Results Review for Voltas and Navin Fluorine International

  • Stock Market Analysis
  • Editors Pick

Voltas (NS: VOLT ): Voltas Q4 performance was quite unique; in a strong onset of summer, the market leader lost market share in the room air conditioner (RAC) category. The industry is witnessing robust demand after the slump of the last two summer seasons, while many markets and brands are witnessing a stock-out situation. Voltas lost market share (>200bps on YTD to 23.4%), primarily in the south market (typically contributes ~20% but higher contribution for Q4). Voltas lost market share to LG and Samsung (KS: 005930 ) due to a lower price gap and to Lloyd due to aggressive pricing. We believe the road is not an easy one for the company in regaining its full share, although some recoup is expected owing to corrective price action and strong demand in the core market. Despite this blip in Q4 performance, we are confident on the company’s execution capabilities (demonstrated in the past several years) while we will keep monitoring the market share status in the remaining season. Voltas is expected to sacrifice margin overgrowth; hence, we cut our EPS estimate by 4% for FY23/FY24. We remain bullish on Voltas for being a market leader in the promising RAC category. We cut our UCP multiple to 45x vs. 50x earlier on FY24 EPS. We value the stock on SoTP (UCP/EMPS/EPS P/E at 45/9/15x and Volt-Beko P/S of 4x) on FY24 to derive a TP of INR 1,150. Maintain ADD.

Navin Fluorine International Ltd (NS: NAFL ): We retain our BUY rating on NFIL, with a target price of INR 4,640 on the back of (1) earnings visibility, given long-term contracts; (2) tilt in sales mix towards high-margin high-value business, (3) capacity expansion led growth and (4) strong R&D infrastructure. EBITDA was 5% below our estimate, owing to higher-than-expected raw material costs and other expenses, offset by lower-than-expected employee costs. APAT was 8% above our estimate, owing to higher-than-expected other income and lower-than-expected tax outgo.

Voltas

Blip in performance, seasonal tailwinds continue

Voltas Q4 performance was quite unique; in a strong onset of summer, the market leader lost market share in room air conditioner (RAC) category. The industry is witnessing robust demand after the slump of the last two summer seasons, while many markets and brands are witnessing a stock-out situation. Voltas lost market share (>200bps on YTD to 23.4%), primarily in the south market (typically contributes ~20% but higher contribution for Q4). Voltas lost market share to LG and Samsung due to the lower price gap and to Lloyd due to aggressive pricing. We believe the road is not an easy one for the company in regaining its full share, although some recoup is expected owing to corrective price action and strong demand in the core market. Despite this blip in Q4 performance, we are confident on the company’s execution capabilities (demonstrated in the past several years) while we will keep monitoring the market share status in the remaining season. Voltas is expected to sacrifice margin overgrowth; hence, we cut our EPS estimate by 4% for FY23/FY24. We remain bullish on Voltas for being a market leader in the promising RAC category. We cut our UCP multiple to 45x vs. 50x earlier on FY24 EPS. We value the stock on SoTP (UCP/EMPS/EPS P/E at 45/9/15x and Volt-Beko P/S of 4x) on FY24 to derive a TP of INR 1,150. Maintain ADD.

UCP miss, EMPS in line: Consolidated revenue grew 1% YoY (+27% in Q4FY21, -10% in Q3FY22), below our estimate of a 4% growth. UCP revenue was up 10% YoY (+20% in Q4FY21, +9% in Q3FY22; HSIE +15%). On a three-year CAGR, UCP revenue was up 22% vs. 22% for Lloyd and 14% for Blue Star (NS: BLUS ). Voltas continued to be the market leader, with a 23.4% YTD market share in Mar 2022. The EMPS segment remained under pressure, declining 21% YoY (+37% in Q4FY21, -35% in Q3FY22; HSIE -20%) due to a low carry-forward order book. EPS clocked 26% growth (+3% in Q4FY21, +3% in Q3FY22; HSIE +35%). The company expects to regain its lost market share in Q1FY23 as RAC demand in the North, key geography, picks up.

Margin pressure in UCP: UCP EBIT was at 10.6% (down 522bps YoY) due to time lag in passing the input cost pressure and continued RM inflation. EMPS EBIT margin was at 6.9% (6.5% in Q4FY21, 6.6% in Q3FY22; HSIE 6.5%) on good execution. JV loss stood at INR 289mn vs. INR 222mn YoY. We believe the UCP's EBIT margin will be under pressure in FY23 (RM inflation and competitive pressure), while we expect an EBIT margin of 11.5% in FY24.

Con call takeaways: (1) Voltas’ RAC YTD market share stood at 23.4%, as of March 22, with exit market share at 18.5%. The gap with the second-largest player has been reduced. (2) Share loss was due to strong performance by peers in South India, weak geography for Voltas, and delay in price hikes by competition. (3) The company had taken price hikes in Jan, which took a lag to be passed on. (4) Price differentiation to peers is 2-2.5% in selected markets. (5) Given it is a seasonal period, the company will be providing higher incentives and schemes (interest subvention). (6) Industry will see a stock-out by June and July if the current growth rates sustain.

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