Voltas Shares Jump As Motilal Oswal Reinitiates Coverage With 'Buy'

Shares of Voltas Ltd. jumped to its highest in nearly six months on Wednesday after Motilal Oswal Financial Services Ltd. reinitiated coverage with a 'buy' call.

The brokerage has set a target price of Rs 1,000 apiece, implying a potential upside of 15% compared to the current market price, according to a note on Tuesday.

Motilal expects the home-appliance maker to retain a market share of over 21% over the next few years, benefiting from its leadership position in the room air-conditioner segment.

The financial services firm said long-term positives outweigh near-term challenges. It estimates an Ebitda compound annual growth rate of 30% over the financial year 2023–25, led by margin recovery, with a profit growth rate of 38% CAGR over the same period.

Voltas Beko

While Voltbek is presently a loss-making segment, Motilal said a strong revenue traction was visible.

It posted a year-on-year volume growth of 45% in fiscal 2022 and 15–18% in fiscal 2023. Segmental revenue rose 17% in the last fiscal with an Ebitda loss of Rs 160 crore.

The brokerage estimates Voltbek to be Ebitda positive by fiscal 2026 and generate net income in 2026–27.

Electrical, Mechanical and Plumbing Solutions

Motilal maintains a positive outlook on the segment despite a hit in the last fiscal and the June quarter, led by write-offs in the international business.

It expects revenue growth and margin improvement in the second half of the current fiscal due to a strong order book of Rs 8,190 crore. The domestic order book stands at Rs 5,240 crore, while international orders total up to Rs 2,950 crore.

Advertisement/Sales Promotion Expenses

The brokerage expects Voltas to benefit from its advertising or sale-promotion expenditure, which is lower when compared with its peers, and helps it maintain an industry-leading margin in the unitary cooling products segment.

Voltas' ad spends stood at 0.7% of its revenue in the last fiscal compared against 0.9% for Blue Star and 2.6% for Havells, according to the brokerage.

Sale-promotion expenses, including commission on sales, for the company were at 0.1% of revenue in 2023–24, while its peers, Blue Star and Havells, stood at 0.9% and 0.7% respectively.

Key Downside Risks

• Sustained competition in the room air-conditioner segment for a long period

• Weather-related disappointments due to a large dependence on a single category

• Reduced discretionary spends among consumers

Shares of Voltas were trading 4.02% higher at Rs 901.55 apiece, compared to a 0.16% fall in the benchmark NSE Nifty 50 as of 12:31 a.m. The stock rose 4.8% intraday to Rs 908.5, its highest level since March 9.

The average traded volume so far in the day stood at 5.7 times its monthly average, while the relative strength index was at 76, indicating the stock may be overbought.

Out of the 46 analysts tracking Voltas, 19 maintain a 'buy' rating on the stock, 17 suggest a 'hold' and 10 suggest a 'sell', according to Bloomberg data. The average of 12-month price targets given by analysts implies a potential downside of 2.3%.