Voltas Limited, backed by a legacy of engineering excellence, reported strong volume-led topline growth in Q4FY25 but continued to grapple with margin pressures, cost headwinds, and slower project ramp-ups. While the company maintained its industry leadership in room air conditioners (RAC), a dip in market share and earnings downgrades for FY26/FY27 prompted analysts at Prabhudas Lilladher to revise the stock's target price downward to Rs1,516. Despite short-term concerns, robust volume growth in both the Unitary Cooling Products (UCP) segment and VoltBek, along with improving margin profiles, reinforce a cautiously optimistic medium-term outlook.

Prabhudas Lilladher Maintains BUY Call with Revised Target Price

Prabhudas Lilladher has reiterated a ‘BUY’ rating on Voltas with a reduced 12-month target price of Rs1,516, down from Rs1,593. The revised target implies a valuation of 41x FY27E earnings, reflecting tempered expectations due to slower RAC demand recovery and cost pressures.

The current market price stands at Rs1,223, providing a potential upside of approximately 24% from current levels.

Revenue and Profit Surge, But Slightly Below Expectations

Voltas reported Q4FY25 consolidated revenues of Rs47.7 billion, a 13.4% year-over-year increase but marginally below analyst expectations of Rs50.9 billion.

EBITDA jumped 74.6% YoY to Rs3.3 billion, with margins improving 240 basis points to 7.0%.

Net profit rose by a stellar 107% YoY to Rs2.4 billion, reflecting better product mix and strong seasonal demand.

Unitary Cooling Products Continue to Lead the Growth

The UCP segment—comprising air conditioners and cooling solutions—was a standout:

Revenue rose 17% YoY to Rs34.6 billion.

EBIT margins expanded to 10%, an 80 bps improvement, thanks to a favorable product mix and increased demand for energy-efficient models.

Despite the volume uptick, Voltas experienced a decline in RAC market share to 19% YTD March ’25 (vs. 19.5% as of June ’24), attributed to delayed summer and uneven regional sales traction.

Voltas Beko: Emerging as a Competitive Challenger

The joint venture with Arçelik—VoltBek—delivered strong results:

Volume growth of 56% YoY in FY25, supported by improving distribution and product penetration.

Gained market share in key segments:

Refrigerators: 5.3%

Washing Machines: 8.7%

Semi-Automatic Washing Machines: 15.3%

The company is also working on localizing refrigerator manufacturing to enhance cost efficiencies and market responsiveness.

Mixed Performance Across Other Segments

The Electro-Mechanical Projects & Services (EMPS) business showed early signs of turnaround:

Revenue grew marginally by 3.6% YoY to Rs11.4 billion.

EBIT loss narrowed significantly to Rs17 million from Rs1.1 billion in Q4FY24.

However, Engineering Products & Services (EPS) continued to face headwinds:

Revenue declined 15.5% YoY to Rs1.3 billion.

EBIT dropped by 28.7% YoY with margins contracting to 25.8% from 30.6%.

Key Financial Metrics and Forecast

Here is a snapshot of the company’s consolidated financial outlook:

Management Commentary and Strategic Outlook

Management acknowledged the impact of cost pressures on key components like copper tubes and compressors, coupled with no pricing actions taken during the period. However, the leadership remains hopeful for margin expansion aided by improved mix, operational efficiencies, and eventual recovery in demand.

Key updates from the earnings call:

Bank guarantees worth Rs3.9 billion tied to a Qatar project remain unencashed, with legal defenses underway.

Order book for project business rose to Rs65 billion, indicating future revenue visibility.

Final dividend recommended at Rs7 per share.

Valuation and Market Positioning

Voltas trades at a FY27E P/E of 32.9x and an EV/EBITDA of 25.2x, making it relatively expensive compared to peers. However, its premium valuation is backed by its leadership position in RACs, strong brand recall, and diversified revenue streams including VoltBek and EMPS.

The company’s return ratios are also projected to improve steadily, with ROCE expected to cross 20% by FY27E.

Investor Takeaway

While Voltas faces near-term uncertainties around pricing discipline, commodity inflation, and execution pace, its long-term fundamentals remain intact. The company continues to dominate its core UCP segment while gradually scaling up VoltBek. Investors with a medium- to long-term horizon can consider accumulating the stock at current levels, especially with improving profitability metrics and strong volume growth.

Recommended Target Price: Rs1,516 | Current Price: Rs1,223 | Rating: BUY

Disclaimer

Investors are advised to perform their own due diligence and consult certified financial advisors before making any investment decisions. Past performance is not indicative of future results.