Decreasing market share, JV termination: Key reasons why UBS has downgraded Voltas

UBS downgrades Voltas: Global brokerage firm UBS has downgraded shares of Voltas, the Tata Group-owned home appliances company, to neutral from buy, given a continuous decrease in the company's market share amid tough competition from peers. The brokerage notes that Voltas' market share has decreased to 21.6 per cent from 25.2 per cent in the fiscal year 2021. UBS has slashed the target price of the stock by 30 per cent to Rs 840 from Rs 1,200 earlier, as reported by Zee Business.

The brokerage notes that Voltas' operating margins continue to be weak and there's continuous pricing pressure in the AC segment. UBS has also decreased Voltas' FY24 earnings estimates by 22 per cent. Further, until FY26, there's little hope of an increase in profitability in the Refrigerator and Washer segments, it said. Another pain point for the company is the termination of a joint venture (JV) with Hong Kong's Highly International. Voltas had entered into a JV with Highly International to manufacture compressors. However, the JV got terminated because it didn't get the government's approval.

For the quarter ended March 2023, Voltas reported a 21.7 per cent year-on-year (YoY) decline in consolidated net profit at Rs 143.2 crore. In the corresponding quarter last year, the air-conditioning and engineering services company posted a net profit of Rs 183 crore. Further, its EBITDA, or earnings before interest, tax, depreciation, and amortisation, declined 16.4 per cent during the period to Rs 218.2 crore from Rs 261 crore logged in the corresponding period in the previous fiscal.

Nirmal Bang Securities shares similar views. The brokerage, in its report released on June 8, said that "Overall, we believe that margins over the medium term are likely to remain under pressure on account of heightened competitive intensity in the residential air-conditioner (RAC) segment, increasing indigenisation levels (which will lead to a higher cost structure), commodity cost volatility, and currency depreciation."

The brokerage maintains ACCUMULATE on Voltas with a SOTP-based target price (TP) of Rs 820.

Voltas' share price

The stock of the company declined over 4 per cent to Rs 750.30 on the BSE on Friday. Over the last 12 months, the stock has fallen 19 per cent (till Thursday's closing).