Voltas Ltd. share price target

We interacted with the management of Voltas (VOLT) to gain insights into current demand trends, as well as its views on compressors, margins, market share, and more. Management believes that current demand trends for RAC remain strong, and its focus will be on growing faster than its peers.

Topline grew 18% YoY in Q3; EBITDA margin expanded 530bps YoY fueled by better cost efficiencies

Voltas (VOLT)’s 3QFY25 EBITDA was largely in line with our estimate as higherthan-estimated revenue was offset by lower-than-estimated margin in UCP (5.9% v/s estimated 7.8%).

Voltbek, which is still in an investment mode, is likely to be value accretive from FY25, in our view. It has focussed on gaining volumes and market shares since its inception in FY18. We believe it will have market share of ~10% in its both the key categories i.e. refrigerators and washing machines in next couple of years.

Voltas’ UCP segment continued its strong performance, delivering 31% y/y revenue growth in Q2 and 56% y/y RAC volume growth in H1 FY25.

Voltas (VOLT)’s 2QFY25 earnings were above our estimates, led by higher than-estimated revenue/EBIT growth in the UCP segment and higher margin in the EMPS segment.

Topline surged 46.5% YoY in Q1; EBITDA margin expanded 310bps YoY, boosted by nationwide heatwave

Voltas (VOLT)’s management in the 1QFY25 earnings call indicated that it maintains its leadership position in the RAC segment, with a market share of 19.5% in 1QFY25.

Voltas (VOLT)’s 1QFY25 performance was above our estimates, led by higher-than-estimated revenue growth in the UCP and EMPS segments, and a profit in EMPS vs. our estimate of a loss.

Despite denting market share, VOLT notched sales of more than 2mn AC units

Key observations: (1) Unitary cooling products (UCP) segment has reported a strong 44.2% revenue growth (higher than Blue Star and Havells – Lloyd).

KECI: Good quarter, T&D to pull topline and margins; upgrade to BUY. ACEM: Cost savings key driver; upside priced in, retain HOLD. LPC: Stable margins; higher tax weighs on PAT. VOLT: Margins falter; domestic business promising. MPHL: Modest growth; BFSI yet to pick up. BRIT: Expect strong volume growth ahead. DRRD: Driven by North America; India continues to underperform

MSIL: Healthy all-round performance raise to BUY. DRRD: Buoyant US sales drive performance. VOLT: UCP improving, Qatar business a dampener. DIXON: Mobile business dials up growth; maintain BUY. KJC: Soft demand, intense competition mar quarter. BLSTR: Purple patch continues; maintain BUY. KECI: Pipeline robust, margin improvement delayed. ABSLAMC: Double-digit growth but market share bleed continues. Metals & Mining: Jindal Stainless: Management meet takeaways

Three observations from Q2FY24: (1) The RAC segment will likely go through a phase of low RoCE with strong increase in production capacity. While PLI benefits may provide relief in the interim, we model steep competition and excess capacity to hurt RoCE. (2) The B2B market is growing at healthy pace with revival in capex cycle but it is likely to result in lower margins considering excess provisioning in some of the international projects in near term.

Q2 mixed with UCP performing well (+ 15% YoY) but EMP continuing to post losses due to collection disputes