Voltas’ products are available in 15,000 outlets across the country
Shares of Voltas have rebounded over 20 per cent since February lows on hopes that as the summer season kick started in South India driving demand for cooling products, especially air conditioners (ACs), North India would follow suit soon. The channel checks also indicate that some inventory has been cleared, which is positive. As per analysts at CLSA, the AC inventory has now started coming down and stands at one month for Voltas as against two months as on December’18. The company, along with peers, had not seen a favourable environment in the first nine months of FY19 as seasonal conditions remained unsupportive. This has been primary reason for inventory build-up and also restricted Voltas from taking price hikes despite input cost pressures.
Analysts at Elara Capital say, “Our channel checks suggest AC companies
are inclined to hike room AC prices in the range of 4-8 per cent, depending on import content, but excess channel inventory has eluded the hike by distributors and retailers.” Hence, hopes may be building up on demand pick up and price hikes post festive season of Holi.
While the news flow remains positive and even as the room AC industry is estimated to register double-digit growth in FY20 on the back of a pick-up in demand, analyst still remain watchful. They say, while stock prices are building strong value growth in the near-term, the green shoots are yet to be seen.
Moreover, even as AC inventory in the system is reducing leading to lesser discounts and new launches are raising hopes of a better summer in FY20, analysts have a word of caution. Those at Emkay Global say that there is still uncertainty on volume growth due to weather conditions. The sustenance of the recent spike in commodity prices amid a weak demand scenario could continue to restrict gross margin expansion, they add.
For Voltas, most analysts remain positive on its long-term growth prospects due to the low penetration of ACs in India, launch of white goods range in collaborations, growth and margin expansion of its projects segment, but they also point to the steep rise in its stock price which has made valuations rich. Motilal Oswal Securities’ analysts say that given Voltas’ expensive valuation, near-term demand and margin-related headwinds in the core cooling products business, they remain neutral on the stock.