Voltas Limited (VOLTAS.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Voltas Limited Q1 FY '26 Earnings Conference Call hosted by DAM Capital Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Bhoomika Nair from DAM Capital. Thank you, and over to you, ma'am.

Yes, thanks. Good evening, everyone, and a warm welcome to the Q1 FY '26 Earnings Call of Voltas Limited. We have the management today being represented by Mr. Pradeep Bakshi, Managing Director and CEO; Mr. Mukundan Menon, Managing Director Designate; Mr. K.V. Sridhar, Chief Financial Officer; Nikhil R. Chandarana, Head, Corporate Finance; and Vaibhav Vora, Head Treasury. At this point, I'll hand over the floor to Mr. Bakshi for his initial remarks, post which we'll open up the floor for Q&A. Thank you, and over to you, sir.

Good evening, everybody. As Bhoomika has explained, with me, I have got in the room, Mr. Mukundan Menon, K.V. Sridhar, Vaibhav, Nikhil, yes, these are the colleagues available in the room. And I would now request my colleague, Mr. K.V. Sridhar, who is the CFO. He will give you the brief synopsis of the results for the quarter 1, '26. Over to K.V. Sridhar.

Thank you, sir. So good evening all. Glad to connect with you all for the first quarter results for Voltas. I'll just start with the global performance, a bit category performance, and then go into the details of the specifics of the Voltas category performance. The IMF now expects global growth to reach 3% in 2025, driven by early spending ahead of expected tariff changes, lower overall tariff rates and government spending in some regions. However, persistent trade policy uncertainty, escalating geopolitical tensions and uneven inflation patterns, especially in U.S., continue to weigh in on investor confidence. The consumer durable sector is experiencing headwinds. After peaking in late 2024, growth has turned negative in May 2025. Credit flow to the segment has tightened and the decline in electricity consumption points to a subdued demand for cooling products such as air conditioners. While the RBI's recent rate cut indicates a pro-growth policy stance, discretionary consumption remains fragile. During the quarter, weather-related volatility had a significant bearing on temperature-sensitive categories, most notably air conditioning category. The summer of 2025 arrived late, stayed mild and ended abruptly curtailing peak demands for air conditioners. These factors, coupled with a record base in the prior year, explained the short-term pressure on Voltas top line and margins. Despite these temporary challenges, Voltas demonstrated resilience by retaining its market leadership in room air conditioners and maintaining stable performance across its core business segments. Voltas Beko continued its aggressive growth trajectory, achieving year-on-year growth of 33%, along with market share gains. For the quarter ending June 2025, the company reported a consolidated income of INR 4,020.65 crores against INR 5,001 crores in the same period last year. Profit before tax stood at INR 202.72 crores compared to INR 451.52 crores in the previous quarter same time. Net profit was at INR 140.61 crores compared to INR 335 crores in the previous -- corresponding previous period last year. EPS for the quarter ended 30th June '25 were INR 4.25 compared to INR 10.10 for the same period in the previous year. A snapshot of the results, I think, has already been shared. So I don't want to elaborate on that. I think it's already been shared earlier. Now if you go to the specific performance segment-wise, for Unitary Cooling segment, the Unitary Cooling Products segment experienced one of the most abrupt seasonal reversals in recent years. Q1 2025 had delivered an exceptional summer with soaring temperatures and heat waves driving air conditioner sales to record highs. Voltas had then registered 65% growth in AC volumes, gaining further market leadership. This strong base created a high reference point entering into FY '26. During Q1 FY '26, it represented opposite scenario. Summer arrived late, was marked cooler across large parts of the country and gave way early to monsoon conditions. As a result, peak air conditioner, commercial refrigerator and air cooler selling season was shortened by several weeks, leading to substantial drop in primary offtake. Voltas in preparation had entered the season with robust channel stocking, anticipating a continuation of demand trends from the prior year. However, as temperatures remain subdued, consumer footfalls in stores declined noticeably. Retail sales in key metros and Tier 2, Tier 3 cities fell below expectations and inventory across trade channels remain elevated. Voltas undertook tactical interventions to support secondary offtake. Consequently, factory operations had to be scaled back mid-season to avoid overproduction. This under-absorption of fixed costs, combined with higher warehousing and holding expenses put short-term pressure on profitability. Despite these challenges, Voltas maintained its #1 year-to-date June 2025 market position in room air conditioners at 17.8%, reflecting enduring brand trust and strong channel relationships. It is important to reiterate that the fundamentals of the room AC business remain intact. From FY 2022 to FY 2026, the segment has maintained a robust volume CAGR of over 20% for Q1. The company has initiated realignment of inventory and production to reflect actual demand conditions. The festival season and possibility of a second summer in certain regions may further aid recovery. The company has started preparations for upcoming revision to the ENERGY STAR labeling regime later this year. While recovery for the segment may take a few quarters, the company remains cautiously optimistic that its strategic investments and ongoing initiatives will support long-term growth and reinforce its leadership in the Cooling Product segment. The commercial air conditioning segment also remained steady with continued demand for VRF systems, cassette ACs and ducted products. While retrofit and customer care margins were softer, they are expected to normalize as execution stabilizes in the latter half of the year. To summarize, for the quarter ended June '26, the UCP segment registered revenue of INR 2,867 crores as compared to a significant higher performance of INR 3,800 crores last year for the same period. The segment EBIT was at INR 104 crores in FY '26 as compared to INR 327 crores in the previous year. Segment B, Electromechanical Projects. Projects under the EMPS segment was largely stable during the quarter. Voltas continued to deliver steady performance across geographies, supported by strong internal controls, timely certifications and prudent receivables management. International projects in UAE and Saudi Arabia remain a key part of the portfolio and contributed to both revenue and margin. For the quarter ending June '25, segment revenue was INR 921 crores compared to INR 949 crores in the same period last year. In terms of profit, it was INR 49 crores as compared to INR 67 crores in the last year. The total carryforward order book as on 30th June stood at INR 6,200 crores, ensuring visibility for future quarters. Cost discipline, project governance and on-ground execution efficiency remain core to the company's strategy in this segment. Segment C, Engineering Products and Services. The segment faced some challenges during the quarter, influenced by broader macroeconomic trends and industry-wide pressures. For the quarter, the segment revenue was INR 135 crores compared to INR 160 crores in the previous quarter same period. The segment result for the quarter was INR 40 crores as against INR 44 crores for the corresponding quarter last year. The Engineering Products and Services segment saw softer performance driven primarily by external pressures. The Mining and Construction Equipment vertical was affected by lower sales of power screen machines, although this led to an improved margin profile due to favorable product mix. Operations and maintenance contracts remain stable and provide baseline support to revenues. In the Textile Machinery division, CapEx sentiment remained subdued among customers, especially in international markets. Demand in agency business remained limited and spending caution impacted both revenue and margins. Voltas is focused on consolidating its presence in spinning and post-spinning segments while improving service capabilities to position for the next up-cycle. With regard to VoltBek, VoltBek continued its robust growth trajectory in Q1 FY '26, selling close to 1 million units and achieving 33% year-on-year volume growth. The washing machine category drove the expansion, supported by refreshed product lineup and enhanced retail presence. Market share gains were recorded in both semi-automatic and overall washing machine segments, while refrigerator category also improved its standing, particularly in the direct cooling models. VoltBek's growth was backed by agile manufacturing, timely availability of fast-moving products and a steady pipeline of product innovation and new launches tailored to evolving consumer needs. Improved traction across general trade, modern trade and e-commerce channels was complemented by an enhanced retail visibility, focused marketing campaigns and operational efficiency, driving both volume expansion and margin improvement. VoltBek's growing scale, expanding product portfolio and increasing consumer acceptance continue to strengthen Voltas' overall appliance business while reducing its reliance on seasonal product categories. VoltBek's trajectory strengthens Voltas' overall consumer appliance portfolio while also diversifying seasonality risk inherent in the Cooling Products category. To summarize, at an overall outlook, Voltas views the performance dip in Q1 FY '26 as temporary. Inventory normalization, tactical cost control and the demand rebound during the upcoming festive period are expected to support sequential recovery. The company retains its market leadership across key cooling categories and remains fundamentally strong. Further, VoltBek continues to grow and market share gains remain encouraging. The projects business continues to progress steadily. Across all segments, Voltas is investing for the long term with sharp focus on innovation, execution excellence and customer centricity. Thank you.

Sir, should we begin the question and answer session?

Yes.

[Operator Instructions] First question is from the line of Natasha Jain from PhillipCapital.

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 in fact, in short, very good numbers. But right now since I do not have the clear picture, 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, 3 to 4 months 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 don't -- we are a brand leader. And we don't want to lose out our market leadership. And therefore, to retain our leadership position, 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. We are not discounting per se at the moment. We have not -- the sales are happening automatically. 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 season -- summer season was milder, summers were 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 in automatic way rather than -- 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, as you rightly said, 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 -- if you have analyzed, in case, you were able to lay your hands on to 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 -- our focus has remained on gaining the 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 about 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 many questions have been embedded into your one question. So let me try and answer, if I miss out, then you'll have to remind me. So firstly, you are talking about the -- how the -- 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, several years, whenever we have analyzed, whenever summers were milder in the quarter 1, the quarter 3, 4 will 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.

Yes, sir. Sir, coming to that in VoltBek, we have seen a very strong...

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 3, 4 months making it average and thinking, which month should I take becomes very difficult. So 3, 4 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...

No, no, no. No way. 1 million, so it's a fairly big number. So I have already done more than -- roughly around 1.5 million I've already done. So 1 million means it's the entire year stock. 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 INR 1,700-odd crores and in the domestic project business INR 3,200-odd crores -- sorry, INR 6,200 crores, so which is higher than the previous year. Previous year, opening was around INR 5,000 crores only for the domestic business and the international project was almost about the same number. So I don't think -- yes, but of course, we have been -- as I told you earlier also 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 nightmares 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 our team is continuously -- 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 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?

Next year, you are talking about '27?

FY '26.

We are in '26. You're saying next year, which year you're talking about?

I mean, full year FY '26, should we expect growth in the project business?

Yes, definitely. Project business has been doing pretty 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 look at our project businesses results, you would have gone through, project businesses have done much better, even textile machinery, mining and construction, all of them are on target, and they have done better than the previous year.

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 #2 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 INR 35 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. So yes, your point is valid. We have spent a little more, but to retain our -- sustain our leadership position.

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