Shares of Voltas Ltd are down up to 14% since the announcement of its March quarter results (Q4FY22) on Thursday after market hours. The company, which got a good chunk of revenue from selling room air conditioners (ACs), underperformed. This is happening despite the strong demand for ACs.
Consolidated operating revenue was flat year-on-year (YoY) at Rs 2,634 crore as decline in electro mechanical projects and services segment was offset by growth in revenue in unitary cooling products (UCP) and engineering products and services segment . The UCP segment, which supplies ACs, has grown by about 10%. But it is much less than its peers. The unitary products segment of Blue Star Ltd saw revenue growth at 32%, while Lloyd’s segment of Havells India Ltd saw a growth of 62%.
Moreover, Voltas’ EBITDA (earnings before interest, taxes, depreciation and amortization) declined by 21% to Rs 261 crore as a result of higher commodity costs, with margins declining by 268 basis points (bps). with 9.8%. One basis point is 0.01%. The company has resorted to hike in prices but that has come down.
Voltas said in the post earnings call that it has increased prices by 12-15% in FY22. If commodity prices continue to rise, the company will seek further increases in prices.
Still, some believe that Voltas may have a hard time raising prices. “Voltas is already priced on average 2-3% higher than competitors. Competitors are focusing on increasing volumes, which is causing price disruption. We believe Voltas should also be priced higher than competitors’ pricing. which will result in margin pressure,” analysts at Kotak Institutional Equities said in a report on May 9.
Voltas’ market share has also declined due to lower sales in South India. However, the management expects to make up the lost market share through customer-centric plans. “The market share of Voltas declined from 24% to 22% and 26% to 22% in Q4FY18 and Q3FY19 respectively, and the demand trends in the north improved and competition gradually increased the prices,” indicating the market share Giving added to Jefferies’ report. Damage in the form of a blip.
With the recent drop in Voltas’ share price, the past year’s return is 2.5%. Credit Suisse Securities (India) Pvt. Ltd.’s sum-of-parts valuation for Voltas’ stock is approximately 60% of the value of the cooling business. The broking firm has reduced the target price to Rs 975 from Rs 1,225. “We remain cautious on Voltas and downgrade it (from neutral) to underperforming, due to: high dependence on certain weather conditions, a highly competitive category with existing high market share and margins; and relatively expensive sector valuations,” Credit Suisse analysts added in a report on May 9.