Heat wave is good news for Voltas shareholders; Jefferies sees 20% upside

Despite high commodity prices, the company had not made any price hikes during Q2 and Q3 as consumer demand was weak. But it might make its products costlier now.

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The Indian Meteorological Department has warned of ‘abnormal’ temperatures starting from February itself which is a good news for consumer electronics company Voltas, believes Jefferies.

As temperature rises, demand for cooling products is expected to go up leading to margin and volume improvement for the company.

“Dealers are highlighting that lower commodity prices have not been passed on in product pricing. This points to improved volume and margin outlook for Voltas (28 percent 1-year underperformance to Nifty) ahead,” the foreign brokerage said in a note.

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Despite high commodity prices, the company had not made any price hikes during Q2 and Q3 as consumer demand was weak. “If demand shows some recovery in Q4, some kind of price hike can be expected at the beginning of the Q1 of the next fiscal year,” the management said in its Q3 earnings concall.

In Q3, Voltas had reported a consolidated net loss of Rs 110.49 crore on account of provisioning made on overseas projects. Its revenue from operations was up 11.82 percent at Rs 2,005.61 crore.

That said, the company has recovered some of its lost market share over the past few quarters. “It saw material market share loss in Q4 FY22, partly driven by a faster summer onset in the South, where it has a lower presence,” noted Jefferies.

Also Read: 40 degrees in February: The Indian summer is here with record temperatures, heatwave in tow

About 40 percent of the company’s sales are from the North and 20-25 percent from the West, which has started recording ‘higher temperatures than usual’. “It is well positioned to benefit from the 2023 demand uptick,” added the broking firm. It has a Buy rating with a target price of Rs 1,050 on the stock, which indicates a 20 percent upside from the previous close.

The stock erased its early gains and was trading flat at Rs 901.20 at 11:45 am.

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