Voltas’ consumer business delivers a cool surprise in Q4

But, analysts have lowered earnings estimate due to high channel inventory

The Voltas stock surged over 12 per cent on Monday, after the air conditioning equipment major reported a strong performance in the March quarter (Q4). The better-thanexpected results were announced on Friday evening.

The company’s unitary cooling products (UCP), or the consumer segment, posted a strong 20 per cent year-on-year (YOY) growth despite the lockdown impacting sales during the latter part of March. Profit margin, too, was strong at 14.6 per cent. The company said that based on sales at multibrand outlets, it maintained its market leadership in the room air conditioners segment, with its share rising 50 basis points

YOY to 24.2 per cent. The segment’s growth was also better than peers. Havells’ (Lloyds business) and Blue Star’s consumer business had reported a 15-20 per cent YOY decline in sales in Q4. Part of Voltas’ outperformance is due to Q4’s low base, when extended winters impacted the offtake of air conditioners.

Analysts also believe that Q4’s sales may have been boosted as dealers stocked up on inventory, on fears of supply disruption (impact on component sourcing from China) and expectations of price hikes.

While the consumer segment (56 per cent of revenues) boosted the firm’s performance, the project segment (38 per cent of its top line) posted a 17.8 per cent decline in sales due to slower execution of projects. Yet, Voltas’ revenues, at ~2,150 crore, up 1.4 per cent YOY, were better than the consensus estimate of ~1,999 crore, and net profit at ~160 crore — even better against the estimate of ~120.7 crore.

What’s more, order inflows were impressive, and FY20 ended with an order book of ~7,800 crore as compared to FY19’S ~5,000 crore. This provides comfort on future growth, as new orders are predominantly from India. The Metro rail and other government projects are expected to see decent execution, even as international projects may see some slowdown, say analysts.

The easing of lockdown is also lifting investor sentiments as sales pick up. "The past two weeks have seen strong demand led by the heat wave in North India, which has provided some respite," says Tarang Bhanushali of YES Securities. The initial part of the seasonally-strong quarter has been a washout, and some relief now is providing comfort.

While some reduction in the high channel inventory is positive, with a significant part of the peak summer season sales being impacted, analysts are cutting their forward earnings estimate. Credit Suisse has cut the earnings estimate for FY21 and FY22 by 9 per cent and 7 per cent, respectively, to account for the impact of a longer lockdown, and revised their target price to ~650, from ~725 earlier. On the whole, the Street is positive on the stock.