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MOSL: VOLTAS(Neutral)- RAC witnesses strong start to FY20; UCP margins to stabilize at 11-12%, earmarks INR5b capex for new facility

Voltas: RAC witnesses strong start to FY20; UCP margins to stabilize at 11-12%, earmarks INR5b capex for new facility

(VOLT IN, Mkt Cap USD2.9b, CMP INR610, TP INR595, 2% Downside, Neutral)

 

We met management of Voltas (VOLT) to understand the industry trends and the company’s progress in its various segments and projects. Key takeaways:

• Room AC (RAC) industry witnesses a strong start to FY20: After remaining weak over the last two years, RAC industry demand picked up strongly in April/May this year, helping VOLT to normalize inventory in the system. Demand was strong across regions (north, south and west) over the last two months, although it appears to have calmed down in the southern and western region in June.
• UCP margin to sustain at 11-12% levels: UCP EBIT margin shrank to a six-year low of 10.3% in FY19 due to difficulties in taking price hikes, intensifying competition, high RM cost and the prevailing import duty on compressors and completely built units (CBUs). However, with RAC demand witnessing signs of revival beginning this fiscal, VOLT expects the UCP margin to settle around 11-12% on a sustainable basis.