Can Voltas’ diverse business strategies drive future growth?

The Consumer Durables and Electronics segment expects to achieve significant sales growth in 2024 despite several challenges, including unusual summer rains, lower consumer confidence due to inflation, and delays in destocking non-rated fans.

These obstacles now seem like a thing of the past. The brand expects to grow across a variety of markets in 2024, with premium, value-added and feature-driven products continuing to be important drivers.

Consumer durables companies benefit from GDP multiplier advantages and offer medium- to long-term growth opportunities through resilient trends in housing and home improvement, low market penetration across various product categories, and opportunities to diversify product offerings.

Voltas, a leading residential air conditioner manufacturer, announced a remarkable 35% sales growth to surpass 2 million units in fiscal 2024, becoming the first company in the domestic market to achieve this milestone.

Due to this performance, Voltas’ stock price surged 13 per cent on Monday, reaching a 52-week high of Rs 1,392 on the NSE. Over the past one year, Voltas has achieved impressive returns of over 60%, outperforming Nifty which returned 29% during the same period.

Given the optimism in the consumer durables and electronics industries, you might be wondering whether now is a good time to buy stock in Voltas. Let’s dig deeper to find out.

Voltas Company Overview

As a core member of the Tata Group, rotation We have established ourselves as a leader in the field of air conditioning products in India and are proud to be India’s No. 1 room air conditioner brand.

The company also has a diversified presence in other business areas, including engineering products, electromechanical projects and services.

The company has maintained its market leadership for many years by consistently providing high-quality products to its customers. Voltas maintains a market presence in India and the MENA region.

business division rotation

The company consists of three main segments: Single Cooling Products, Electrical-Mechanical Projects and Services, and Engineering Products and Services.

The single cooling products segment remains the most profitable business, accounting for 68% of total sales.

single cooling product

Unitary Cooling Products (UCP) serves a diverse range of customers with comprehensive, integrated solutions for both business-to-consumer (B2C) and business-to-business (B2B) segments.

Voltas’ products are tailor-made to meet the needs of both residential and commercial spaces, offering energy-efficient solutions, advanced features and rugged durability.

Additionally, the company carefully manages its parts inventory to ensure timely delivery of high-quality products. This commitment to delivering superior products remains a key driver of our continued growth.

Voltas Beco

Recognized as one of the fastest growing home appliance brands in India, Voltas Beko has achieved sales of over 3.3 million units since its launch.

Voltas Beko offers a wide range of technologically advanced home appliances, including refrigerators, washing machines, microwave ovens and dishwashers, featuring exclusive designs made from premium materials. Voltas Beko is actively expanding its presence in India with plans to target 15,000 stores.

Overseas Sales Business Group

IOBG specializes in providing comprehensive electromechanical solutions and services to customers in the Middle East and Asia. The company has strategic business prospects in global markets and is committed to providing quality electromechanical solutions and services beyond India.

Additionally, IOBG has successfully implemented numerous projects throughout the Gulf Cooperation Council (GCC) countries, including Dubai, Oman, Qatar, and Bahrain.

infrastructure solutions

Voltas, through its wholly-owned subsidiary UMPESL, provides comprehensive services to various infrastructure sectors including building construction, airports, ports, power and water treatment.

The company provides integrated mechanical, electrical and plumbing (MEP) solutions that cover the entire spectrum of design, engineering, procurement, construction and commissioning of these systems.

Textile Machinery Division

TMD specializes in providing engineered products and services tailored to the textile industry. TMD, through its principals, offers a wide range of machinery and equipment, including spinning, weaving, knitting, processing and finishing machines.

These services are further complemented by excellent after-sales support and maintenance services to ensure smooth operation and longevity of equipment for textile sector customers.

Mining and Construction Equipment (M&CE)

In 1954, Voltas established its M&CE division as the EMA (Earthmoving, Mining and Agricultural) Machinery division. Over the years, M&CE has significantly expanded its operations across India and expanded its presence into Mozambique through partnerships with Tata Mozambique and Tata Africa.

The company’s main focus remains ​serving mining companies, and it proudly recognizes itself as a provider of engineering solutions in this sector.

Voltas’ finances

In fiscal 2023, Voltas saw its revenue grow, with a 20% surge reaching ₹9,498.77 crore compared to ₹7,934.45 crore in fiscal 2022. After analyzing four years from FY2020 to FY2023, the company recorded its revenue at a compound annual growth rate (CAGR) of 7%.

On the other hand, net profit declined significantly, falling 73% from ₹506 crore in FY2022 to ₹136.22 crore in FY2023.

The Room Air Conditioner (RAC) business has seen margins come under pressure due to intense competition and pricing pressure from aggressive competitors.

Moreover, delays in certification and disbursement of payments in the project segment have led the Company to establish provisions for receivables in line with its prudent policy. Ultimately, this affected profitability.

As a result, Voltas’ returns fell significantly. In fiscal year 2023, the company maintained a return on equity (ROE) of 4.46% and a return on equity (ROCE) of 9.54%.

Future Plans rotation

EMPS: One-time drag performance; recovery expected

The MEP segment provides services such as water management and electromechanical projects to industrial customers in the GCC region and domestic markets.

Recently, the company underwent internal restructuring and consolidated its domestic project businesses, including MEP, infrastructure, textile machinery and construction equipment, into a wholly-owned subsidiary called Universal MEP Projects & Engineering Services Ltd.

Management said the restructuring aims to focus separately on its B2B and B2C business segments.

VOLT currently has an order book worth ₹8,000 crore in this segment, comprising international orders of ₹5,500 crore and domestic orders of ₹3,500 crore. However, the segment’s performance in FY23/1QFY24 was negatively impacted due to write-downs of its international operations.

The provision was created due to delays in certification and collection of outstanding amounts. Management assured that efforts are underway to engage with customers to address these issues and accelerate the certification process.

Low promotional costs compared to similar companies

VOLT maintains industry-leading margins in the UCP segment by keeping advertising and promotional costs well below its peers.

VOLT’s advertising spend as a percentage of revenue was 0.7% in FY23, compared to 0.9% for Blue Star and 2.6% for Havells. Looking at UCP revenue specifically, VOLT’s advertising expense ratio was 1%, which was significantly lower than Bluestar’s 2.7%.

It is worth noting that Lloyds allocates a larger proportion of its profits (about 5%) to advertising costs. Likewise, VOLT’s promotional expenses, including sales commissions, were 0.1%, which was significantly lower than Bluestar’s 0.9% and Havells’ 0.7% in FY23.

The company’s ability to maintain low advertising costs has consistently generated superior margins compared to its peers. For example, Lloyds experienced a loss at the EBIT level in FY23, while in its UCP segment, Blue Star’s EBIT margin of 7.8% was slightly lower than VOLT’s impressive margin of 8.3%.

conclusion

So, looking at the valuation, we can see that the company is expensive compared to its industry peers, as evidenced by its price-to-book ratio of 7.63 and its price-to-earnings ratio of 155 compared to 12.2 for Blue star. The dividend yield is also 0.32%.

Through its strong market presence and strategic initiatives, Voltas aims to maintain its competitive advantage. But the question still remains. What do you think the future holds for Voltas in the dynamic consumer durables and electronics industry?

A work written by Nalin Surya S.

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