Our recent interaction with Voltas’ (VOLT) top management instills confidence in VOLT’s long-term growth prospects. Key highlights: (i) targeting significant market share in the JV business (white goods) over 3-5 years leveraging its strong 14K plus touch points in cooling business, which will be enhanced to 20K; (ii) strong distribution ramp up will help up its competitive ante vs peers (especially MNCs) in large retail stores; and (iii) low penetration in AC, refrigerators & washing machines augurs well for VOLT’s target category (mid-segment). We retain our optimism on VOLT as the target market catapults to Rs 705 bn (AC+white goods) by FY20E from current Rs 150 bn (in ACs). This is envisaged to trigger significant ramp-up in white goods revenue, generating significant shareholder returns post FY19. Maintain Buy with revised TP of Rs 700 (Rs 620 earlier) maintaining 20% premium to sector PE of 35, which stands re-rated given strong 35/18% FCF/EPS CAGR over FY17-19E.
Well geared to tackle new business challenges: As VOLT targets new $5-7 bn white goods market, apart from ACs, management is planning to commence manufacturing over 16-18 months with a comprehensive SKU range. We believe, the company’s deep insights in target consumer segment will help it draw a prudent strategy in new segments, which are 2-3x larger in size currently.
Strong products to complement distribution franchise: Given strong product positioning of Arcelik in the European market, management expects the JV to have a strong product portfolio.
Outlook & valuations: From being a single-product company (market leader in AC) to a multi-product (launch of 4 products with the VOLT-Arcelik JV), we believe VOLT is well placed to leverage its strong distribution network to capitalise on this new opportunity. Maintain’BUY/SO’.