Voltas misses Street estimates on slack sales of cooling products

The sales of Voltas’ unitary cooling products, especially air conditioners (ACs), continued to disappoint, resulting in the company missing estimates in the December quarter (Q3). 

With the weather conditions remaining pleasant and the sales of ACs not picking up during the first half of FY19, high-channel inventories impacted its sales in the December quarter, too, say analysts. The segment, which contributes more than a third to the overall sales, saw revenues decline by about three per cent year-on-year (YoY) in Q3, albeit on a high base. 

The projects segment (electro-mechanical projects and services), which contributed more than half the sales, compensated by reporting a 16 per cent growth. 

This helped Voltas report a year-on-year increase of 8.5 per cent in overall revenues. 

With cooling products’ revenues suffering, rising costs and rupee depreciation meant segmental margins were down 450 basis point (bps) YoY to 8.5 per cent. Thus, overall operating profit at Rs 116 crore was down by three per cent YoY. Net profit at Rs 80.9 crore also declined 19.4 per cent YoY and came much lower than Rs 98.7 crore indicated by Bloomberg estimates.

While recovery in AC sales is being looked at with optimism, Voltas has maintained its leadership position in the room AC segment. Voltas has also received positive response to new products launched under its joint venture with Arcelik, say analysts. 

The company is launching white goods under the joint venture. With long-term demand drivers in place, Arafat Saiyed of Reliance Securities believes the Voltas-Arcelik JV is set to garner a sizable market share over time. Thus, a recovery in sales of air conditioners over the next three months, with the onset of the summer season, remains the key for sentiment to improve.

The projects segment is growing owing to efficient execution in both domestic and international markets. The favourable mix of orders also meant that the project segment’s margins grew 80 bps YoY in Q3. 

The outstanding order book for projects has improved three per cent YoY to Rs 5,000 crore as of end December 2018. Not surprising then, the stock of Voltas is up 1.5 per cent post results.

Analysts at JM Financial, who have maintained a positive rating, believe growth in room ACs will kick-start in FY20 and margins will remain in the 11-12 per cent range.