Competitive edge is intact; scale-up in Voltbek JV is key; TP up to Rs 1250; Buy retained
A dampener of a season led to a miss in UCP sales growth on a par with peers while overall margin miss was sharper due to lower UCP/EPC margins. That said, Voltas delivered UCP margins better than peers. Overall, UCP results reflect a solid competitive edge with healthy OPMs while Voltbek JV saw a ramp-up in both share/billing points. VOLT is well prepared with higher RM inventory, 22K touch points and an expansive JV product range to tap into any pick-up in CD market. Competitive edge in RAC has further gone up going by management commentary. With the JV range moving higher/consistent innovation, VOLT is set for growth. Retain Buy.
Q1 miss led by both UPC/EPC: Voltas (VOLT) missed Q1 on revenue while Ebitda miss was sharper even as GMs stood stable (better q-o-q). Overall OPMs also suffered from higher overheads. VOLT raised prices by 8–10% in general on RACs to pass on input cost. After a double-digit drop in FY21 on the industry level, mgmt expects FY22e to be far better, but also hinted that attaining FY20 level will be challenging.
Competitive dynamics solid for VOLT: Mgmt mentioned strong operational performance for VOLT versus most large peers including MNCs in Q1. While we expect VOLT’s competitive edge in RAC to deliver better growth/OPMs as market opens up, scale-up on the Voltbek JV is key given current 3.1/2.1% share in refrigerators/washing machines. Crossing a critical threshold of 4-5% remains key to VOLT’s re-rating, which would help investors with clarity on breakeven timelines.
Outlook: All set to tap into growth –VOLT has consistently delivered industry-leading growth and returns in RAC. As consumers return in earnest, we expect RAC momentum to resume. Meanwhile the JV range too should scale up. Retain ‘BUY/SO’ with a revised TP of Rs 1,250 (versus `1,200) as we roll forward to Dec-22e.