Voltas Stock Research Report

Voltbek likely to be value accretive from FY25…..

Voltbek, which is still in an investment mode, is likely to be value accretive from FY25, in our view. It has focussed on gaining volumes and market shares since its inception in FY18. We believe it will have market share of ~10% in its both the key categories i.e. refrigerators and washing machines in next couple of years. Its H1FY25, market shares in refrigerator and washing machine were ~5% and ~8%, respectively. We also model it to have low-mid single-digit market shares in categories like Dishwasher and Microwave ovens. Voltbek may reach revenues of INR25bn in FY25 and will be mostly EBITDA breakeven. As it will start generating earnings and cashflows, it will be able to fund growth from its internal accruals and will not be dependent on Voltas and Arcelik for additional capital. We also note Voltbek has been successful in creating competitive advantages such as (1) Voltbek brand, (2) distribution network of 11,400 outlets, (3) large portfolio of 298 SKUs across product categories and (4) Manufacturing unit at Sanand, Gujarat to launch differentiated products. We believe it will be able to add ~5% additional value to Voltas in FY27 and beyond. Maintain HOLD.

Voltbek likely to be profitable in FY25 at EBITDA level

Voltbek is focussing on gaining market shares and volumes since its inception in FY18. While it has largely succeeded in gaining high single digit market shares in refrigerators and washing machines, we note it is still in an investment mode. With reducing losses per unit, we model it to turn profitable at EBITDA level in FY25 once the revenues reach ~INR 25bn. We believe the earnings / cash flows will allow it to grow on its own without resorting to additional capital requirements from Voltas or Arcelik.

Rising market shares indicate strong consumer acceptance

Voltbek has reached market share of ~5% in Refrigerators at end of H1FY25. It has also achieved ~8% market share in washing machines. In the subsegment of semi -automatic washing machines, it has reached market share of ~14% at end of H1FY25. We believe steady launches of 70+ SKUs each year and distribution expansion from 6,000 outlets in FY21 to 11,400 in FY24 has led to market share gains.

Path to profitability

Voltbek is steadily focussing on reducing EBITDA loss per unit and expects to reach breakeven soon. It believes it needs to reach revenues of ~INR25bn to breakeven. The profitability will likely inch upwards post that. It is focussing on reaching market shares of 10% in key categories.It is close to achieving 10% market shares in washing machines and we believe it can reach market shares of ~8% by FY25 in refrigerators. It will continue to focus on introducing differentiated products as well as invest in distribution expansion.

Steady growth in cumulative units sold

Voltbek has sold cumulative 5mn units of white goods and durables since its inception, five years ago. It reported strong 53% volume growth in FY24, materially higher than most incumbents indicating market share gains. While it took almost three years for Voltbek to reach cumulative sales of 1mn units, it achieved sales of ~1.7mn units in FY24 itself.

Indicative valuation of Voltbek

We believe Voltbek is on its path to generate strong value for Voltas. Once it reaches turnover of INR 25bn by FY25, it may start contributing to the EBITDA too. We believe Voltbek may add valuation of ~5% to overall valuation of Voltas. Voltas and Arcelik have invested total INR 15bn as capital investment in almost equal proportions.

Valuation

We model Voltas to report revenue and PAT CAGRs of 20.8% and 71.7%, respectively, over FY24–27E. Maintain HOLD with DCF-based revised target price of INR 1,700 (earlier: INR1,645; implied P/E of 60/44x FY26/27E EPS).

Key upside/downside risks: (1) Steep decrease/increase in raw material prices; (2) delays in new plant/product launches; and (3) faster-than-expected growth in the economy.