Nuvama trims Voltas FY26-27 earnings estimates amid demand woes

Domestic brokerage Nuvama Institutional Equities (Nuvama) has cut its earnings estimates for Voltas amid continued near-term demand weakness, elevated channel inventory and mounting cost pressures that are likely to weigh on margins. The brokerage has reduced its FY26 and FY27 earnings per share (EPS) estimates by 12 per cent and 3 per cent, respectively, while maintaining its ‘Reduce’ rating on the stock. 

 

According to Nuvama, demand conditions remain challenging in the near term, largely due to seasonally soft November-December sales and higher-than-normal channel inventory, which currently stands at around 45 days compared with 20-25 days in the same period last year. While the sharp decline seen in Q2FY26 is expected to moderate, the recovery in Q3FY26 is likely to be gradual rather than broad-based.

 

 

Voltas management has indicated that Q3FY26 trends are in line with internal expectations, with most sales still driven by products under the old energy rating table. Nuvama noted that some sequential improvement could be supported by pre-buying by dealers ahead of anticipated price increases linked to rising input costs and changes in energy rating norms. However, the brokerage cautioned that this improvement may be partly inflated, as pre-buying levels are expected to remain lower than last year, when stock-outs caused by an intense summer led to unusually high channel stocking.  ALSO READ | Q3 sales recovery, easing costs to drive gains for Godrej Consumer Products 

Margin pressure remains a key concern for the brokerage. Nuvama highlighted multiple cost headwinds, including depreciation of the rupee, which affects 20-30 per cent of Voltas’s imported material costs, higher copper prices and increased expenses related to e-waste compliance. These pressures come after the company had already passed on a 7-8 per cent price cut to consumers following the GST rate reduction, limiting its ability to absorb further cost inflation.

 

While Voltas is evaluating pricing actions to offset rising costs and the impact of new rating tables, pricing support and channel incentives are expected to continue in Q3FY26, albeit at a more calibrated level compared with Q2FY26. Nuvama believes that near-term margin outcomes will depend on how effectively revised pricing strategies are implemented, the pace of inventory normalisation and the intensity of competition in the room air conditioner (RAC) segment.

 

Despite near-term challenges, Voltas remains focused on defending and rebuilding market share, which management has described as non-negotiable. The company has already regained 100-150 basis points (bps) of market share this calendar year, supported by improved regional distribution and capacity expansion at its Chennai plant. Additionally, the commercial air conditioning (CAC) business continues to perform steadily, benefiting from demand linked to data centres, district cooling and large commercial projects.

 

Factoring in lower margin expectations, Nuvama now assumes a revenue, Ebitda and PAT CAGR of 7 per cent, 9 per cent and 11 per cent, respectively, over FY25-28. The brokerage has lowered its sum-of-the-parts (SoTP)-based target price to ₹1,170 from ₹1,200, noting that at current levels, the stock trades at elevated valuation multiples.

 

Disclaimer: The view/outlook has been suggested by Nuvama. Views expressed are their own.