Voltas - Strong Volume Growth; Market Share To Increase: Motilal Oswal

Motilal Oswal Report

Voltas Ltd. stock has appreciated by 50% plus in the last six months and has performed well since the reinitiation of coverage in September 2023. Interactions with dealers in a few regions indicate that there has been an increase in demand for cooling products in March and April 2024. Industry estimates indicate that the demand for room AC has increased by over 30% during the period.

Voltas indicated that its volume growth in RAC stood at 71% YoY in Q4 FY24 and we believe that the company recently gained market share after the declines seen in the last 1.5 years. As per our estimate, market share of the company should be at ~22% in FY24.

We believe that RAC is a long-term structural story, given the low penetration level in India, rising income levels, and thus, aspiration of middle-income group people and rising heatwaves across the globe. We expect the company to maintain its market share at ~22% in FY25/26 and expect the RAC industry to register a compound annual growth rate of 15% over FY24-26.

We raise our EPS estimates by 20%/16%/11% for FY24/FY25/FY26, and expect the company to deliver EPS CAGR of 72% over FY24-26 after subdued performance in FY22-24 (earnings declined at 15% p.a. in this period).

We maintain Buy on the stock with a revised price target of Rs 1,650 (versus Rs 1,410 earlier) based on 50 times FY26E EPS for the unitary cooling product segment, 35 times FY26E EPS for PES and EMPS segments and Rs 38/share for Voltbek.

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