Voltas to gain from early onset of summer season

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Published: February 24, 2018 3:51:21 AM

We met the management of Voltas on Thursday at IIFL’s Investor conference in Mumbai. The company expects 12-15% volume CAGR for the room AC industry over next five years.

Voltas, Mumbai, IIFL Investor conference,  CAGR, Qatar,  Voltas Becko brandVoltas is well positioned to maintain market share and margins despite intense competition and shift towards inverters.

We met the management of Voltas on Thursday at IIFL’s Investor conference in Mumbai. The company expects 12-15% volume CAGR for the room AC industry over next five years. Early onset of summer can drive demand and allow price hike of 4-5% to pass on higher commodity costs. Voltas is well positioned to maintain market share and margins despite intense competition and shift towards inverters. In projects business, robust order inflows in domestic market offsets the subdued demand from middle-east. The Arcelik JV is expected to launch four products pan India in 2HCY18 under the Voltas Becko brand sourced from Arcelik’s facilities near India.The management highlighted that given aggressive pricing policy adopted by LG, the industry has not taken price hike despite rise in commodity costs and change in energy ratings. Early onset and severe summer season can boost demand and lead to increase in prices (4-5%) from March onwards. Although channel inventories are at 30-45 days dealers would be keen to clear old stock as new SKUs are launched in February/March ahead of Holi festival and cutoff date of March 31, post which products with old ratings cannot be sold.

Window ACs have 20% of market share with balance being split ACs. Amidst the split ACs, share of inverters have increased to 24%. Voltas acknowledges that market is shifting towards inverters whose market share would increase steadily over next few years. Voltas has increased its inverter offerings to 39 from 7 earlier and currently ranks second in inverters segment behind market leader LG who sells only inverters.

Order intake from middle-east remain subdued on weak oil prices and geopolitical issues. Although on ground execution continues in Qatar, the company has not taken any new project in Qatar in the past one year. This has been offset by robust order inflow in domestic market largely driven by government spends. Domestic orders constitute 64% of total order book of Rs 48.5 billion, much higher than middle-east at 31%.Performance of the projects business continues to improve and Voltas is targeting Ebit margins of 7-7.5% over next two years.

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