Q3FY24 Review: Voltas: Pain in projects offsets recovery in products

2 Feb 2024 , 11:25 PM

Voltas’ product business performed better in Q3 with 19% mkt share YTD and YoY/QoQ uptick in margins to 8.3%. But this was offset by Ebit loss of Rs1.2bn for projects led by Rs1.43bn cost overrun for a project in Qatar. Mgmt expects a gradual reduction in losses/provisioning for intl projects while execution and margins for domestic projects remain healthy. Voltbek saw faster growth (65% YoY) and lower per unit loss with breakeven likely over two years. Analysts of IIFL Capital Services cut FY24 EPS by 16%. Upgrade to ADD given product business performance and reasonable valuations relative to market. 

Stable products business: 

Q3FY24 product business revenue growth of 20% was drive by 27% RAC volume growth with YTD market share of 19% (stable vs end H1). Q3 saw sluggish growth for commercial refrigeration and air-cooler while commercial AC segment growth was robust. Importantly, segment margin at 8.3% was higher YoY and QoQ aided by stable RM and positive operating leverage. Stronger focus on covering gaps in distribution, better product portfolio coverage and focused efforts on improving cost position should help defend market share with stable margins. 

Projects – strong domestic execution but intl business loss offset the gains: 

Projects business surprised with 51% YoY revenue growth led by strong execution in domestic projects where revenue grew 83% YoY. However, impacted by Rs1.43bn loss in stressed international projects in Qatar, company reported Ebit loss of Rs1.2bn in Q3. Over last seven quarters total Ebit loss due to continued provisioning stands at Rs5.3bn for Voltas and company expects impact to sustain for a few more quarters. Domestic business margins should be around 4% on sustainable basis as per the management. 

Voltbek – healthy growth is comforting: 

Votlbek reported 65% volume growth in Q3 with market share expanding to 3.3% and 5.5% – up 1% and 2.1% YoY for refrigerators and washing machines respectively. Increasing localisation, better distribution and premiumisation helped support higher A&M spends. While overall loss went up, loss per unit was lower with breakeven targeted over 2years.