Buy Voltas; target of Rs 1000: Motilal Oswal – A Comprehensive Analysis

In the ever-evolving world of investments, it’s crucial to have a clear perspective on potential opportunities. Today, we delve into the research report by Motilal Oswal, a renowned name in the financial industry, regarding Voltas, a company that needs no introduction in the realm of room air conditioners (RAC) and electrical solutions. Motilal Oswal’s report, dated September 5, 2023, is brimming with insights and projections that could shape your investment decisions. So, fasten your seatbelts as we embark on this journey to understand why Motilal Oswal recommends buying Voltas with a target price of Rs 1000.

Understanding Voltas’ Market Leadership

Market Share Growth: Voltas, or VOLT, has consistently shown its prowess in the RAC segment. In FY21, it had already secured a substantial market share of 25.2%, a remarkable increase from 20.8% in FY15. Although it witnessed a slight dip to 23.4% and 21.6% in FY22 and FY23, respectively, Motilal Oswal estimates that VOLT will maintain its leadership in the RAC segment with a market share of 21-22% in FY24/25. This resilience in maintaining a strong market position is a testament to Voltas’ market acumen.

Voltbek’s Promising Growth

Volume Growth: Voltbek, a subsidiary of Voltas known as Voltas Beko, has been making waves in the market. With a remarkable volume growth of 45% and a consistent 15-18% YoY growth in FY22/FY23, Voltbek has shown tremendous potential. Cumulatively, it achieved a sales volume of over 3.3 million units until FY23.

Revenue Traction: Despite facing an operating loss of INR 1.6 billion in FY23, Voltbek’s revenue witnessed a robust 17% YoY growth in the same period. This signifies that the company is on the right path towards profitability.

Future Profitability: Motilal Oswal anticipates that Voltbek will turn profitable at the operating level in FY26 and is expected to contribute to profits starting from FY27. This transition to profitability bodes well for the overall financial health of Voltas.

EMPS Segment’s Resilience

Industrial Solutions: The Electrical, Mechanical, and Plumbing Solutions (EMPS) segment of Voltas caters to industrial customers both domestically and in the GCC region. While it faced challenges in FY23 and 1QFY24, primarily due to international write-offs, the segment is poised for a strong recovery.

Strong Order Book: The EMPS segment boasts a robust order book worth INR 81.9 billion, comprising INR 52.4 billion from domestic orders and INR 29.5 billion from international orders. This substantial order book is expected to drive revenue growth, and we can anticipate an improvement in margins in the second half of FY24.

Outlook and Conclusion

In conclusion, Motilal Oswal reinstates its coverage on VOLT with a BUY rating and a target price (TP) of INR 1,000. This recommendation is premised on a 40x FY25E EPS valuation, similar to the one-year forward average P/E multiple of the last 10 years (excluding Voltbek’s losses), and INR 38 per share for Voltbek.

Leadership in RAC: The expectation is that Voltas will continue to hold a market share of 21% and above in the coming years, maintaining its leadership in the RAC segment.

Voltbek’s Profitability: The anticipated profitability of Voltbek from FY26 onwards is a significant driver of this optimistic outlook.

EMPS Segment Recovery: The strong order book in the EMPS segment is set to fuel revenue growth and enhance margins in the near future.

While there are multiple factors at play in the world of investments, Motilal Oswal’s report on Voltas provides valuable insights for those considering this stock. As you navigate the complex landscape of financial decisions, keep an eye on Voltas, a company with a rich history and a promising future.

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