stung with low turnover and weak margins, lost market share drastically, falling as low as 7% in 2001.

Voltas, then mainly dependent on institutional and government clients, got a wakeup call with foreign competitors offering low prices, high quality and superior technology. Swiftly getting its act together, Voltas realised the potential of retail and household demand and started focusing on higher volume generation. Following it up with a pruned cost structure, the firm revamped its distribution network and armed itself with a technologically up graded product line through a JV with Fedders International.

The aggressive positioning of the Voltas brand as an affordable household product by launching products below Rs. 10,000, breaking the premium pricing mould of AC segment made a strong connection with the common man in 2005. The company was the first one to launch star-rated ACs in 2007, complying voluntarily with the government’s energy efficient programme to provide both power efficient and economical products, which resonated well with a high tariff ridden country. 2008 came with India’s first corner AC and a new range of ACs with inverter technology. Consequently, by 2011, Voltas was crowned again as the market leader of room air conditioners emerging victorious from the morass of low growth and reduced margins.

Never Say Never Again

Six years of undisputed leadership in AC segment has emboldened Voltas to charter once again into the White Goods Industry from which it had departed in 1998. A joint venture with Turkey’s Arcelik (Koc group), one of the top three European brands has launched the Voltas Beko brand for refrigerators, washing machines, microwaves and dishwashers. The JVs manufacturing facility in Gujarat will become operational by the second quarter of next fiscal and the company also plans to export Voltas Beko Brand to Africa and other Asian countries.  Voltas aims to achieve a revenue of Rs. 10000 cr in the next 6-7 years and garner around 10% market share in consumer durables industry.

With rising incomes, easy access to credit, growing brand awareness and rural electrification and connectivity, there is a huge untapped segment in consumer durable industry. Entry into this $16 bn industry growing at a CAGR of 15% over the past five years seems to be a natural progression for Voltas. After seeing all the highs and lows of an intensely fought competitive war with both domestic unorganized and foreign counterparts, it might just be a cake walk for the ‘All Weather Company’, but who knows? So far so good, if the company stays hungry to win.