Voltas - Q1FY23 Result Update - Market share rebound, margin headwind persists - HOLD

Mr. Mayank Bhandari - Research Analyst at Prabhudas Lilladher Pvt Ltd.

Quick Pointers:

- Market share recovered to 24.1% in Jun-22 vs ~19% of Mar-22.

- Margin headwind persists amid rising inflation and competition.

Voltas share price corrected after Q4FY22 results, over concerns of losing market share in room AC segment. However, it recovered to 24.1% in Jun-22 as compared to 23.4% YTD in Mar-22 (vs 25.8% YTD Nov-21), thanks to pricing action and customer centric scheme. Market share recovery has also happened at the expense of margins (6.4% in 1QFY23) and management indicated prolonged weakness in margins, due to rising inflation and competition. We believe that Voltas will be able to fully recover its market share in the near term, with its strong brand presence and wide product portfolio.

We continue to like VOLT for longer term given 1) leadership position in high potential RAC segment 2) balance sheet comfort (Rs6.45bn net cash) and 3) restructuring in B2B business to focus on B2C. We estimate 35% EPS CAGR over FY22-24 and maintain 'Hold' rating with SOTP based TP of Rs1,030 (valuing UCP business at 46x FY24EPS). We have not cut our target multiple for UCP segment as we believe the company will be able to fully recover market share, going forward.

Revenues grew by 55% YoY; PAT up by 10.6%: Sales grew 55% YoY to ~Rs27.4bn led by growth in UCP (+124% YoY). EMP business revenue declined by 34% YoY. EBITDA up by 30.3% YoY to Rs1.77bn, while EBITDA margins contracted by 120bps YoY to 6.4%. Gross margin declined by -440 bps YoY. In terms of segmental EBIT margin, UCP segment margin came at 7.7% (-457bps YoY) whereas EMPS margin came at 40.9% (-718bps YoY). PBT declined by 4% YoY to Rs1.91bn. Adj.PAT declined 10.6% YoY to Rs1.09bn.

Concall Takeaways: 1) Carry forward order book in EMPS segment was at Rs58.10bn (Domestic: Rs35.97bn and International: Rs22.14bn) as compared to Rs53.6bn in Mar-22 quarter. 2) Management highlighted that market share has recovered in southern markets. It remains market leader with overall 24.1% market share and 21.8% in inverter category 3) Management highlighted that price hike may not happen before festive season and improvement of margin may start from Q3 onwards. Industry has seen structural decline in margin and rising competition will keep margin under pressure. 4) Inventory level in the trade is 30-40 days and channel partners are now focusing on balancing inventory as season has ended. As BEE norms are kicking in, inventory level at company level remains high. Kicking in of BEE norms would further increase product pricing by 2-3% and price roll out may happen in late Q2. 5) It has given capex guidance of Rs4.5-5bn in next 2 years. 6) Spend on advertisement has led to dip in margins sequentially and Gross margins remains similar. 7) In terms of primary sales, industry has de-grown by almost 10% in FY22 vs FY19. In terms of volume secondary data: 1.3mn units in April, 1mn in May and 7,50,000 in June month. 8) In EMP projects, company expects margin will be normal for full year.

Shares of Voltas Limited was last trading in BSE at Rs. 999.80 as compared to the previous close of Rs. 982.25. The total number of shares traded during the day was 63189 in over 3755 trades.

The stock hit an intraday high of Rs. 1008.00 and intraday low of 982.00. The net turnover during the day was Rs. 62908706.00.

Source : Equity Bulls

Keywords

Voltas INE226A01021 Q1FY23 ResultUpdate PrabhudasLilladher