Voltas Ltd stock was down to nearly 26% in the last year due to pressure from the company’s market share and margin decline. In the nine months till December, the EBIT (Earnings Before Interest and Tax) of the Unitary Cooling Products (UCP) segment stood at 7.5%, 300 basis points less year-on-year.
However, Voltas Ltd.’s stocks have increased for three consecutive days, potentially due to the anticipation of an increase in demand for their air conditioning products as a result of rising temperatures.
Analysts at Jefferies said in a Feb 21 note “We believe FY24 should see both AC and engineering segments of Voltas being in a sweet spot”.
Recently, the Indian Meteorological Department released its first 2023 heat wave alert. Although the temperature rise typically happens in March, trends are already evident in February, Jefferies said.
Analysts at Jefferies “In the last 10 days, many districts in Gujarat and Maharashtra including Mumbai recorded daytime temperatures 5-7 degrees higher than normal.” The northern regions of Delhi, Himachal Pradesh and Uttarakhand also recorded higher than usual temperature in the month of February.
Voltas has a significant presence in the northern region and the western India, the demand for AC will boost volumes as well as their market share and if this demand continues to be strong, Voltas expects to increase the price at the beginning of June quarter of FY24. If the normal temperatures prevail, voltas should see a margin expansion of over 250 basis points in the fourth quarter of fiscal 2023 and first quarter of fiscal 2024.
It is encouraging to see that Voltas’ market share appears to be stabilizing. “Since market share has recovered, we believe the stock should retrace close to half the journey left to its peak,” said the Jefferies report. The remaining journey’s progress will be determined by the rate of margin advancement, they added.
