In a recent analyst meet, the firm indicated a good beginning to the festive season starting with Onam
There are global and domestic macroeconomic challenges that weigh on order flows and projects in both electromechanical and engineering products and services
Voltas Ltd has been battling a slowdown in the projects business. Amid this and the slowing demand for most discretionary products, news of robust demand for its retail unitary cooling products (UCPs) allays investor concerns to some extent.
In a recent analyst meet, the firm indicated a good beginning to the festive season starting with Onam. Importantly, while slowing demand has led to an inventory pile-up in most discretionary products, demand for air conditioners, air coolers, and even refrigerators has been strong even after the summer season.
Further, in its report dated 19 September, ICICI Securities Ltd says: “The volume growth of room air conditioners is likely to remain strong in H2FY20 as well supported by demand remaining intact from tier-II and tier-III cities."
In Q1FY20, the firm’s room air conditioner sales grew by 36% year-on-year (y-o-y), after two years of flat sales. The UCP segment accounts for 50% of overall revenues. Analysts reckon that this segment will post 20-25% growth in FY20.
That said, the moot question is whether any price hike taken ahead of the coming festive season would dampen sales, given the weak consumer sentiment in domestic markets.
Besides, the worries related to the other businesses remain. On the near-term prospects of its joint venture, a report from Mumbai-based stock broking firm Prabhudas Lilladher Pvt. Ltd says: “Launched only in the latter part of FY19 (H2FY19), the Voltas-Beko joint venture (Voltbek Home Appliances India Pvt. Ltd) stands to miss out on festival season sales for a second consecutive year as it has no presence in the direct cool refrigerators (70% of market) and semi-automatic washing machines (50% of market)."
Then there are global and domestic macroeconomic challenges that weigh on order flows and projects in both electromechanical and engineering products and services. With revenue contraction, Ebit margins fell by 220bps and 230bps, respectively, in these two segments in Q1FY20.
Analysts are not hopeful of a big uptick in these businesses in the immediate future. One consolation is that the firm has been able to maintain its overall annual earnings before interest, tax, depreciation and amortization (Ebitda) margin of 9-10%.