Growth strategy is on track; FY23e EPS up 10%; TP up to Rs 1,436; ‘Buy’ maintained
Despite input cost challenges and a lean season, Voltas managed to meet consensus on headline growth/OPM. UCP (cooling products) turned in low single-digit growth for H1 versus 2Y average, while margins, though clearly better than peers, reflect some GM pressure. Mgmt commentary on demand expectation and Voltas’s competitive positioning remains upbeat, which corroborates our market feedback. Voltbek’s ramp-up seems to be on track with an expanding SKU range. Voltas has been able to manage increased competitive intensity from MNCs and input cost far better than others in industry, in our view. Retain ‘Buy’.
H1 results reflect market edge: Voltas delivered healthy 26% y-o-y growth in UCP (cooling products), which, on a 2Y basis (FY20 high base), is marginally up. Overall, in spite of market feedback of some share gains in recent months in RAC, Voltas was able to deliver better on OPM than peers (Lloyd, BlueStar). Volume growth for RAC for Q2 stood healthy at 19% y-o-y, air coolers was clearly ahead at 78% y-o-y. Loss from the JV seems to have come off q-o-q; overall for H1, it was higher at Rs 495 mn (vs Rs 187 mn y-o-y). EPC business is stable with 6% H1 revenue growth.
Outlook: Managing volatility better– Voltas seems to be managing industry volatility (copper, PVC, MNC competition) far better in our view. Medium-to-long term strategy on RAC and Voltbek seems on track. Retain ‘BUY/SO’ with a revised TP of Rs 1,436 (versus Rs 1,250) on a rollover to Mar-23E, yielding a rise in FY23e earnings by 10% due to better growth.