Voltas sees limited need to revise its near-term business targets and business model following demonetisation and keen competition. Key tenets of its growth strategy are protecting margin/RoCE ahead of market share in the UCP segment, adding new products to its portfolio and more consistent execution and margin profile for projects segment beyond March 2017. We reduce our TP to R325 from R330.
Demonetisation marked the start of the lean season for AC sales, which continues till the end of February. This, coupled with a favorable inventory position in the market, should limit the impact on both volumes and pricing in 3QFY17. If the impact of demonetisation goes beyond February it can impact Voltas’ 4QFY17 sales, given 40% share of cash transactions in tier 2/3 cities.
Voltas has started focusing more on the inverter AC segment (10% market volumes, 6% of Voltas’ volumes). It also shared details of deliberations at the board-level for entering into new product segments; it targets top-2 position in air coolers by FY2019/20.
Recent order wins in the Middle-east account for the majority of the overseas backlog and will help margin recovery.
Voltas however remained uncertain on segment margin returning to 4-5% soon, given the dependence on oil price. On the domestic front, backlog and prospects are still dominated by government work (rural electrification, water treatment jobs in smart city projects, metro projects).