Voltas Limited analyst Q&A

Sir, should we begin the question and answer session?

Yes.

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. The first question is from the line of Natasha Jain from Phillip Capital.

So my first question is on the RAC side. Can you tell us how July month was for Voltas? What is the current inventory looking like for you at a brand level as well as the channel level? And did you see any pricing pressure or are you continuing to see that? That's my first question?

So we have just concluded the month of July and the numbers are getting consolidated. So I'll not be able to comment on this. And since we are mainly talking about quarter 1, I think better we restrict to quarter 1 numbers at the moment because that's in my control, and I can talk about that. Coming to your question on the inventory, inventory in the trade, you are talking about or inventory, you're talking about the brand inventory?

Sir, both. At Voltas' level and at the channel level?

So we have -- having seen a wonderful '24, '25, we had planned for a big sales during this year as well. So entire industry had planned in a big way, and we had augmented our capacities. And therefore, all of us are carrying inventory. So talking specifically about brand Voltas, we are carrying an inventory of about 3 months or so at best. And as far as trade partners are concerned, they are carrying inventory on an average about 2 months.

And sir, are we continuing to give trade discounts or indirect discounting like free installation, does that still continue?

So we have to remain competitive because you know that we are a brand leader. And we don't want to lose out our market leadership. And therefore, to retain our leadership position and support the trade, we are trying to remain competitive in whatever our offerings are, so that we continue to garner market share. But we are not discounting per se at the moment. And we are hopeful that as we enter into the festival season now, festivities have already begun, Onam has begun and after that, Durga puja, Diwali, Navratras, Diwali, all this is going to continue. And the second summers are also likely to come in. So hopefully, since the summer season was milder , I'm hoping that the festival season and the second summer should be looking up, and we will be able to make up for these losses. So hopefully, these inventories will get liquidated -- I'm not looking at discounting in a big way, to be honest.

Got it, sir. And my second and last question is on the numbers itself. Now if I see South India was a worse-off season than North India and Voltas is more indexed to North India. In fact, you are the leader in terms of North India market, where summer was still good until the first week of May. So relatively, still the numbers have been worse -off than our peers who were more indexed to the South part of India. And then even on the margin side, I mean, now our capacity is at the same level versus everybody else's. So there also, the decline has been sharper than what we probably expected. So could you tell us, is it just completely reverse leverage or there are any serious one- offs that we may have accounted for in the UCP segment? That's it?

Yes. So if you look at the summers never got set in into North India, unfortunately. As you rightly said, our North India is our big stay and the largest number comes in from there. Of course, we are brand leaders across regions, but in a bigger way in the Northern region, yes. But unfortunately, since the North India did not get to see summer this year, we have not been able to gain big way. However, you will see that our market leadership has remained intact. And if you look at the market share numbers, in the entire quarter, right from April to May to June, we have continued to increase our market share. In April, our market share was 16.9%. May, our market share was 17.9%. And now currently, it is 19.3% market share as of June end. So you'll see that while we may not have been able to get full summer season, still we have continued to gain more extraction from the market. Whatever may be happening, even if the sales are low, we want to extract more and try retain our leadership position in that, and that's what we have been doing.

And for the UCP margin, any one-offs there?

Ms. Natasha, I'm sorry to interrupt. May I request you to please rejoin the queue as there are several participants waiting in the queue? The next question is from the line of Siddhartha Bera from Nomura.

Sir, first question is, given this weak first quarter, would you have some guidance about the year? How much growth are you expecting given the outlook you have for the remaining months? And second is on the market share, if I look at last year, we had abo ut 19% market share and close to 19.5% in the first quarter. So have market shares sort of slipped sometime in between and now we have gained it back? And going ahead, do you think you will probably prioritize market share and try and gain more market share from where we are?

So firstly, you are talking about having seen the dip in the quarter 1, how am I looking at the balance of the year, right? That's one question. Question number one. So let me answer on that. Yes, quarter 1 was significantly low. And as I answered to the previous speaker as well, we are expecting the festival season onwards, right, from October, November onwards. And as we enter into the second summer and then finally, we'll get into the next year summer, we are expecting these will look better because in the past years also whenever summers were milder in the quarter 1, the quarter 3, 4 make up for the loss of that. I'm expecting and hopeful that quarter 3 onwards, festival season onwards, we will again regain the sales and the business will be as usual and normal. So hopefully, the year -end should be somewhere either flattish or at best between 5% and 10% degrowth sort of number, I'm expecting for the industry. So this is the question one. Then what is the other question? If you can repeat please?

He asked about the market share of 19.5% to 17.8%, and we have gained now.

Yes. Market share, yes, of course, I explained to the previous speaker. Again, we have gained in April, May, June, 16.9% to 17.9% to 19.3%. So we have, of course, definitely, we are -- our continuous endeavor has been to gain more share and to retain our leadership position. Whether the market share was at 17.8% or 19.3%, you will appreciate that we have retained our leadership position in the category. And also other product categories also if you look at, in each of the categories, our market share has continuously been increasing across the other appliances as well.

Mr. Siddhartha, I'm sorry to interrupt. May you please rejoin the queue, as there are several participants waiting in the queue. The next question is from the line of Naushad Chaudhary from Aditya Birla Mutual Fund.

Two clarifications, sir. Firstly, on inventory. Can you share the absolute number because three, four months making it average and thinking, which month should I take becomes very difficult. So three, four months of the peak summer or the soft season, very difficult to understand the actual number. So it would be better if you can share the absolute number of inventory at Voltas level.

I will -- actually, I am not carrying, to be honest, the full number because as you know, the -- as I said, July numbers are still getting consolidated. So after those numbers are getting consolidated after that only, I'll get to know the 3-year number. Probably you can come back to my team, Vaibhav, and we will try to answer you later on, on that.

Should it be around 1 million, if I...

It's not that. It's much lesser than that. But let me get the exact numbers.

Last, on the project business side, last quarter, we had indicated we are seeing some green shoot of recovery. But if I look at the order book, it is consistently sliding. How should we look at this business? And what should we expect from the project business going forward?

We have got a reasonably good order book in our hands, both international, we've got around INR1,600-odd crores and in the domestic project business INR4,500-odd crores. And the order books is at a quite reasonable levels. In the project business, we are trading a bit carefully. Wherever meaningful projects are coming our way, which are having assured margins and the funding is properly available, there only we are participating. So we don't want to unnecessarily burn our fingers. As you know that in the past few years, we had some issue in our international operations in the projects. So after that, we have taken a cautious call that we will book orders wherever it is meaningful. But however, we've got reasonable good order book in hand. And we've got a lot of inquiries in hand. Our teams are filling up tenders. And hopefully, in quarter 2, 3, 4, we'll have more quality projects in hand, and we'll be able to share good news with you later on.

With this size of order book, should we expect any growth in the project business next year or should it be flat?

Yes, definitely. Project business has been doing well. Domestic projects, especially even international also, we are faring reasonably okay. So you will get to see better traction from both these project businesses. Unfortunately, while we have seen a bit of a dip in the product business, consumer durable business, only the AC part. However, if you would have gone through, project businesses , even textile machinery, mining and construction, all of them are on target, and they have performed well .

The next question is from the line of Umang Mehta from Kotak Securities.

Sorry, sir, to again harp on the market share. But if we look at June exit, you are still down 200 bps Y-o-Y. So any assessment you've done as to what could be the key reason behind it? Have you changed anything on pricing, channel margins or anything you can kind of share?

I think, I answered you on that. The reason for market share year-on-year dip is actually -- there are so many players entering into the fray at the moment . And if you look at, more than 65 players are available. And therefore, to some extent, it is likely to become a bit fragmented. It cannot continue to be 25%, 26% market share anymore. However, our focus is to retain the leadership position as I've been continuously telling you. And if you look at our June numbers, we are at 19.3% market share, and we are keeping -- we're maintaining a fairly reasonably difference with the number two player, almost 400 basis points.

Okay, sir. Sir, the second one was on UCP margin. Now your cost structure is fairly variable in other expenses, logistics, service. So this other expenses in stand-alone is up INR35 crores Y-o- Y. You did allude to higher promotion. Possible to quantify how much was the higher promotion, which you gave this quarter? I mean 3.5% margin was a bit of a surprise, that's the reason behind the question?

See, actually, of course, the promotional expenses, including advertising and also the sales costs, we had to spend a bit higher since summers were lower. And to retain our leadership position, we wanted to keep the trade and the consumers intact with our brand. And therefore, we have spent. However, as I said is, it will get made up in the subsequent quarters by gaining more traction from the market.

The next question is from the line of Aditya Bhartia from Investec.

You mentioned that the margin hit that we saw was on account of under -absorption of costs as well as some of the other expenses on marketing side that we discussed. Now given that there is so much inventory in the channel and even companies are also carrying high inventory, it's very likely that factories will continue working at lower utilization level. And to that extent, it seems that under- absorption of cost will remain a trend in the next couple of quarters as well. Is my understanding correct?

Yes, your understanding is correct because the inventory is there, so we have to be a little prudent and the factories cost may also remain unabsorbed to an extent. However, we are carrying out a lot of cost improvement initiatives across our business verticals. We want to save on the cost. So I think hopefully, we'll be able to make it up through cost improvement projects, and we'll be able to demonstrate in upcoming quarters.

See, of course, there is a bit of a desperation in -- amongst certain brands. They are trying to discount; however, we have retained our position as of now. And since the sales is not as much high, it remains whatever trends are being made by them, they remain unaffected, and we are not getting affected by those price drops by anybody as of now.

And just one last bit. On the project side, sir, you mentioned that the project business has been steady. When we look at margins, margins have been slightly on the kind of lower side versus what we have done in the past. So how should we think about the margins in this segment from a slightly longer-term perspective? I know there are no losses, and we've kind of turned around to that extent. But is 5% kind of an EBIT margin l ooks like a sustainable number or can it be higher?

So 5% is definitely sustainable percentage on the project side. If you look at our past year numbers also, and we said we will -- our guidance also when I've given you, I always said, the projects will hover around 5% or so all through. So 5% is definitely sustainable. There could be a small blip or time affect here and there. Otherwise, overall, in the project business, we've reasonably done well. And hopefully, you will get to see this year with more than 5% on the project side at least.

The next question is from the line of Sucrut Patil from Eyesight Fintrade Private Limited.

Yes. Sir, this is Sucrut Patil. I had a forward -looking question. As Voltas continues to lead in the room air conditioner and tries to expand its footprint in the commercial cooling and home appliances space, how are you thinking about integrating energy analytics smart maintenance platforms or AI-led demand forecasting into your product and service ecosystem in the next 1 to 2 years? And if you are planning to implement this, how do you think this will help Voltas build a differentiated tech-enabled moat in the climate solutions coming ahead?

Okay. So many questions again. So let me try and answer. Firstly, when you are saying, are we the brand leader, are we getting the more market share, all this, I have replied earlier also. Yes, we are the brand leader for more than a decade now, right from '12, '13 onwards, we are retaining our -- sustaining our leadership position. And continuously, we are trying to extract more and more market share. For this quarter also, I've already shared how we have improved our market share on a month-on-month basis between April, May and June period. So that's answer number one. Secondly, when you're talking about the artificial intelligence and IoT-enabled products and services. Yes, we have already have products which are IoT-enabled and they can work with Alexa and otherwise also if you've got -- if you want to operate your AC thousands of miles away through the Internet, you can get connected with our ACs. Coming back to service, I have shared earlier also all on the commercial air conditioners, our -- all our chillers are connected through Internet with our office in the headquarter in my office, where a team of engineers are continuously monitoring all the installations across the country. And they have already been able to move from the predictive maintenance to preventive maintenance because they get to see as to how air conditioner, how chillers are behaving in a particular site. And in case that needs any service, it gives a warning to t hem and they are able to connect with the client and they are able to address that. Similar kind of thing, we will try and implement in our other product categories also as we move ahead.

The next question is from the line of Mr. Achal Lohade from Nuvama Institutional Equities.

Sir, pardon me if I'm asking a repetitive question. If you could help us understand what is the industry decline for the quarter and for the first half? As in you said year -to-date market share, does that mean Jan to June or it is April to June?

Yes. So firstly, let me answer you on your question how the market has degrown, how the industry has degrown in the quarter 1. So firstly, I'm talking about fiscal year quarter only. Whenever we are addressing, we try to address the fiscal year. So my answer will be limited to the quarter 1 fiscal year, which is April to June period. The industry on a primary sales basis would have degrown by about 35% to 40-odd % approximately, depending on a brand-to-brand level basis. Yes, so this is it.

And for us, on a year-on-year, if I look at the market share, what you've mentioned, it was 21.2% in 1Q '25 as in June '25 -- in June '24 quarter. Do I have the number right?

Yes, that's correct.

And that has declined to 17.8%. Have I got that also right, sir?

For the full quarter, if you're asking our market share, yes, it is 17.8%. But the June end number is 19.3%. That's what I shared with you. And as compared to 21 % what last year number June number was saying, as against that, we are at 19.3% currently.

Okay. So that 21.3% is basically...

Yes, yes. No, not -- it is June end number, sir. Quarter number is 17.8%, as I told you, and June end number is 19.3%.

Right. No, against the 17.8%, what was the average number for full quarter last year, sir, 1Q 2025?

Last year, it was 19.5% quarter number, sir.

19.5%. Got it, sir. And the second question I had, just in terms of the margins, what is the extent of reduction in the gross margins in the UCP business? Is there any way to know that, sir? Is there any fall in the gross margins, material margins?

So I think we are addressing the EBIT, which we have shared with you. In the balance sheet also you would have seen the margins have in the -- so yes, of course, the EBIT level, we have shrunk quite a bit. And as the reason is roughly around 4%-odd -- 400 basis points, we would have shrunk our profitability at an EBIT level. And the reasons I have shared with you, it is under - absorption. See, firstly, there was a major dip in the quarter volume numbers, so unless and until you have got scale, the profitability doesn't come that much. So that is one piece. Secondly, having seen the last good year, we had augmented and we have made a lot of investments. And those capacities at plants, especially has remained under absorbed. So probably because of under-absorption, the profits have shrunk in this quarter. However, as I told you, as we are going forward, we are making certain corrections. One, I have told you that cost improvement projects are being carried out by each of the businesses to see as to where all we can save from. Secondly, as I told you, we are looking at festival season and quarter 3, 4 as a big number coming up from there, which should -- all these points should make up for this loss, which we have gained in the quarter 1. So hopefully, by the year -end, we will b e able to protect and will be slightly better than what we are today.

The next question is from the line of Harshita Surana from UBS.

So my question was given last year's strong summer season, we now have several new brands entering the cooling products market. And with this current year being relatively subdued and weak, the established players like Voltas could leverage their experience and navigate through it. But any colou r on how these new entrants are finding the current environment? And any consolidation that you could see in the market happening currently?

See, all the new entrants are facing the headwinds at the moment. When the new players enter, it becomes very difficult for them to compete with the established players. And therefore, they have to face the onslaught of the bigger players who can afford, t hey come with the deeper pockets to sustain losses. And therefore, the newer players are not able to establish themselves so much. However, some of the old players, yes, of course, they are resorting to discounts to gain more share in the pie, but it is not a sustainable practice. It is a short-term approach by these players.

The next question is from the line of Nirransh Jain from BNP Paribas.

Sir, just wanted to check firstly on the -- you have mentioned that you have already started preparations for the upcoming energy star labeling. So if I'm not wrong, so the industry is expecting around 4% to 5% price hike on the input cost. So when you're saying preparations, so does it mean that you're looking at a cost engineering and would try to absorb this ki nd of cost or are you looking for some kind of price hike for this? So just wanted some emphasis on what kind of preparations you are referring to there?

So you are dot on. See, all of us understand whenever the energy regime changes, there is going to be a cost impact. However, how much cost impact is going to come, it is difficult to assess at the moment because as you rightly answered yourself only that we will try to navigate these changes through the value engineering also in a way. So probably we'll see as to how much can we reduce on that impact by the next table coming up. So that actually, I'll be able to answer to you somewhere in November, December. By then, this value engineering project would get over. And also, we will be closer to the actual numbers coming up. So -- but yes, surely -- and whatever little impact has to be passed on, we will pass on also. And whatever through value engineering we can absorb, we will try and do that. Both ways, it will go.

Sure, sir. And sir, secondly, I wanted to check on Voltas Beko profitability. Any guidance there or any thoughts on how we are looking at achieving the profitability like both either at the EBITDA level or at the PAT level right now?

I thought you were going to compliment us on the -- what wonderful job Voltbek team has done. We have been able to gain a lot of market share. Last time when we had met and interacted, I told you that we are planning -- our first endeavor is to take the market share to 10%. And I'm delighted to share with you in washing machine category, we are 8.6% already. And in refrigerators also, we've reached to 7.2%. We have gained quite a bit during this quarter and last year also, in last 1 year, a lot of work has been done in this direction and which has yielded good results. So our first endeavor is to gain market share in this category. And once we've crossed 10%, automatically, you'll see that profitability also will come up with the higher numbers. So right now, yes, we are not profitable in this category and we are -- whatever we had budgeted -- budgeted losses, which is -- actually I don't count it as loss, I count it as an investment into the brand, so that continues to happen. And there also, we are carrying out cost engineering, cost value engineering projects in that also, both ways we are. And I believe rather we should continue to work on the value engineering projects and try to reduce cost, so that we are able to offer better products and services to our consumers. That's our endeavor.

But sir, are we seeing an increase in gross margins at Voltas Beko level?

Yes, slightly, they have improved over the last 1 year

Got it, sir. Thank you so much and all the best.

Thank you. That was the last question for the day. I now hand the conference over to Mr. Bakshi for closing comments.

So thank you very much, listeners and the investors. So I would like to share that having seen the performance of quarter 1, which was sort of a temporary blip; currently we are looking at tactical cost controls. We are also looking at as to how can we nor malize our inventories by looking at prudently as to how much production is required, which all models, whatever models are in shortages, that only are being produced at the moment in the factories. And we are also expecting a demand rebound in the upcoming festival season and the second summers in West and South India. Hopefully, with all this setting up, we will get to see our by quarter 3 and quarter 4, we have substantially improved on what we have projected so far. The company's focus is to retain its market leadership position across categories, may it be cooling products or washing products. All these products, we want to remain fundamentally strong and retain and sustain our leadership position. Voltbek, I have already cited you that we continue to grow and continue to garner better market share in the category, which is very encouraging for us, and we want to replicate similar kind of thing across our product categories. The project businesses, we are continuously being prudent and trying to progress steadily in them. We are not showing any anxiety of picking up projects, which are not meaningful and not profitable. And across all segments, Voltas is investing, we are investing for the long-term gain, looking at keeping sharp focus on innovation, execution, excellence and customer centricity. That is the focus. And with that approach, we want to return to your -- to shareholders on their investments. That's what we look forward to. Thank you.

On behalf of DAM Capital Advisors, that concludes this conference. Thank you for joining us and you may now disconnect your lines.