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Voltas – Cool for Investors?

Company Name – Voltas Limited (Voltas)

Current Share Price – INR 798 (April 28, 2023)

Market Cap – INR 26,420 cr


1. What is interesting about the stock?

Air conditioning is important for humans because it helps to regulate indoor temperature and humidity levels, which can have a significant impact on our health and well-being including improving air quality by filtering out pollutants and allergens. It can also help increase productivity and concentration levels in work and study environments.

Incorporated in 1954, Voltas Limited (‘Voltas’ or ‘the Company’), a Tata group company (30.3% stake), is India's largest air conditioning Company, and one of the world's premier engineering solutions providers and project specialists. Voltas is the market leader, with ~22% market share in Room Air Conditioners (RAC), with a substantial lead over numerous multi-national competitors. The company enjoys a strong competitive edge in RAC, due to its large distribution network of 24,000+ retail touchpoints in the industry.

The Company has also entered the booming white goods market through a JV with Europe’s largest white goods manufacturer- Arcelik A.S., to leverage its brand appeal across product verticals backed by its strong distribution network.

The Company has 3 operating segments:

  • Electromechanical Projects and Services (EMPS) (32% of revenues) – It is a project business and includes providing heating, ventilating, and air conditioning (HVAC) products, as well as provides water treatment solutions and electromechanical project solutions to domestic and international customers.

  • Engineering Products and Services (EPS) (6% of revenues) - Voltas provides textile machinery, and mining and construction equipment to the respective industries.

  • Unitary Cooling Products (UCP) (62% of revenues) – It specializes in air conditioners, commercial refrigeration, water coolers and dispensers, and air coolers, for both consumer and commercial purposes.

The UCP segment has its strongest quarters in Q1&Q4 of every financial year. Weather is a key determinant of this segment’s performance and with an 8% penetration in the country, ACs are an under-penetrated segment of India’s white goods universe. However, with increasing prosperity in India, this segment is likely to grow fast and that has resulted in many players entering this segment.

Voltas has a substantial international presence, particularly in the Middle East, Africa, and Southeast Asia. Over the years, the company has grown globally and built a solid reputation for providing high-quality air conditioning solutions.

Voltas has a considerable market share in the Middle East. The Company has a substantial presence in the UAE, Qatar, Bahrain, and Kuwait, where it has been involved in several high-profile projects. Voltas has had significant success in the building and infrastructure industries, having worked on various large-scale projects such as the Dubai Metro and the Abu Dhabi International Airport.

Company is facing challenges in two projects in Dubai and Qatar where the contracts have been terminated and bank guarantees encashed. It has led to a provision of INR 244 cr in FY23.

The Tata group has been working towards hiving off the B2B projects business (EMPS) from Voltas to Tata Projects, and hence, has slowed down order wins in the Company. The idea is to make Voltas a consumer durables company, and while this transition is underway, the Company is likely to underperform on its growth on a consolidated basis.

Why invest in Voltas?

  • Strong brand reputation: In India and several worldwide markets, Voltas is a well-known and renowned brand. The organization has a solid reputation for producing high-quality, dependable goods and services.

  • Diversified product portfolio: Voltas offers a wide range of products to meet the needs of various customer segments and markets. The company provides a variety of air conditioning solutions for residential, commercial, and industrial applications, as well as refrigeration systems, water coolers, and other products.

  • Innovative products and technology: Voltas places a major emphasis on innovation and has made significant investments in research and development. In the air conditioning business, the company has produced various unique products and technology, such as all-weather ACs and smart air conditioners.

  • Strong distribution network: Voltas has a well-established distribution network in India as well as various other countries. The company has a huge network of dealers, distributors, and service facilities that allow it to reach a significant number of customers.

  • Strong parent company: Voltas is a division of the Tata Group, one of India's largest and most reputable businesses. Voltas now has access to the Tata Group's vast resources and experience, as well as substantial financial backing.

2. Key Historical Financials

  • Company revenue and profit have been growing 8% and -16% on a CAGR basis respectively in the last 5 years

  • Revenue growth was strong in FY23 at 20%

  • EBITDA margin has come down from 7-8% in FY20-22 to 5% in FY23 driven by lower margins in the EMPS division

  • Net profit had a sharp fall in FY23 from lower EBITDA margins and provision of INR 244 cr from the Dubai and Qatar projects

  • Cash flow conversion (CFO/EBITDA) was poor in FY23

3. What is my view on company valuation?

The Company is trading at a P/E of ~109x as against the median P/E of ~54x on account of a reduction in EPS due to pressure on margins amid costs inflation and provision, especially in the EMPS segment. Another large air conditioning company, Blue Star, is available at a P/E of ~57x.

Voltas had investments of ~ INR 3,000 cr as of March 31, 2022 – listed equities (~ INR 775 cr); mutual funds (~ INR 1,700 cr).

However, given its leadership status and the backing of the Tata group, investors could evaluate Voltas upon clarity on the EMPS division and the extent of losses in the Middle East projects.

4. What are the risks to the investment analysis?

Risks to the analysis are:

  • Voltas’s growth is geared to the economic cycle, so any slowdown or adverse macro event is likely to affect business significantly.

  • Increased competition in the AC business is a major risk as the space has become fragmented, posing a risk to Voltas’s UCP segment.

  • Any continued cost overruns due to delays in project execution in the overseas EMPS segment projects can hit margins adversely.


About the Author

I have over 18 years of experience in private equity and public markets. I am an engineer by background, and MBA from a premier institute in India.


I have no stock, option, or similar derivative position in any of the companies mentioned in the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.

I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.

I have used publicly available information while writing this article.


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