Shares of Voltas, a Tata group firm, climbed 3.45% to ₹896.60 apiece in today's trade after domestic brokerage firm Motilal Oswal reinitiated its coverage on the stock with a 'buy' rating, setting a target price of ₹1,000 apiece based on 40x FY25E EPS.
In the Room Air Conditioner (RAC) segment, Voltas faces steep competition from both domestic and multinational players. The heightened competitive environment has caused the company's market share to drop to 21.6% in FY23, from 25.2% in FY21.
However, Motilal Oswal anticipates that Voltas will maintain a market share of over 21% in the coming years as it would continue to enjoy the leadership position in the RAC segment.
The brokerage projected Voltas to clock a 14% revenue CAGR over FY23 - FY25 and estimates Voltas to record a 30% EBITDA CAGR over FY23–25, aided by a low base and recovery in the UCP/EMPS segment’s margins, and it has estimated EBITDA margin to be at 6.9% and 7.8% in FY24 and FY25E compared to 6.0% in FY23.
The brokerage forecasts Voltas to clock a 38% EPS CAGR over FY23–25, driven by an EBITDA CAGR of 30% and a reduction in the losses of associate and subsidiary companies. It estimates the PAT margin to be at 4.8% and 5.9% in FY24 and 25E as compared to 4% in FY23.
In addition, Motilal Oswal anticipates that Voltbek will achieve profitability at the operating level in FY26 and start contributing to profits in FY27. The brokerage said Voltbek is aggressively expanding in India by targeting 15,000 outlets (7,000+ at present). In FY23, it launched over 100 SKUs and a fully automatic top-load machine with a heater.
Voltbek is a JV between Voltas and Turkey’s largest industrial & services group, Ardutch B.V. (a subsidiary of Arçelik A.S.). Beko is the global brand of Arçelik. This JV launched its products in September 2018 and set up its manufacturing facility (which manufactures direct-cool refrigerators) in Sanand, Gujarat.
The JV targets to reach a production capacity of 2.5 million units per year (currently at 1.0 million units) by 2025, it said.
In terms of financials, Voltas reported a 17.29% rise in its consolidated net profit to ₹129 crore as against a net profit of ₹110 crore in the year-ago period. The revenue from operations in the same quarter came in at ₹3,335 crore, a 21.6% growth compared to ₹2,741 crore in Q1FY23.
The revenue from the company's UCP segment improved by 16.27% YoY to ₹2,513 crore in Q1, while the revenue from Electro-Mechanical Projects and Services came in at ₹679 crore in Q1FY24, up from ₹454 crore in Q1FY23, and the Engineering Products and Services segment clocked a revenue of ₹142.31 crore, an increase of 14.46% YoY.
Following the company's Q1FY24 performance, brokerage firm Geojit Financial Services upgraded its rating on the stock to 'buy' and revised the target price to ₹991.
Better working capital management, incentive schemes across sales channels, a growing network of exclusive brand outlets, and tie-ups with modern and retail channels are expected to drive overall performance in the long term. Additionally, cost efficiency measures and the softening of commodity prices are expected to support margins in the future, the brokerage said.
The brokerage noted that Voltas' market share showed a sequential improvement in the quarter, and it anticipates that the upcoming festival season will stimulate overall demand starting from Q3 FY24.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.