Voltas’ electro-mechanical segment disappoints in Q2, cooling brings comfort

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26 Aug, 2025 12:21

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Voltas Ltd.’s consolidated operating revenue increased by a mere 5 percent year-on-year to Rs 1,669 crore in the three months ended September.

The slower pace of growth can be attributed to the subdued performance of the electro-mechanical projects and services (EMPS) segment. A slowdown in domestic execution due to erratic rains hurt the segment, leading to a 28 percent drop in EMPS business revenue, which accounted for 32 percent of the company’s overall revenue in Q2.

The segment’s margins contracted by 233 basis points from the June quarter. One basis point is one-hundredth of a percentage point.

The outlook for the EMPS business isn’t exactly upbeat. As analysts from ICICI Securities said in a report on November 2, “With the persisting logistical challenges combined with high material costs, the near-term outlook on margin improvement remains weak. Orderbook in the segment also remains low at Rs 5,800 crore, limiting execution visibility.”

Voltas derived 60 percent of its revenue from the unitary cooling products (UCP) business during the quarter, which saw 34 percent year-on-year revenue growth. The robust performance of the UCP segment helped offset the weakness from the EMPS division.

The UCP business recovered well, with overall volume growth of 24 percent. Volume growth in room air-conditioners stood at 19 percent. Volume growth in commercial refrigeration products and air coolers was faster at 31 percent and 78 percent, respectively.

Growth in air-conditioners was led by sales in the category of inverter ACs. Voltas derived its remaining revenue from the engineering products and services business, which put up a good show.

Overall, Voltas’ EBITDA (earnings before interest, tax, depreciation and amortisation) increased at a faster pace of 32 percent to Rs 129 crore.

“Despite the headwinds, overall EBITDA margin has improved by 150 bps YoY on the back of gradual price increases taken by the company in UCP segment combined with prudent cost management,” said ICICI Securities.

It is possible that demand may see some moderation given that the key summer season for Voltas is now behind. In any case, the sharp run-up in Voltas shares suggests that investors are capturing a good portion of the optimism into the price. So far this calendar year, the Voltas stock has appreciated by about 48 percent to Rs 1,221.20 on the BSE.

“We maintain AC industry volume growth of 25 percent/30 percent/12 percent over FY22-24F, which implies about 11 percent CAGR over FY19-24F, in line with past trends,” analysts from Nomura Financial Advisory and Securities (India) said. “However, there is a risk that high-cost inflation could impact margins.”

F stands for forecast. CAGR is compound annual growth rate.

Voltas has taken 3-5 percent price hikes in October to cope with rising cost pressures. However, the extent to which this would offset higher costs remains to be seen.

“For the UCP business, we expect 20 percent/29 percent/15 percent year-on-year revenue growth (14 percent/29 percent/14 percent earlier) but lower EBIT margin by about 50 bps to 12.5 percent/13 percent/13 percent in FY22F/23F/24F,” the Nomura analysts added in a report on November 2. “We lower revenue CAGR for the project business to 3 percent over FY20-23F (from 5 percent earlier). Overall, our FY22-24F EPS (earnings per share) estimates remain largely unchanged.”

EBIT is earnings before interest and tax.