Voltbek (Voltas-Arcelik JV) substantially improves Voltas’ right to win against entrenched players in key categories. The JV will help Voltas to improve market share by leveraging on Arcelik’s, brand strength – a global name with stronghold in Europe, technological prowess through innovative products and bagful of patents, expansive product suite, and success in making inroads into EMs.
This coupled with Voltas’ strong distribution and aggressive targets for Voltbek (Rs 100 bn in sales, 10% market share, 11% margin by 2025 and to be among top 3 players in each of these categories) will pose formidable challenge for incumbent Korean giants. Voltbek announced plans to introduce 100 SKU’s with innovative features across refs, washers, microwave ovens etc. We expect product positioning in mass premium/popular category in line with its motto of “Partners of everyday happiness”. Await product launch around Diwali.
We structurally like Voltas for its strong franchise in consumer durables space, with Voltbek plugging gaps in product suite, improving order book visibility in MEP# segment and rising margin in wake of company’s cautious approach and a strong engineering segment delivering 30%+ margin and high RoCE.
Voltas is the best bet in the consumer durables space from a 3-5 year perspective. We see Voltas as a proxy play on the most under-penetrated segment of consumer durables space – ACs – through a market-leading franchise (23% share) with strong return ratios (200% segment RoCE). PE of ~29x^ FY20 still values Voltas’ durables business ~20% lower than that of peers; hence, we see a catch-up given the long runway of growth and plugging of gaps in product suite through Arcelik JV.