Release Date: August 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Voltas Ltd (BOM:500575, Financial) reported a consolidated total income for the quarter ended June 30, 2024, higher by 46% at INR5,001 crores compared to INR3,430 crores in the corresponding quarter last year.
- The company achieved a lifetime high in profit before tax (PBT) at INR452 crores, a growth of 123% compared to INR203 crores in the corresponding quarter last year.
- Unitary Cooling Products (UCP) business continued to outperform the market with an overall volume growth of 67% over the corresponding previous quarter.
- Voltas Ltd (BOM:500575) maintained its leadership position in the air conditioning market with a market share of 21.2% as of June 2024.
- The company started commercial operations in its new RAC factory in Chennai and water dispenser line in Waghodia, enhancing its production capacity and strategic market reach.
Negative Points
- The extraordinary demand due to extreme weather conditions has pressurized and disrupted supply chains across the industry.
- Stock liquidation of non-QC inventory led to a slight drop in margin during the quarter.
- Margins from retrofit jobs in the commercial air conditioning vertical were lower, which moderated the overall EBIT performance for the vertical.
- Commodity prices have started to accelerate upwards, and USD-INR depreciation over the quarter has been detrimental to the profitability of the business.
- The company faced challenges in the textile industry due to fluctuations in cotton and yarn exports, leading to reduced utilization levels and margins for its agency business.
Q & A Highlights
Q: Can you provide insights on the room AC segment and market share dynamics? How is competition behaving, especially with Korean brands?
A: This year, Voltas experienced a hot and humid summer, which, combined with strong supply chain management and a wide product portfolio, helped us regain market share. As of June end, our market share stands at 21.2%, widening the gap with the number two player by 800 basis points. (Pradeep Bakshi, CEO)
Q: What are your expectations for margins in the room AC segment?
A: While competition remains stiff, our goal is to retain high single-digit profitability. We aim to maintain our market leadership and ensure steady margins despite market challenges. (Pradeep Bakshi, CEO)
Q: Can you elaborate on the performance and margins of the projects business?
A: We have become more prudent in selecting projects, ensuring a margin of 4-5%. This quarter, no untoward incidents occurred, allowing us to achieve healthy margins. (Pradeep Bakshi, CEO)
Q: What was the revenue from the commercial HVAC and refrigeration segments? Can we expect double-digit margins in the Unitary Cooling Products (UCP) segment?
A: Commercial refrigeration and air conditioning contributed about 18% to revenue. While we aim for high single-digit margins in the UCP segment, achieving double-digit margins is not our primary focus. Instead, we aim to scale up our business and retain market leadership. (Pradeep Bakshi, CEO)
Q: What was the impact of inventory liquidation due to the Quality Control Order (QCO) in the commercial refrigeration segment?
A: We discounted and liquidated non-QCO compliant inventory, which slightly impacted margins. However, there were no significant write-offs. (Unidentified Company Representative)
Q: Can you provide an update on the arbitration awards related to the mechanical projects segment?
A: We have won arbitration awards, proving our stance on unethical encashments. While the collection process may take time, we expect to see results within four to eight quarters. (Pradeep Bakshi, CEO)
Q: What is the outlook for the UCP industry and Voltas for the year? Does Q1 include production from the Chennai plant?
A: Q2 is typically a lean period, but we expect demand to pick up during the festival season. The Chennai plant has started production in August, which will help meet rising demand. (Pradeep Bakshi, CEO)
Q: What are the underlying demand trends post-peak summer season? How sustainable is the market share gain?
A: India’s hot and humid climate, low penetration levels, and strong economic growth indicate continued demand for cooling products. We are optimistic about sustaining our market share gains. (Pradeep Bakshi, CEO)
Q: What are your thoughts on increasing profitability in the UCP business and export opportunities?
A: While we aim to manufacture compressors and other key components, our primary focus is on catering to the domestic market. Export opportunities will be explored once we have excess capacity. (Pradeep Bakshi, CEO)
Q: Can you share the market share for the full quarter and the current channel inventory levels?
A: Our YTD market share for the quarter is 19.5%, with a 450 basis point lead over the nearest rival. Channel inventory levels are not high due to strong demand and hand-to-mouth supply situations. (Pradeep Bakshi, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
