Voltas Q4 Review: Analysts Highlight Margin Woes, Market Share Loss As Risks

Shares of Voltas Ltd. fell after analysts cited sustained market share loss and margin pressures as risks.

The Mumbai-based air-conditioner maker's revenue remained flat but profit fell over the year earlier in the quarter ended March.

Voltas Q4 FY22 (Consolidated, YoY)

• Revenue up 0.56% at Rs 2,666.58 crore. (Bloomberg estimate: Rs 2,703.1 crore)

• EBITDA fell 21.08% at Rs 261.01 crore. (Bloomberg estimate: Rs 297 crore)

• EBITDA margin stood at 9.79% against 12.47%. (Bloomberg estimate: 10.9%)

• Net profit fell 23.15% at Rs 182.7 crore. (Bloomberg estimate: 230.3 crore)

• Recommended dividend of Rs 5.5 apiece.

"The extended winter, coupled with the spread of third wave of the Covid-19 pandemic during January and February affected the trade and consumer sentiments, resulting in lower primary offtake of cooling products," the company said. "The hot weather, however, turned the market outlook in March, resulting in partial sales recovery for the quarter."

The company said it continues to be the market leader in ACs, with a market share of 25.4% as of January.

Shares of the company fell as much as 6.8% to an intraday low of Rs 975.5 apiece. That's the third straight day of decline. The stock has lost 14% in the last three sessions and 19% in the first 10 days of May.

Of the 40 analysts tracking Voltas, 21 maintain a 'buy', 11 suggest a 'hold' and eight recommend a 'sell', according to Bloomberg data. The average of the 12-month target price compiled by Bloomberg implies an upside of 17.9%.

Here's what brokerages made of Voltas' Q4 FY22 results.

• Maintains 'neutral', cuts target price from Rs 1,270 to Rs 1,084—still implying a potential upside of 3.5%.

• Q4 was impacted by aggressive competition, demand remains strong. Focus on market share gains, near-term margin pressure are reflected in valuations.

• Unitary cooling business disappointed with 10% year-on-year revenue growth and EBIT margin at 10.6% on aggressive competition by other brands like LG, Lloyd and Samsung in the southern regions and delayed price hikes.

• Voltas will look to recover market share led by consumer offers, subvention schemes, price rationalisation etc.

• Given low penetration and latent demand, Nomura maintains 'neutral'. Expects Voltas' strong brand, wide product portfolio, reach to help recover some market share; however, margins may remain under pressure due to rising cost inflation and competition.

• Crompton Greaves remains preferred pick.

• Maintains 'buy', cuts target price to Rs 1,210 from Rs 1,350 earlier, still implying a potential upside of 16.1%.

• Management highlighted that it had lost market share in the room air conditioner (RAC) business due to an extended winter in North India where it has a strong presence. But, it expects to regain the lost market share by the end of Q1 FY23.

• The company also highlighted that input cost pressures, a fragmented market and disruptive pricing by competitors are likely to affect margins.

• Strong cash flows, a lean working capital cycle and strong long-term growth prospects for the AC/white goods industry will support Voltas’ valuation.

• Maintains 'sell' with a revised fair value of Rs 875, implying a potential downside of 16.4%.

• Voltas’ weak performance in Q4 FY22 was driven by volume and margin pressure. Aggressive pricing by competitors, increased commodity prices and late onset of summer resulted in Voltas’ loss of market share.

• Voltas’ pursuit of market share recovery would continue to hit margins in the near term in an industry marked with limited product differentiation and intense competition.

• Despite strong demand for ACs, price hikes are difficult to take. Voltas is already on an average 2-3% higher priced versus peers. Competitors are focusing on increasing volumes, leading to price disruption. Voltas would also be forced to match competitors’ pricing resulting in margin pressure.

• Maintains ‘buy’, cuts target price to Rs 1,385 from Rs 1,450, implying a potential upside of 29.5%.

• Voltas's market share at 23% vs 26% quarter-on-quarter looks concerning, but Jefferies has seen it bouncing back from such losses in Q4FY18 and Q3 FY19.

• Lowers FY23E-25 estimates by 3-5% to factor some more commodity impact ahead. As market share and margins recover, the stock should give double-digit returns from current levels and reverse its recent losses.

• Confident on a capex cycle recovery. However, as Voltas's focus now is on strengthening management bandwidth this segment ramp-up will be more back-ended vs a peer like Blue Star.

• White goods JV Voltbek, like the AC business, does not give higher credit terms to shore up revenues.

• The correction offers an especially good opportunity to buy as market share and margins should recover ahead.

• Risk: Sustained market share loss.

• Reinitiates ‘hold’, at a target price to Rs 1,033, implying a potential downside of 1%.

• The company lost market share in FY22 due to lower sales in south India. Raw material inflation and limited price hikes resulted in overall Ebitda margin decline of 268 basis points year-on-year.

• We model Voltas to report revenue and profit CAGR of 15.3% and 24.2% over FY22-24, driven by high single digit price hikes and market share gains across the portfolio.

• While ICICI Securities remains positive on the company due to strong brand equity of Voltas and established distribution network, upside is capped at current valuations.

• An affordable range of products, strong brand and distribution synergies will likely help the Voltbek to gain further market share.

• While it remains positive on Voltas volume off-take in FY23, the profitability will continue to remain under stress with higher input prices, freight cost as well as rupee depreciation.

• Maintains 'reduce' at a target price of Rs 1,081, implying a potential upside of 3.3%.

• Decline in share in the southern region has dented overall market share for the company as South has seen early summers. Company has already initiated corrective actions and expects to re‐gain its lost market share in south.

• Margins in cooling products have taken a hit as competitive pressures and quest to re‐gain its lost market share are resulting in company holding on to prices despite raw material inflation.

• Continue to remain cautiously optimistic on the stock as there would be margin pressure in the near to medium term, further market share gains would be difficult in the current hyper competitive environment and the stock is trading at premium valuation as compared to its peers.

• Voltas being a strong brand with solid distribution presence and increasing product offerings on the commercial refrigeration and RAC segments should see growth momentum returning as it has taken corrective actions to re‐gain its market share.

• This along with improved execution and better order book mix will drive margin improvement in projects business.

• Sees strong demand for room ACs in upcoming summer season after two back to back lost summers and steady improvement in project business.