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

Ladies and gentlemen, good day, and welcome to Voltas Limited Q2 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Natasha. Thank you, and over to you.

Thank you. I, Natasha Jain. On behalf of PhillipCapital, welcome all of you to the Second Quarter FY '26 Earnings Conference Call of Voltas India Limited. From the management today, we have Mr. Mukundan Menon, Managing Director; Mr. K.V. Sridhar, Chief Financial Officer; Mr. Nikhil R. Chandarana, Head Corporate Finance; and Mr. Vaibhav Vora, Head Treasury. I request the management to give their opening commentary, post which we shall open the floor for Q&A. Thank you, and over to you, sir.

This is Sridhar here, CFO, Voltas Group. To start off, I think Voltas is positioned for future growth with strong fundamentals and strategic clarity. Just to give a view on the overall global outlook, global economic growth has remained steady, though uneven across regions with many advanced economies still facing inflationary pressures. India continues to stand out as one of the fastest-growing major economies supported by public investment, strong domestic demand and a resilient services sector. While global trade remains affected by geopolitical tensions, India's consumer and infrastructure momentum continues to create opportunities across industries. For the cooling and appliances sector, stable energy costs and improved consumer sentiment are expected to drive demand recovery in the coming quarters. The IMF has maintained its global growth outlook at around 3% for 2025, citing gradual stabilization in key economies. Emerging markets continue to anchor this growth, led by India and Southeast Asia. In contrast, developed markets are adjusting to slower consumption and policy tightening. Voltas, through its diversified business presence, continues to manage these dynamics prudently, balancing exposure across markets and maintaining financial discipline. Voltas Limited, Tata Enterprise and India's leading air conditioning and engineering services company, announced its financial results for the quarter and 6 months ended 30th June 2025. The quarter reflected a period of transition marked by external challenges such as extended monsoon and GST-related demand deferment. However, amidst these short-term headwinds, Voltas continues to demonstrate strategic focus and operational discipline. The company remains firmly anchored to its long-term growth agenda, unpinned by the robust investments in manufacturing, steady performance across projects and engineering and the growing strength of its consumer brands. Voltas' diversified portfolio and strong governance foundation continue to reinforce its reputation as one of India's most trusted enterprise. Just a brief on the financial performance overview for the quarter ended. Consolidated total income was INR 2,411 crores against INR 2,724 crores last year. Profit before tax was INR 54 crores versus INR 205 crores last year, while net profit was INR 31.5 crores against compared to INR 132.83 crores last year. For the 6 months ended 30th September, the consolidated income was INR 6,432 crores versus INR 7,725 crores for the same period last year. PBT was INR 256 crores against INR 656.95 crores for the same period last year, while net profit was INR 172 crores as compared to INR 467 crores for the same period last year. While results were impacted by cyclical factors in the Cooling segment, the company's diversified structure, balance sheet prudence and operational positions it well for a rebound in H2 and sustained long-term value creation. Just a bit of depth on the different segments that we operate in, starting with Segment A, which is the unitary cooling product. The UCP business experienced an atypical quarter with muted retail offtake caused by the lean season and delayed consumer purchases during the period mid-August to last week of September, owing to GST rate reduction leading to a higher channel inventory. Despite these temporary challenges, Voltas sustained its market leadership position and continue to reinforce its presence across India's cooling and comfort solutions spectrum. Residential RAC segment remains the core of its segment. The quarter required higher marketing support to sustain retail momentum and to manage channel inventory, which impacted margins. However, the market share improved sequentially from 16% in Q4 FY '25 to 17.8% in Q1 and further to 18.5% in Q2 and maintained our market leadership with a widened gap over the next brand. The reduction of GST from 28% to 18% will see a major traction in the coming quarters as channels start stocking up for the upcoming season and the impending BEE energy efficiency transition effective January 2026. The company is fully ready with the new table products for the upcoming transition. This change is expected to drive consumer upgrades in the second half, providing a positive flip to demand and product mix improvement. Strategically, Voltas has intensified its focus on refreshing and upgrading its product portfolio with enhanced features for a better consumer experience. Further, it is focusing on distribution network expansion, cost optimization, automation and process efficiency across its manufacturing network. Production planning has been recalibrated to reflect real-time market demand and inventory dynamics. While margins were temporarily impacted by under-absorption in the new Chennai and Waghodia facilities, these are strategic investments that will deliver economies of scale and long-term competitiveness as utilization improves. Complementary categories such as air coolers, water heaters and fans continue to show promise, supported by ongoing products upgrade, channel expansion and digital reach. Together, these initiatives strengthen Voltas' position as a preferred choice in the cooling and comfort products. Within the broader UCP portfolio, commercial air conditioning continues to act as a strong growth lever supported by rising demand from institutional, retail and light commercial segments. Commercial refrigeration is expanding across food service, retail and health care applications, further diversifying the portfolio and providing steady year-round business. Together, these developments reinforce Voltas' strategy of evolving from a seasonal cooling brand into a year-round consumer durables enterprise with a comprehensive product portfolio, combining scale, innovation and operational excellence. VoltBek home appliances. VoltBek continues to be one of India's fastest-growing appliances, demonstrating sustained momentum across key categories. The business delivered growth across H1, gaining market share driven by consumer preference for higher quality, energy-efficient and locally manufactured products. This performance was accompanied by a gain in market share across key categories, underscoring VoltBek's growing competitiveness and brand acceptance. Performance was broad-based across washing machines, refrigerators and small domestic appliances. Voltbek's advanced manufacturing footprint, coupled with an expanding product road map and deep retail network has enabled it to combine scale with innovation agility. The brand's marketing investments and growing digital presence have further enhanced consumer engagement and visibility. VoltBek remains an integral part of Voltas' long-term strategy for diversification, premiumization and transition to a full-scale home appliances company, enabling Voltas to provide end-to-end cooling and home solutions to Indian consumers. Segment B, Electro-Mechanical Projects and Services. Segment B continues to be a strategic stabilizer for Voltas, mitigating the effects of seasonality in the cooling business. The domestic Infra solutions business, its advanced project execution across MEP, water, electrical and solar verticals underscores its engineering leadership. The business focused on timely completion of multiple projects, enhancing cash flows and optimizing execution time lines to drive efficiency and profitability. The international business continues its disciplined approach to project management, achieving progressive execution and delivering high-quality projects. With a robust consolidated order book exceeding INR 6,200 crores and a healthy bid pipeline, the segment is well positioned to drive steady countercyclical growth and deliver consistent performance over the medium term. The Engineering Products and Services segment maintained operational resilience despite macroeconomic uncertainty. The Mining and Construction Equipment division saw stable performances across Africa and Indian markets, supported by sustained aftersales growth and innovation in hybrid machinery. The Textile Machinery division delivered on revenue and collection targets with aftersales services emerging as a strong contributor to profitability. We are also focusing on adjacencies in post spinning to drive the newer growth opportunities. With continued localization initiatives and policy support from GST rationalization, the segment is strategically positioned to capitalize on industrial demand recovery and strengthen its technology-led portfolio. Voltas managed its working capital judiciously in a quarter marked by delayed secondary movement with retail momentum expected to pick up during the upcoming quarter and production normalization across facilities, inventory levels and cash cycles are anticipated to revert to healthier levels in H2 FY '26. Just to give a summarization on the outlook for strategic direction, Voltas enters the second half of FY '26 with renewed optimism and strong strategic alignment. The GST reduction and the BEE efficiency transition are expected to unlock pent-up consumer demand. The company's integrated strategy combining product innovation, manufacturing excellence, channel revitalization and operational efficiency positions it to capitalize on emerging opportunities across markets. Thank you.

[Operator Instructions] The first question is from the line of Balasubramanian from Arihant Capital Market Limited.

Sir, elevated inventory is sector-wide issues. And what is our current inventory levels on the channel side. And what specific support you are providing to channel partners to prevent the distressed selling and maintain brand equities. Specific support In terms of extended credit, higher margins. If you could share some light on that?

Yes. So as all of you know, this has been a very difficult H1 in the cooling products category. So this has come on the back of a very strong summer last year. So everybody had planned a larger inventory for the -- as well as the channel partners. So the season when it did not go well, obviously, there was a little higher stock. So the way we see it is currently, the channel partners have roughly around -- between us and the channel partners, there's roughly 2 months of inventory in the inventory. And it's -- the season is going to pick up now. So I think there is -- the things will start easing out over a period of time now. And in terms of support, we have -- we strongly believe that our channel partners are very critical to our success, and we have done everything possible to ensure by giving better sell-out schemes like sometimes subsidized installation, better consumer finance schemes to them to help them sell out so that in no way they get stuck with the stock. So everything that is possible from our side, we have been supporting our channel partners to make this happen.

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

Sir, first question is with respect to market share. You mentioned about 18.6% in 2Q FY '26. Could you help us with 2Q FY '25 market share on the similar lines, sir, please? .

Yes. So if you see the sequential market share numbers have been moving up very strongly. For example, I won't exactly remember the Q2, Q3 numbers of last year. But from the calendar year this year, that is from Q4 of this year, it was around 16% in quarter 1. In quarter 2 -- in quarter 4 of the last financial year, 16%. In quarter 1 of this year, we hit 17.8%. And in quarter 2, it further improved to 18.5%. So in a span of just 6 months, that means I think not 6 months, I think quarter -- yes, it's gone up from 16% to 18.5%. That is a delta of roughly 2.5% has happened over these 2 quarters. Another -- between these 3 quarters. Another important thing to note here is the lead between us, we are the market leader, the #1 brand. the lead between us and the #2 brand has also widened significantly. The gap is now as high as closer to 3%, 2.9% to be precise. And that is a very strong indicator of the direction this is taking actually.

Okay. And the second question I have... .

Sorry to interrupt, you may -- you have to return to the queue for follow-up questions as there are several participants waiting for their turn. The next question comes from the line of Siddhartha from Nomura Holdings.

Sir, first question on the quarter near term, how have you seen in terms of the pickup. Have you sort of started seeing some growth coming back given that we are sort of close to halfway through the quarter now. And some of these schemes, which you have talked about in quarter 2, have -- are they still sort of in some way there? Or have they been fully withdrawn. And second is, sir, on the commercial refrigeration and CAC segment, if you can just highlight how that performance has been also in the quarter?

Yes. So essentially, the GST announcement, which happened on 22nd of September. So we had a play of 1.5 months now, I would say. So we are seeing there is certainly -- there is a secondary sale improvement, uptick in the sales of air conditioners where the GST rate is reduced from 28% to 18%. However, the -- we must remember that this is a category which is highly like a summer-driven product and the amount of sales, even though the seasonality of this category has evened out over the last many years, it still remains a seasonal product. So I strongly believe that the real spur in demand, the spurt in demand will happen during the season. That means from the quarter 4, you'll see some seriously big number happening because of the GST reduction. And both all the brands as well as the channel partners are eagerly looking forward to the coming summer season. Of course, keeping our fingers crossed that the summer season is not interrupted with pre-monsoon rains like it was last year. But from a GST cost perspective, a reduction perspective, it's a very positive trend. On the second thing on your other 2 businesses, our commercial air conditioning business is doing very well. This is a category where we currently have a little lower market share compared to our competitors, but we are adding our channel partners very aggressively across the country. We are also adding new product portfolios, including centrifugal chillers and VRF systems into our product portfolio. So this is probably going to be the next growth engine for Voltas.

The next question comes from the line of Naushad Chaudhary from Aditya Birla.

Two, three clarifications. Firstly, on the Project business order book, which is INR 6,200 crores. How much of this -- within this, how much is from the international market?

Yes. So essentially, the INR 6,200 crores is divided as domestic projects is INR 4,800 crores and around INR 1,400 crores is from the international business group actually. .

And can we be more specific in terms of what exactly is now started to drive this order book, which specific area it's helping us in.

Yes. So we'll talk about the domestic project book, which is a larger order book, INR 4,800 crores. So it's sort of evenly divided between the 3 verticals which we have within the domestic projects book, which is essentially, the -- we have sort of diversified this portfolio. Earlier, we had only a play in the MEP business. Now we have an equal play in MEP, which is the mechanical, electrical and plumbing business. We have got an electrical and solar business. And the third one is the water business. So the order book is almost like evenly distributed between the 3. Some quarters, it goes up a little by 5% here and there, but a very diversified portfolio of project business now, MEP, electrical and solar, second bucket and the third bucket being water. So -- and the MEP primarily comes from the private sector, whereas the other 2 is driven largely by the government infrastructure spending.

Mr. Naushad, please return to the question queue for follow-up questions as there are several participants waiting for their turn. The next question comes from the line of Renu from IIFL Capital.

Yes. Just wanting to understand, while this quarter, we had the double whammy impact of inventory under overhead recoveries as well as margin pressures in UCP. How do we look at the margins going forward. And for the RAC and UCP portfolio, do you think we could end up the year with flattish numbers or given the first half decline, there could be a double-digit drop in revenues for fiscal '26 as we are heading in second half?

So Renu, the way -- so the second half is actually promising. There are a couple of positive signals here. One is the -- as people start buying air conditioners for the summer season, further sort of aided with the reduction in prices because of the GST reduction, the channel will start stocking up for the season. That's point number one. . Point number two, there is a table change, which is happening from 1st of January, which is the most of the table -- most of the dealers tend to do some stocking up of the old table SKUs because the government, the Bureau of Energy Efficiency, which governs this allows the channel partners and the trade to sell this for a period of 3 to 6 months. They do not sort of have a hard stop. So there will be some reasonable good buying in the last month of this quarter. And of course, for the next -- and in quarter 4 of this year, there will be a good stocking up of -- by the channel to ensure that they do not miss this large opportunity that they see because of this cost reduction, the GST reduction for the AC category. So I think things will only sort of ease up now. It will improve as we progress. The time line over the next 5 months, it will play out over the next 5 months. So we really don't have a number against the quarter 3. It's more like a 5-month play going forward. Renu, did I not answer your question? I can continue if...

Yes. Just the second part of the question was while volume growth may bounce back in second half, we saw under recoveries on fixed overheads in 2Q. That should be broadly addressed as we go in second half or probably 3Q may continue to see a lingering impact of lower under -- fixed overhead absorption.

So generally, the -- as the overall numbers start going up, so again, a milestone of Q3 may be difficult to sort of figure out. But between now and H2, I would say that the entire H2, this absorption will certainly ease up. That's our feeling actually.

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

My question was on MEP work for data centers. How big is it currently in your MEP revenues? And how are you looking at the opportunity considering one of the group companies has announced a large plan over there?

Yes. So Umang, these 2 large opportunities in the MEP segment is data centers and district cooling. These are large capacity -- large opportunities for us. And in any requirement like a data cooling, district cooling, there are 2 parts to the thing. There is a chiller which goes into the data centers, which gives the cooling water for the data center. And there is another piece, which is to do with the entire MEP work, which is your piping, your ducting, all those things which go into the -- we call it the low side of the thing. So we have 2 parts of our business, the commercial air conditioning business, which currently resides in our UCP and we have got the domestic project business, which comes in the Segment C -- Segment B. Now both of them will have great opportunities because in the first category, centrifugal chillers, we have started manufacturing them and some of the best sort of energy-efficient centrifugal chillers are coming out from our factories. So there is -- we see this as a very good opportunity over the next few years. And on the -- even on the MEP side, we see this as a very positive development. It's worthwhile to mention here that this entire projects business of ours, including the commercial air conditioning play, helps us to diversify our overall product portfolio and not limit it to only the room air conditioner and the Unitary Products group. So this is a very positive development, Umang.

What's the mix today?

The mix between the chiller versus the low side is what you're saying, Umang?

The contribution of data centers in your MEP and...

The current mix is very small, like it is less than 5% of our MEP play. It's just 1 or 2 projects at a time. But the way going forward, the data centers can constitute as high as 13%, actually.