HDFC Securities sees delayed growth recovery at Voltas; retains 'Add' call

HDFC Securities has retained its Add rating on Tata Group’s household appliances maker Voltas after an analyst group meeting, while expecting the company’s growth to remain subdued in the current year before picking up next year.

 

“Elevated channel inventory levels continue to act as a headwind. As demand gains traction, margin pressures should ease. Considering weak demand and cost pressures, we have cut our revenue estimates by 3 to 4 per cent and adjusted profit after tax (APAT) estimates by 7, 5 and 6 per cent for FY26, FY27 and FY28E, respectively,” the brokerage said in its report.     HDFC Securities has maintained its Add rating on Voltas, valuing the company using a sum of the parts (SOTP) approach, implying 40 times March 2028 EPS, to arrive at a target price of ₹1,430 per share.

Growth to remain subdued

According to the brokerage, the company’s management indicated that demand remained subdued in Q3, although the industry decline was less pronounced compared to Q2. Channel inventory levels have declined but remain elevated at 45 days, compared with 20 to 25 days a year ago.

 

Rising raw material costs, driven by currency depreciation and 20 to 30 per cent import dependence, are squeezing margins, with any potential price hikes contingent on the strength of summer demand. The project business continues to perform well domestically, aided by rising data centre demand, while Voltas Beko maintains strong traction with ongoing market share gains and is targeting reasonable profitability next year.

 

HDFC Securities reiterated that the company’s growth is expected to remain muted this year, with improvement from next year. 

 

“As demand gains traction, margin pressures should ease. Considering weak demand and cost pressure, we cut our revenue estimates by 3 to 4 per cent and APAT estimates by 7, 5 and 6 per cent for FY26, FY27 and FY28E, respectively. We have modelled a 9, 11 and 13 per cent revenue, Ebitda and APAT CAGR for FY25 to FY28E. We roll forward our valuation to March 2028E from September 2027E and maintain Add by valuing the company on a SOTP basis, implying 40x March 2028 EPS, to arrive at a target price of ₹1,430 per share,” the brokerage said.  CATCH STOCK MARKET LIVE UPDATES TODAY

Demand remains muted, cost pressures rising

Management indicated that demand continued to remain subdued in Q3, though the industry decline was less pronounced compared to Q2. Channel inventory levels have declined but remain elevated at 45 days, versus 20 to 25 days a year ago.

 

The company highlighted rising raw material costs driven by currency depreciation, as 20 to 30 per cent of raw materials are imported. Management added that any price hike to offset higher costs would depend on the strength of summer demand. “Ongoing discounts and schemes to boost demand are expected to continue till December,” HDFC Securities noted.

Segmental highlights

Project business: The segment continues to perform well in the domestic market, with the company expecting healthy growth driven by rising domestic demand.

 

Voltas Beko: The segment continues to witness healthy traction with ongoing market share gains. The company aims to achieve reasonable profitability in this segment by next year. 

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