 "Notably, the company has also gained share in the inverter AC segment which aided segment margins")
Voltas impressed with its June quarter performance, outperforming peers in a challenging quarter marred by lockdowns. Though the impact on revenue and profits was visible, the positive was its ability to expand its market leadership in the air-conditioner (AC) business.
Voltas’ year-to-date market share stood at 26.2 per cent at the end of the June quarter (24.2 per cent in the previous quarter). Within segments, Voltas also gained share in inverter ACs.
The unitary cooling products segment (primarily ACs) saw revenue decline almost 60 per cent year-on-year (YoY), as sales were impacted by the lockdown in a seasonally strong summer season.
What helped was its strong position in North India with a share of 40 per cent. The heatwave helped AC sales, aiding Voltas’ share gains, compared to peers such as Blue Star, which have a stronger presence in South India, feel analysts.
The company has also gained share in the inverter AC segment, which aided margins. The 240-basis point YoY expansion to 15.5 per cent surprised the Street. The lower promotional spends and carry-forward of low-cost inventory, too, benefited it.
While sales and outlook are gradually improving, the September quarter could be dull, given it is seasonally weak and is impacted by the monsoon. Nevertheless, analysts say a strong market-share gain could mean that channel inventory position, too, will come down, compared to peers, and should bode well for Voltas.
The company’s project segment (electromechanical projects and services), too, saw sales decline 37 per cent YoY. The slow pace of execution of projects, apart from conservative time-based provisions amid liquidity constraints, meant that the segment reported a loss of Rs 39.28 crore at the operating level in the June quarter. The outlook for the project’s business remains weak in the near term. Analysts believe the segment should bounce back ahead of peers.
Blue Star, too, felt the heat and saw its project (electromechanical projects and commercial AC sales) business decline 49.9 per cent. Analysts say the pace of project executions was slower, subject to clients’ ability to support execution with cash flow and labour. Blue Star, though, is well placed to navigate the challenging situation, given its strong balance sheet. What will take time are cooling projects related to malls and other real estate segments where recovery is expected to be sluggish.
Tarang Bhanishali at YES Securities points out that Voltas may see faster recovery than Blue Star, given its order book is dominated by Metro cooling, rural electrification and other government projects.
Analysts at Motilal Oswal Financial Services, too, prefer Voltas over Blue Star as a play on the underpenetrated AC market in India. Voltas has witnessed a strong rally of 44 per cent from May lows and is now trading at 30x its 2021-22 (FY22) earnings estimates. Thus, investors may accumulate the stock on corrections.
Blue Star, on the other hand, is trading at a premium to these valuations. The stock trades at 33.6x its FY22 earnings estimates.
