Voltas Fundamental Analysis and Future Outlook
Voltas Ltd was formed 6 decades ago with the joint venture between Tata Sons and Swiss-based Volkart Brothers company. It is India’s largest air conditioning company and also one of the most reputed engineering solution providers specializing in project management. Voltas also exports their project expertise across Technology, Engineering, Cooling and Ventilation, Infrastructure Projects, Textile, Mining and Manufacturing sectors.
- The business model of the company is such that around 45% of the revenue comes from unitary cooling products like ACs and water dispensers, 51% comes from engineering projects which includes HVAC systems and the 4% comes from special engineering products like VRFs, Chillers and Ducted systems.
- They also have a new Joint Venture called Voltbek Home Appliances Private Limited (Voltbek) which will enhance their product portfolio and footprint across the white goods category.
- The company already has 5 manufacturing facilities and have commissioned several new plants with an aggressive expansion plan for the near future.
- This includes a new state-of-the-art manufacturing unit in Sanand (which caters to Voltbek) and one plant near Tirupati, for their cooling products including ACs, Air Coolers and Commercial Refrigeration. One more plant has been commissioned in Waghodia, Gujarat, for the higher tonnage commercial cooling products including VRFs and Chillers. But this will lead to severe overcapacity as demand will be affected due to Covid-19 outbreak in the near future.
I have evaluated the company on 10 fundamental categories and each has been given a rating out of 5 stars. From this, I have arrived at a combined stock rating for the company.
This is the summary of the analysis. You can read the detailed analysis with the excel models on my blog (Check the source link)
Source: Voltas Fundamental Analysis and Future Outlook
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- The company will face a double-digit decline in demand (especially in the summer season) due to the Covid-19 lockdown and disrupted supply chains. The major concerns for the company will be overcapacity, restoring supply chains and selective price cuts and discounts to stimulate demand and gain market share.
- There are 20+ producers chasing the underpenetrated AC market in India. Hence, the competition is high especially with some companies cutting prices to increase their market share.
- The ACs industry grew 29% YoY while Voltas grew 35% in FY2020. Voltas stands to benefit in the long run due to its scale and distribution reach.
- Inverter AC accelerated in demand and now forms 43% of the total AC sales as compared to 36% last year. The Air coolers market share stood at 11.2% (№3 in the segment) and grew by more than 100% last year. The market share is expected to increase in these categories even though volumes may decline in the coming years.
- In the Projects segment, the total order book currently stands at INR 70 billion as compared to INR 50 billion last year, with major orders booked in the water segment. International order book stands at INR 27 billion for the company.
Overall the company can see a temporary revenue decline in FY 2021 but still have solid fundamentals and good growth prospects in the long term
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