Healthy 2QFY21 with share gains in UCP. VOLT’s 2QFY21 revenues beat estimates on higher-than-expected revenue growth of the EMP and EPS segments. UCP segment revenues were below estimates, but 9% YoY revenue growth was still healthy in the context of revenue decline for the industry.
We raise our target multiple for the UCP segment to 35X P/E as we believe import restrictions are positive with potential for further share gains. SELL on rich valuations; revise Fair Value to `655 (earlier `530). VOLT’s 2QFY21 revenue growth came in at 12% YoY and beat estimates led by a quicker ramp-up in EMP and EPC segments. Segment performance, UCP segment revenues grew 9% YoY, and while these were lower than estimates, VOLT continued to gain share and ended 2Q with a 26.8% market-share.
Revenue growth of 9% trailed its volume growth of 14% YoY due to a lower proportion of ACs vis-à-vis air coolers in the mix. The segment volume growth was driven by 11% YoY growth in RACs, 20% growth in commercial refrigeration and 28% in air coolers, EMP segment’s higher-than-expected revenue growth of 15% YoY was led by a recovery in project execution pace and normalisation of activities in international geographies (particularly the Middle East), and EPS segment’s revenue growth of 16% YoY was also ahead of estimates.
VOLT gained further market-share in the RAC segment to reach 26.8% as of August 2020 (vs 24.2% in March 2020). This could be on account of strong demand for inverter ACs where Voltas has a relative advantage (36% yoy growth in the category), fewer supply disruptions resulting in better product supply, and a large product range. With the government’s push for domestic manufacturing, we believe VOLT can gain further share as restrictions on fully built units will weed out fringe players. Further, its large size would enable it to better negotiate with domestic vendors and book capacities as required. We believe gains from recent import restrictions can fructify FY2022 onwards, by which time inventory of extant players can unwind.
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