Reduce Voltas; target of Rs 800 HDFC Securities

HDFC Securities recommended reduce rating on Voltas with a target price of Rs 800 in its research report dated October 20, 2023.

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October 22, 2023 / 19:51 IST

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HDFC Securities' research report on Voltas

Voltas’s Q2FY24 print was a mixed bag as revenue growth of 30% was ahead of our expectation of 19%, led by a beat in EMPS. However, continued slippages in collections (leading to provisions of INR 860mn) for its EMPS business led to a miss in overall earnings. UCP revenue grew in line at 15%, led by 20% volume growth (air cooler +50%; RAC +15%). With strong Onam sales, the RAC industry remains optimistic about upcoming festive season sales. RAC market is consolidating with the top 7-8 brands eyeing market share gain. Voltas' market share in RAC remains a concern, Jun’23 exit market share at 19.5% vs 22.8% YoY, 20.6% QoQ. Voltas is trying to address RAC share by investing in the backend (capex of INR 5bn is undergoing) as well as on the marketing front. UCP market share and EBIT margin have contracted (both down +500bps) over the last two years, still, there is no clarity of bottoming out. We are positive for the RAC category but we would wait for more clarity to see if Voltas is regaining lost ground.

Outlook

We maintain our UCP estimates while cutting EPS by 20% for FY24 and flat for FY25/26 to reflect provisions for EMPS business. Our SoTP (UCP/EMPS/EPS P/E at 32/15/15x and Volt-Beko P/S of 4x) on Sep-25 derives a TP of INR 800. Maintain REDUCE.

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