Voltas Gets Target Price Cut From Nuvama As Early Monsoon Dampens AC Sales; Stock Drops

Voltas Ltd. saw its stock drop by over 2% on Wednesday following a target price cut by Nuvama due to weaker-than-expected air conditioner sales as a fallout of the early monsoon.

India's air conditioner market typically thrives during the scorching summer months.

However, the weather anomaly, with the rains arriving in May-June, led to a significant decline in sales across the industry. Jefferies estimates the room air conditioner or RAC market could see a sharp 15-20% year-on-year decline in sales this summer.

Voltas' management acknowledged that the first quarter has been "relatively challenging" for room AC sales due to weather disruptions. In its project business, both domestically and internationally, Voltas is targeting sustainable margins of 4-5%.

Nuvama has maintained a 'hold' rating on Voltas, but has cut the target price to Rs 1,190 from Rs 1,250. The brokerage highlighted a 20-25% year-on-year dip in RAC volumes industry-wide, with Voltas experiencing a similar trend.

However, there has been a pickup in sales in June, particularly in northern India. The company currently has a channel inventory of six to eight weeks and is offering various incentives such as free installation and extended warranties.

Voltas has retained its medium-term goal of gaining market share and expects domestic order inflows and execution to pick up despite a weak outlook for international EMP (Engineering, Manufacturing, and Procurement) with no new orders expected in FY25.

UBS has maintained a 'buy' rating on Voltas with a target price of Rs 1,725, noting the impact of early monsoon on sales has already been priced in.

The brokerage observed that while pricing has not been disrupted, higher value-added offerings are being provided. Despite the weak demand, Voltas' capital expenditure plans remain on track, and the VoltBek joint venture is performing well. UBS expects the RAC segment to continue being the fastest-growing category, albeit with non-linear growth.

Motilal Oswal also downgraded the stock to 'neutral' from 'buy' due to a decline in demand, near-term headwinds, and challenges in the project business. The brokerage revised their target price to Rs 1,350 from Rs 1,600 earlier.