It outdid peers in last fiscal; crisis helping firm reposition itself; ‘Buy’ maintained
With Voltas’s consumer insights and distribution network, we perceive Voltbek to be the dark horse going ahead–further burnishing re-rating prospects.
A deep dive into Voltas’s FY20 annual report suggests a handsome increase in returns/cash flow despite multiple industry challenges (supply-chain, limited pricing power, etc.) and increased commitment to long-term growth while widening its leadership gap. We note a visible shift in A&P towards digital, FY20 OPM growth despite sharp overhead surge and continued investments in the Voltbek JV leading to 2x jump in sales (low base), though with higher losses.
For us, mid-single digit share in refrigerators/washers will be a critical milestone for the JV. The company’s internal initiatives, and favourable trends triggered by Covid, especially for the JV’s range, could lead to faster revenue scale-up. Retain Buy.
Leader using adversity to reposition itself: Voltas continued to outperform peers in FY20 in revenue growth as well as return metrics. This was driven by SKU ramp-up and increased distribution, leading to sustained RAC market share expansion (rose 50bps y/y). With Voltas’s consumer insights and distribution network, we perceive Voltbek to be the dark horse going ahead–further burnishing re-rating prospects.
Outlook: Arsenal growing stronger — Rising competitive intensity and unforeseen supply-chain challenges seem counter-intuitive for Voltas’s North-bound market share, operating margin and cash flows in RACs. The company’s ability to position SKUs across customer tiers and demand centres makes it a formidable scale player in the $8-bn concentrated white goods market. As the JV chases its 10% market share target (FY25e), for us key milestones are: (i) SKU rollout across key categories; and (ii) brand campaigns & their efficacy. We maintain ‘BUY/SO’ with SOTP-based TP of Rs 730.