Beating the Heat: Exploring Voltas, India's AC Mogul

Company Introduction

Voltas is India’s largest air conditioning company offering a comprehensive range of cooling & home appliances including room air conditioners, air coolers, air purifiers, refrigerators, washing machines, water dispensers, dishwashers, microwaves, and accessories in its portfolio. Voltas is the country’s largest AC brand with a market share of 21%. The company operates in over 100 countries and serves 10 Million+ customers globally.

Historical Performance

• Voltas experienced a 31% growth in consolidated revenue for Q3FY24
• Profit before tax was INR 24 Cr. in Q3FY24 compared to a loss of INR 80 Cr. in Q3FY23
• VoltBek (JV between Voltas and Arcelik) line of home appliances saw volume growth of 65% in Q3FY24
• In Q3FY24, the company’s market share in the Window AC Market stood at 35-40% and Split AC at 18-19%
• As of Q3FY24, the total order book is estimated to be ~INR 9,000 Cr., with INR 5,500 Cr. in domestic projects and INR 3,500 Cr. in international projects

Industry Overview

• According to estimates, the Residential Air Conditioner (RAC) industry in India is expected to witness a robust 15% CAGR in demand for FY23-28E, implying new capacity additions of ~10 million units during the same period
• The Indian Washing Machine Market size was valued at ~INR 1,970 Cr. in 2023 and is projected to reach ~INR 4,260 Cr. by 2032, registering a CAGR of 4.1% during the forecast period of 2023 – 2032
• The Indian dishwasher market is anticipated to grow at a CAGR of 10.8% from 2023 to 2029, reaching ~INR 94 Cr
• The Indian Refrigerator Market size was valued at around INR 30,120 Cr. in 2024 and is expected to reach ~INR 76,180 Cr. by 2033, exhibiting a CAGR of 9.48% during the forecast period of 2024-33

Investment Thesis

VoltBek JV Turnaround: VoltBek, a joint venture, has already achieved a significant 12.2% market share in the semi-automatic washing machine segment as of Dec’ 2023. The company is poised to reach an overall market share of 7.9% by FY27E, with EBITDA breakeven expected by FY26E

Outperforming the Industry: In a challenging operating environment, Voltas has demonstrated resilience by maintaining its industry-leading profitability. For FY23, the company's PBIT Margins stood at an impressive 8.3%, higher than the industry average of ~2.5%

Demand-Aligned Products: Voltas is well-positioned with a diverse portfolio of over 50 SKUs in the mass premium category, which accounts for 70% of the market demand. This enables the company to cater to evolving consumer preferences effectively

Superior Returns Structure: Voltas' Unitary Cooling Products (UCP) business commands an exceptional ROCE of over 70%, higher than the industry UCP ROCE average of around 20%, reflecting the company's efficient capital allocation and strong profitability

Supply Chain Rework: Voltas has successfully reworked its supply chain in the Residential Air Conditioner (RAC) segment, by optimizing its cost structure and operational efficiency

Valuation and Recommendation

We adopted a SOTP Valuation Approach to value Voltas Limited. We valued Voltas Beko JV based on P/S multiple as the segment is not profitable at this point.

*Sales Per Share

We recommend a "Buy" rating for Voltas Limited, considering its strong profitability, VoltBek JV business improvement, and rising market share in the RAC segment. We anticipate a target price of INR 1818 based on FY26 Estimates, which implies an upside potential of 28% in the stock within the next 12-18 months.

Financial Analysis