Which of these two companies will benefit more from various government initiatives?
Climate change is for real irrespective of what people think of it. The effect of climate change is clearly evident as a lot of geographies are experiencing extreme climatic conditions for a prolonged period which is unprecedented.
India is no different to this phenomenon. India is known for its hot summers and for the last few years this has only gotten worse. For example, a few years ago, Phalodi in Rajasthan recorded the highest ever temperature of 51 Celsius.
Soaring temperatures augurs well for companies manufacturing cooling products. More people are buying air conditioners and coolers to tackle the scorching heat.
Voltas and Blue Star are in the business of cooling products. These companies offer products like air conditioners to water coolers. These cater to retail consumers as well as businesses.
To mitigate concentration risk, these companies have diversified their business. They offer engineering products and solutions to other businesses.
Voltas is backed by Tata. Its overall business can be broadly classified into following four segments:
Engineering products and services
Unitary products is the core segment for Voltas. It offers a range of cooling products and has a market share of 25.2%.
Apart from air conditioners and other cooling products, the company also offers other white goods like microwaves, refrigerators, and dishwashers under the brand ‘Voltbek’.
Blue Star’s business is also well diversified. It can be classified into following three segments:
Electro-Mechanical projects and commercial refrigeration solutions
Electronics and Industrial systems
Electro-mechanical projects and commercial refrigeration solutions is the biggest business for Blue Star. It accounts for 52% of the total revenue.
Blue Star lags in revenue and profit
Financial year 2021 was bad for both the companies as the industry saw a significant drop in the demand. Demand for room air conditioners and deep freezers fell due to lockdowns and loss of jobs.
However, both companies were able to recover 80-85% of pre-pandemic revenue. This was on the back of strong demand for commercial products from the pharma and infrastructure industry. It was also due to pent up retail demand in the January-March quarter of 2021   as restrictions were eased.
Both companies witnessed a drop in their revenue compared to the previous financial year. The impact was significant for Blue Star as its revenue plunged by 20.5% on a year on year (YoY) basis.
Voltas’ revenue grew at a CAGR of 4.8% over the last five years. During the same period, Blue Star’s revenue fell at a negative CAGR of   0.4%.
Voltas vs Blue Star Profit After Tax (2016-2021)
Net Profit ( ₹m)
Net Profit Growth (%)
Blue Star 
Similar is the case for the bottomline. Voltas’ net profit grew at a CAGR of 1.8% over the last 5 years. However, Blue Star’s bottomline saw a negative CAGR of 4.3% during the same period.
As far as the margins are concerned, margins of both the companies are on the downward trajectory. They have been logging lower margins every passing year.
Voltas vs Blue Star Net Profit Margins (2016-2021)
Net Profit margin (%)
Voltas has clocked higher net profit margins than Blue Star for the last five years. Voltas clocks an average net profit margin of 8.3% over the last five years. This is higher than that of Blue Star’s average of 3%.
Blue Star clocks higher returns
Return on Capital Employed or ROCE is the measure of a company's efficiency to generate profits on capital employed in the business. Higher the ROCE, the better it is for the investors.
The following table shows the ROCE of Voltas and Blue Star for the last 5 years.
Voltas vs Blue Star ROCE (2016-2021)
Blue Star has been logging higher ROCE than Voltas. This means Blue Star is generating more returns on the capital employed as compared to Voltas. It also reflects prudent capital allocation.
The five-year average ROCE of Blue Star is 26.5%. This is higher than that of Voltas’ average of 19.5%.
Investors tend to invest in companies that pay dividends to their shareholders.
Dividend is company’s accrued profits distributed equally among shareholders. A company may declare dividend when it doesn’t have any immediate expenses to pay for.
The following table shows the dividend paid by Voltas and Blue Star to shareholders over the last five years.
Voltas vs Blue Star Dividend (2016-2021)
Dividend per share (Rs)
Dividend Payout Ratio (%)
Voltas' business is way more diversified and demands more capital than Blue Star’s. Therefore, Voltas’ dividend per share is less than that of Blue Star.
Voltas has paid an average of ₹4.1 to each shareholder over the last five years. This compared to Blue Star’s average of ₹8.3 during the same period.
Another dividend metric that investors look at before investing in any company is dividend payout ratio. Dividend payout ratio tells investors the amount of dividend paid by the company with respect to its earnings for the year. Higher the dividend payout ratio the better it is for the investors.
The five-year average dividend payout ratio of Voltas and Blue Star is 23.7% and 55.7%, respectively.
Any efficient company invests in highly automated manufacturing facilities to keep its costs low and increase its profits over time.
Voltas and Blue Star have been investing in their manufacturing capacities since inception.
Voltas has 4 manufacturing facilities in India with a total production capacity of 3 m products whereas Blue Star has 5 manufacturing facilities with 2 more being constructed to enhance capacity.
Research and development (R&D)
In an extremely competitive market like that of consumer durables, a company with an innovative product portfolio has a competitive edge over its peers.
Japanese companies like Daikin and Panasonic, known for their innovative products, are rapidly gaining market share in India. Innovation is a key differentiator in this space. It helps a company create strong brand.
Innovation is the result of a company's R&D efforts. So, let’s look at the R&D expenditure of Voltas and Blue Star to understand how they stack up against each other.
The following table shows the R&D expenditure of both companies over a period of five years.
Voltas vs Blue Star R&D expenditure (2016-2021)
% of Total sales
Data Source: Ace Equity
In the financial year 2021, Voltas spent ₹170 m or 0.2% of total sales on R&D. Blue Star invested ₹590 m or 1.4% of its total sales on R&D. Clearly, Blue Star has an edge here.
When two companies in the same industry are compared to determine which stock is trading at a bargain, investors tend to use two very popular ratios.
These ratios are price to earnings ratio (P/E) and price to book value ratio (P/BV). They were popularised by Benjamin Graham, also known as the father of value investing.
The following table shows these ratios for Voltas and Blue Star.
Voltas vs BlueStar Valuation ratios
5 year average P/BV
5 year P/E
The current valuation of Voltas is lower than its five year average whereas Blue Star is trading at a higher valuation than its five year average.
The reason behind this could be Voltas’ over diversification. This could lead to underperformance in terms of ROCE as a lot of capital would be locked up in its business to business (B2B) segment.
Impact of Covid-19
The pandemic severely affected the global business landscape. Demand for air conditioners and other cooling products quickly dried up as people were locked up in their homes and small businesses were shut.
Though the first two quarters were really bad, the subsequent quarters saw reviving demand with the onset of festival season.
Companies were able to recover 80-85% of the pre-pandemic revenue. However, the bottomline couldn’t keep up with the revenue due to higher input costs and freight charges.
These companies may continue to suffer from higher input costs and freight charges until the supply matches up with the demand and the supply chain has recovered.
The Indian government has announced a production linked incentive (PLI) scheme for white goods category to encourage domestic production of white goods.
The government has allocated a total of ₹62,000 m towards the scheme. The focus on infrastructure along with the PLI scheme augurs well for the industry.
On the contrary, any climate oriented policy would be a dampener for the business as their products are one of the major sources of greenhouse gases.
Also, rising levels of unemployment which results in lower discretionary spending could bring down the sales of these companies.
The company which will manage these risks well would emerge as a leader in the Indian market. For now, the prospects for both the companies are looking good.
We reached out to Tanushree Banerjee, Co-head of Research at Equitymaster to ask her view on both companies. Here's what she had to say...
To tide over seasonal variations in demand on year on year basis, air conditioning companies must adopt technological innovations. In the wake of ESG norms, their products must meet the sustainability guidelines.
Innovations like smart locks, feather-touch digital control panels, remote control, alarms, energy efficiency and other niche features are gaining popularity over the technologically austere products of the unorganised segment.
Which stock is better?
Voltas is growing faster than Blue Star in terms of revenue and profits. It’s also trading at a lower valuation than that of Blue Star.
However, Blue Star has outperformed Voltas in terms of margins, ROCE, and dividends.
At this stage both seem to be equally well placed. As far as the future of Voltas and Blue Star is concerned, Blue Star has a competitive advantage in terms of higher number of manufacturing plants, higher R&D expenses, and prudent capital allocation.
Though this article might have made things easier for you, we strongly recommend you to check the fundamentals and valuations of both these companies on your own.
Still confused, which is better?
Use Equitymaster's compare company tool for a detailed comparison between Blue Star and Voltas. You can also use this tool to draw a detailed comparison of any two companies of your choice.