Prabhudas Lilladher has recommended an “ACCUMULATE” rating for Voltas Ltd. (VOLT), with a target price of Rs1,980, suggesting potential growth from the current market price of Rs1,698. Voltas has demonstrated robust volume growth in its Unitary Cooling Products (UCP) segment, a stable market share in room air conditioners (RAC), and substantial improvements in its Electro-Mechanical Projects & Services (EMPS) performance. With an increased revenue projection and expected growth in EBITDA and PAT, Voltas’ strategic initiatives and operational resilience make it an attractive option for investors. This report explores Voltas’ business strengths, financial performance, and future prospects, including key areas for investor focus.

Financial Performance and Valuation

Current Market Price and Target Price: Voltas trades at Rs1,698, with a target price of Rs1,980, indicating a potential upside of around 17%.
Revenue and PAT Growth: Voltas reported revenue growth of 14.2% year-over-year (YoY) in Q2FY25, reaching Rs26.2 billion, and a significant 265.3% YoY increase in profit after tax (PAT), totaling Rs1.3 billion.
EBITDA Expansion: The company’s EBITDA grew by 130.8% YoY to Rs1.6 billion, with an improved EBITDA margin of 6.2%, highlighting enhanced operational efficiencies.

Unitary Cooling Products (UCP) Segment Growth

Volume Growth: The UCP segment saw a robust volume increase of 56% in H1FY25, driven by an efficient sales mix and normalized inventory levels across channels.
Market Position: Voltas maintained its market share in the RAC segment at 21% as of September 2024, demonstrating its stronghold in this competitive segment.
Margin Outlook: UCP margins are anticipated to remain steady in the mid-to-high single digits, supported by a long-term incentive scheme aimed at boosting volume and market share.

Electro-Mechanical Projects & Services (EMPS) Recovery

Turnaround in EBIT: The EMPS segment reported EBIT of Rs462 million in Q2FY25, a notable improvement from a loss of Rs490 million in Q2FY24, signaling effective execution of domestic projects.
Order Book Strength: Voltas holds a robust domestic order book of Rs50.1 billion, with international orders adding Rs24.7 billion, mostly in mechanical, electrical, plumbing (MEP), water, and solar sectors.
Revenue Outlook: The EMPS business is expected to sustain healthy revenue growth, backed by strong order inflow and continued improvement in execution capabilities.

Home Appliances Segment - Voltas Beko

Segment Growth: Voltas Beko recorded a 54% volume increase in H1FY25, showing market share gains in refrigerators and washing machines.
Expansion Plans: Voltas plans to increase its RAC unit capacity at its Pantnagar plant from 1.5 million to 2 million units by FY26, signaling commitment to scaling its cooling solutions.
Price Adjustments: The company announced a price hike of 3-4% in RAC and 2.5-3% in refrigerators and washing machines to offset raw material cost inflation.

Revenue and Profitability Projections

Revenue CAGR: Voltas projects a revenue compound annual growth rate (CAGR) of 18.4% from FY24 to FY27, driven by robust performance across segments.
EBITDA and PAT Growth: EBITDA and PAT are expected to grow at CAGRs of 52.9% and 76.8%, respectively, with forecasted margins improving across fiscal years as operational efficiencies are realized.
Revised Earnings Estimate: Factoring in UCP segment outperformance, earnings estimates for FY25, FY26, and FY27 have been revised upward by 3.1%, 2.8%, and 1.8%, respectively.

Investment Risks and Challenges

Operational Risks: Voltas’ operating margins have contracted slightly due to increased advertising, distribution expenses, and raw material inflation, which could impact profitability if costs are not fully passed on to consumers.
Sector-Specific Competition: High competition in the RAC and home appliances segments may impact Voltas’ market share and pricing power, especially with rising domestic and international players.
Dependency on the Domestic Market: With a significant portion of the order book concentrated domestically, Voltas remains exposed to potential economic and regulatory challenges in the Indian market.

Strategic Outlook and Recommendations

Prabhudas Lilladher’s “ACCUMULATE” rating reflects confidence in Voltas’ capacity to grow steadily, underpinned by a strong position in the RAC segment, improved EMPS margins, and expansion in home appliances. The target price of Rs1,980 indicates a promising upside for long-term investors, though monitoring operational challenges and cost pressures remains essential.