Voltas: Forays in small appliance market

2 Nov 2023 , 06:02 PM

Voltas’ continued investment in RAC through capacity creation, backward integration under PLI and new separate head for the business is directed to sustain position amid intense competition. Alongside, company has announced further portfolio expansion (water heater, kitchen appliances) by leveraging distribution (Voltas), design capabilities (Voltbek) and offer of a larger portfolio to the channel. Strong execution in a crowded market would be key even as upfront capex is minimal. While domestic projects business is improving, overhang from international projects business will remain. Visibility of path to separation remains elusive as of now. Analysts of IIFL Securities retain REDUCE. 

Expanding into new segments: 

Voltas recently forayed in the water heater segment with plans to leverage the air cooler distribution network while expanding the product suite for distributors. Company has plans to add a few more categories including a few under Voltbek (kitchen appliances – hobs, chimneys, juicer grinder etc) through third party manufacturing model while it focusses on product design and distribution. In terms of mgmt. bandwidth, recent appointment of Mukundan Menon as head of RAC business should help as the company continues to expand the product business portfolio. 

RAC – investing to sustain position: 

Voltas has stepped up capex to expand RAC manufacturing capacity and improve logistics through a capacity in South India as well as to manufacture components under PLI. While initial plans for compressor manf. faced regulatory hurdles, it has voiced plan for a JV with Japanese/Korean partner. However these are targeted to help sustain cost levels and supply chain security amidst more intense competition even as segment growth has been subdued. 

Projects – improvement to be gradual only: 

Even as domestic ordering, execution and profitability (5-6%) remains healthy, delayed payments and stress in intl projects has driven Rs4bn loss in the last six quarters. Mgmt expects a few more qtrs. to see margin pressures due to these issues. Increased risk mitigation focus will lower intl order wins but overall move to stability would only be gradual. Restructuring of projects into 100% owned subs has improved product business focus but visibility on separation is elusive currently.