Despite a cool-off in raw material prices, Voltas has not taken any price cuts this year. Rather, the management said in an investor meeting that it is planning price hikes in April. This makes Nomura positive on the stock.
It has a Buy rating on Voltas with a target price of Rs 1,083, which indicates a 25 percent upside from the previous close.
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"Over the longer term, we expect AC industry growth visibility to remain high due to low penetration levels and latent demand (high average temperatures). Competitive intensity remains unsustainable and operating leverage/price hikes will likely be margin tailwinds for FY24F," Nomura said in its report.
In the investor meeting, the management also highlighted that while industry EBIT margins may remain at single-digit levels, Voltas should be able to touch ~9 percent in the near term.
"Further improvement will likely be led by industry consolidation and PLI incentives over a period," the top brass said. The company's operating margins have been ranging between 2-5 percent in the past few quarters.
The company also plans to be more aggressive on VoltBek with higher SKU launches and expansion of its distribution channel by ~1.5x in FY24.
According to a Nielson report, Voltas' RAC (Refrigeration & Air Conditioning) market share was ~19 percent in January 2023. While secondary sales in January 2023 were lower relative to December 22, management expects it to pick up in April, as per Nomura.
The stock has been on a rollercoaster ride over the past month on opposing views from foreign brokerages. While Jefferies believes abnormal heat waves can spur demand, Goldman Sachs says that even during peak warm years, industry grows at only 6-8 percent.
At 12 pm, the stock was quoting at Rs 878.80 on the NSE, higher by 1.7 percent. It has gained 2.3 percent in the last month.
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