Q3FY23 Review: Voltas: Competitive pressure continues

13 Feb 2023 , 02:03 PM

Voltas’ Q3 result highlights continued pressure from competition in the RAC business, as market share continues to decline (albeit in a lean quarter), despite no price hikes amid cost pressures. Strength of summer season and price hike actions would be keenly watched, in our view. Projects business revenue growth outlook is stronger amid 26% QoQ jump in order book; however, volatility in segment profitability and one-off loss provisions remain as concerns.

Voltas has not taken any price hike in past couple of quarters and does not intend to take any in Q4 as well, as of now. This is despite cost hike post change of energy rating label in Jul’22 and RM cost inching up again post the lull seen in Q3. Weak INR is also hurting costs. Launch of revamped product portfolio for the season is an opportunity to raise prices, but competitive intensity and strength of season will dictate the viability, in our view. Mgmt maintained single- digit margin guidance for FY23.

Even though Q2 and Q3 are lean quarters for AC sales, market-share trends underline continued intense competition. Compared to 23.4% market share in FY22, Voltas reported a share of 24.1% in Q1, 22.8% over M5FY23 and 22.5% over 9MFY23. As we near the peak summer season, competitive intensity would be keenly watched amid growth ambitions, backed by expanded capacity.

Key highlight for Q3 was the 26% QoQ and 35% YoY jump in Projects business order book to Rs75.4bn. This will aid acceleration of revenues, which have been subdued. However, Q3 saw segment Ebit loss of Rs461mn, due to delay in approval of claims in a domestic project and delay in collections for an intl project. There was also further exceptional provision of Rs1.37bn (after Rs1.06bn in Q2) for the Qatar project. Hence, profitability remains a key monitorable going ahead.

Analysts of IIFL Capital Services cut FY23 EPS by 16% post the Q3 results and retain Add with target price of Rs 942.