After cool FY19, Voltas set to beat summer heat on AC sales boost

The Voltas stock is trading near its 52-week highs on the back of improving prospects, after a muted FY19. The extended winter season in the March quarter, coupled with unfavourable weather conditions during FY19, had impacted its room air conditioner (AC) sales.

The June quarter has, however, helped it reverse the volume trend on the back of a favourable summer season. 

Channel checks by brokerages have pointed towards higher sales, which have helped reduce channel inventories.

The company, too, had indicated a reduction in channel inventory by end of the quarter. 

This should reflect well on profitability as high channel inventories were restricting its ability to take up price hikes, despite rising input costs.

Analysts at Anand Rathi Research said inventory levels have normalised across the trade channel and demand has been robust. 
However, given the focus on inventory liquidation, Voltas was unable to undertake price hikes, and pricing power was exercised only in limited pockets and products. Analysts expect price hikes after the monsoon season.

Among other major triggers is the traction for its project segment, supported by higher order inflow as well as improving profitability. 

The segment is likely to witness healthy order inflow momentum over the next 3-4 years in the domestic market, led by rural electrification, urban infrastructure, and water treatment.

The firm’s expansion into other white goods, through its joint venture with home appliances major Beko, is progressing well. Though investments are expected to remain high initially, the range is likely to become another earnings driver.

The new manufacturing unit at Tirupati will help improve profitability, with production of direct cool refrigerators and twin tub semi-automatic washing machines leveraging upon the company’s distribution reach in the near term, say analysts.

Most of them remain positive on its prospects, given the low AC penetration in the country. 

The stock is the top pick of Edelweiss Research in the consumer durables space, given its strong scalability potential and its sustainable competitive edge.

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