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Target: ₹1,200
CMP: ₹1,304.65
We cut our FY22 earnings by 14.8 per cent given: input cost inflation led margin pressure; slow order inflow in MEP segment; and increase in JV loss.
We, however, expect margins to make a swift recovery in FY23/24 led by: likely normal summer season sales (after 2 years); Govt initiatives promoting local manufacturing to help create component ecosystem thereby aiding industry growth & profitability; improving mix, calibrated price increase & cost efficiencies; and leveraging strong brand recall & wide distribution reach.
RAC margins were impacted in Q3 due to demand softness, RM inflation & high competitive intensity which made it difficult to initiate price hikes. However, Voltas remains cautiously optimistic on upcoming summer season sales & expects industry to hike prices as demand normalizes which shall aide margins. In MEP (order book: ₹5,600 crore), Voltas expects Centre/State govt to begin awarding orders & will continue to focus on domestic infra projects.
Voltbek JV continues to witness consumer acceptance for its products & remains on track to breakeven & achieve 10 per cent market share by FY25.
We continue to like Voltas for the longer term given: leadership position in high potential RAC segment; balance sheet comfort; and Restructuring in B2B business to focus on B2C.
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