Margin pressure to offset market share gain for Voltas: BoAML

Voltas saw some selling pressure on Monday as investors turned cautious on the stock after analysts pointed out a few concerns. Even as the company is gaining market share, its margin compression will hit the company’s prospects, said Bank of America Merrill Lynch in a report. “We expect margin compression to offset market share gains for Voltas –restricting its EPS CAGR to 15 percent in FY17-19. We cut our FY17-19 EPS estimates by 0-4 percent,” the research firm said in a report. It has reiterated its underperform rating on the stock. With a possibility of new norms for inverter ACs from next year, the move may expedite a shift to inverter ACs, which form 10 percent of the overall AC market currently, the firm wrote. This remains a key risk to Voltas’ market share. However, this shift would be gradual, especially in Tier –II and III towns as low running time and poor power quality will restrict its uptake by price-conscious and first time buyers, it said. “In the interim, Voltas would jump in to capture a share of 15-18 percent market vacated by LG,” the report from Bank of America Merrill Lynch added. Gains in market share are likely to be offset by loss in margins, the BofA-ML said. “Prices of LG’s 3-star inverter AC have already converged to those of 5-star fixed speed ACs – resulting in pressure on prices of 3-star/ 5-star fixed speed ACs (majority of Voltas’s sales),” it added in its report. Furthermore, Voltas needs to scale up its presence in inverter ACs, it observed in the report.