Shares of Voltas, a Tata group firm, opened lower for the second consecutive day on Friday. The stock began the trade at Rs. 806 apiece, down 0.29% from its previous closing price of ₹808.40, and continued to slide during the early trade to hit an intraday low of ₹762.75, down by 5.64%.
The stock has been on a downward trajectory over the last one-year period, falling steadily from ₹1,285.65 apiece to the present value of ₹792.30, losing nearly 38.37% of its value. Adding to the challenges are the company's latest quarterly results, as the company's scorecard failed to meet market expectations.
On April 26, the company reported a 21.6% fall in its consolidated net profit to ₹143.23 crore for Q4FY23 as against a net profit of ₹182.71 crore in the year-ago period. The revenue from operations in the same quarter came in at ₹2,936.76 crore, a marginal growth of 11.5% compared to ₹2,633.72 crore in Q4FY22.
Domestic brokerage firm ICICI Securities noted that Voltas faces steep competition in air conditioners from domestic as well as MNC players. The increase in competitive pressures has resulted in a loss of market share to 21.9% at the end of February 2023, compared to 25.2% in FY21, it said.
The brokerage firm expects the market share to continue to be under pressure due to the heightened competitive intensity. However, despite the high levels of competitive intensity, the brokerage projects that a correction in raw material prices will lead to improved profitability in FY24E.
Voltas reported its lowest consolidated EBITDA margin in nine years at 6% for Q4 FY23. ICICI Securities forecasts that margins will recover to 7.4% by FY25. The brokerage maintained its 'hold' rating on the stock with a revised DCF-based target price of ₹825 apiece from ₹880 earlier.
Another brokerage firm, Anand Rathi, has pointed out that the market share of Voltas has been steadily declining since Q1 FY22. The volume offtake was adversely impacted by unseasonal rainfall in March 2023, however, it is expected to improve in Q1 FY24, making it a crucial factor to monitor, it stated.
The Indian government has approved 26 applications under the PLI scheme for air conditioners, including seven OEMs and other component manufacturers.
As the approved vendors' plants become operational, competition for volumes appears to be increasing, leading to pricing-driven competition, which has restricted Voltas’ margin expansion despite being the market leader, said the brokerage firm.
The company is expected to benefit from strong commercial cooling prospects in sectors such as food processing, pharmaceuticals, hotels, and restaurants.
It has tied up with Denmark's Vestfrost Solutions for bio-medical refrigeration and cold chains and has also partnered with modern and urban retail chains for air coolers. The company's expanded product range has helped it achieve a 9.2% air-cooler market share at the end of Q4FY23, the brokerage added.
The brokerage has upgraded its rating on the stock from 'hold' to 'buy' and raised its target price to ₹973 apiece from ₹937 earlier.
40 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.