Voltas waits for the heat as FY26 turns tepid
Voltas is managing high inventory and competitive pricing pressures while trying to increase market share. Analysts emphasize the need for improved quarterly results to attract investors.
Voltas Ltd’s FY26 is set to be a forgettable one. Consolidated revenue for the year is expected to decline. For the half-year ended September (H1FY26), total operating revenue fell 16.6% to ₹6,286 crore, with the unitary cooling products (UCP) business contributing about 65%, down 24% versus the same period of FY25. Blame the delayed onset of summer, an extended monsoon and GST-related demand deferment for this performance.
In an interaction with analysts recently, Voltas executives pointed out that while the demand scenario still remains muted, it is improving.
“Management commentary indicated that while the industry could see a decline in Q3, the decline should be less than Q2 on account of pre-buying from the channel due to the energy rating changes with effect from 1 January," said JM Financial Institutional Securities report dated 18 December. The rating changes refer to the Bureau of Energy Efficiency’s tightening standards for several high-energy consumption appliances.
As per Voltas, channel inventory has dropped to about 45 days currently from 60 days about two months ago. However, it is still elevated compared with 20-25 days last year, so does not trigger increased buying from channel partners.
Overall, the thrust is more on market share gains than the margin. Voltas’s room air-conditioner (RAC) market share increased sequentially to 18.5% in Q2 from 17.8% in Q1, and from 16% in Q4FY25. Still, the drop in revenue and higher operating costs have led to a 380-basis point Ebitda margin drop to 3.96% in H1FY26.
Pricing strategy
The margin is also influenced by aggressive pricing strategies that some rivals are pursuing in UCP segment, which the management believes is unsustainable. The company is deliberating pricing actions in view of rising input costs led by inflationary trends and rupee depreciation (25-30% import of raw materials).
Amid the weak operating environment, Voltas shares have unsurprisingly plummeted 23% so far this calendar year to ₹1,388 apiece.
Elara Securities (India) has retained its ‘accumulate’ rating on the stock, maintaining the target price at ₹1,440, based on 37 times September FY27 estimated price-to-earnings multiple, driven by lower penetration of RACs, anticipation of better summers and lower base auguring well for FY27 and beyond. The key risks to Elara’s thesis are muted sales in December and prolonged winters impacting Q4 sales.
Investors will wait to see proof in terms of improving quarterly results before placing their bets. Demand recovery, inventory normalization and price increases are factors to watch out for.
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