Voltas Ltd stock is down nearly 26% in the past one year, attributed to pressure on the company’s market share and declining margins. In the nine months ended December, unitary cooling products (UCP) segment Ebit (earnings before interest and tax) declined by 300 basis points year-on-year to 7.5%. One basis point is 0.01%. The UCP vertical accounted for about 59% of total revenue in the nine months ended December.
However, the way forward is encouraging with the arrival of summer season, which will increase the demand for air conditioners. Based on data received from the India Meteorological Department, analysts at Jefferies India said, “In the past 10 days, many districts of Gujarat and Maharashtra, including Mumbai, recorded day temperatures 5-7 degrees above normal.” He said that the states of Delhi, Himachal and Uttarakhand recorded above normal temperature in February.
This augurs well for Voltas as it has a significant presence in the north and the resulting increase in demand will lead to a rise in volumes and thus help in market share. If the strong momentum in overall demand continues, Voltas expects some increase in prices by the beginning of the June quarter of FY24.
As it stands, the burden of fall in commodity prices has not been passed on to the consumers. In such a situation, this will give support to the margin. “Q4FY23E-Q1FY24E should see 250 basis point margin expansion quarter-on-quarter if normal summer temperatures persist,” Jefferies said.
Meanwhile, Voltas’ market share seems to be stabilizing and that is a good thing. “As market share recovers, we believe the stock should move back closer to the halfway mark from its peak,” the Jefferies report said. The remaining travel will depend on the speed of the margin movement.
Shares of Voltas are down almost 33% from their 52-week high of Rs 1347.65 seen in April.
Know your inner investor
Do you have guts of steel or are you a victim of insomnia regarding your investments? Let’s define your investment approach.
catch all business News, market news, today’s fresh news events and Breaking News Update on Live Mint. download mint news app To get daily market updates.