VOLTAS — earnings call
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Prepared remarks
VOLTAS LTD · Management
MR. NIKHIL R.
CHANDARANA –HEAD, CORPORATE FINANCE - VOLTAS LTD MR. VAIBHAV VORA – MANAGER, CORPORATE FINANCE -
Moderator · Conference Operator
MS. BHOOMIKA NAIR – DAM CAPITAL ADVISORS
LIMITED · Management
Voltas Limited May 08, 2024
Moderator · Conference Operator
Ladies and gentlemen, good day and welcome to Voltas Quarter 4 and Financial Year Ending 31st March 2024 Earnings Call, hosted by DAM Capital Advisors Limited.
As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes.
Should you need assistance during the conference call, please signal an operator by pressing “*” then “0” on your touch tone phone.
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.
Bhoomika Nair
Thanks Sagar.
Good afternoon, everyone, and a warm welcome to the Q4 and Financial Year Ending 31 March 2024 Earnings Call of Voltas Limited.
We have the Management today being represented by Mr. Pradeep Bakshi – Managing Director and CEO; Mr. Jitender Verma, CFO; Mr. Nikhil R.
Chandarana – Head Corporate Finance; and Mr. Vaibhav Vora – Manager Corporate Finance.
Without any further delay, I'll hand over the call to Mr. Pradeep Bakshi for his “Opening Remarks”.
Post which will open up the floor for Q&A.
Over to you, sir.
Jitender Verma
Hi, this is Jitender Verma – CFO with our MD & CEO Mr. Bakshi is also here.
And I will be opening the session with a quick intro on our Results.
And then we will take up the question answers Mr. Bakshi and along with me.
So, good afternoon, everyone.
As we know that the Financial Year ‘24 remained an eventful year, starting with supply chain disruptions in the aftermath of Russia-Ukraine, Israel-Hamas conflicts, and the Red Sea crisis.
All of these have led to a sharp jump in shipping rates.
Crude prices have also soared post Iran-Israel war, spiraling into a considerable surge in inflation.
Tightening of globally synchronized monetary policy has also caused unwarranted pressures on businesses.
Despite many unfavorable situations, the world avoided a recession and the banking system proved largely resilient.
At an overall level, global growth remains buoyant in spite of the aforesaid circumstances, and the growth bottomed at 2.3%.
For 2024, the IMF has estimated global growth at around 3.2% in 2024, which is at the same pace as in 2023.
Back home in India, despite multiple global headwinds, India's monthly economic indicators like PMI, services index, GST and direct tax collections supported robust business activity.
Uptick in India's growth would continue to be driven by the Government’s “Make in India” thrust, and high infrastructure spends.
Also, narrowing of trade deficit and a lower CAD would support growth.
The IMF has estimated India's growth at 6.8% in FY ‘25 and 6.5% in FY ‘26.
The Company has seen record-breaking top line growth over the last year with the sale of over 2 million ACs in FY ‘24, indicating a strong market demand for the Company's products, registering Voltas Limited May 08, 2024 a quarterly growth of 72% and an annual growth of 35% in volumes.
The volume growth was also driven by split air conditioner, sales of which doubled in Q4 and grew over 50% for the full year.
With this incredible volume growth, the Company reported consolidated total income for the year ended 31st March 2024, which was higher by 32% at Rs.
12,734 crores as compared to Rs.
9,667 crores last year.
Profit before tax was higher. by 58% at Rs.
486 crores as compared to Rs.
307 crores last year.
Net profit after tax was at Rs.
248 crores as compared to Rs.
136 crores last year.
Earnings per share for face value per share of Rs.
1 for the year ended 31st March 2024, was at Rs.
7.62 as compared to Rs.
4.08 in the same period previous year.
For the quarter ended March 2024, the consolidated total income grew by 42% at Rs.
4,257 crores as compared to Rs.
3,003 crores in the corresponding quarter last year.
Profit before tax was at Rs.
174 crores as compared to Rs.
214 crores in the corresponding quarter last year.
Net profit after tax was at Rs.
111 crores as compared to Rs.
143 crores in the corresponding quarter last year.
Earnings per share, not annualized for the quarter ended was at Rs.
3.52 as compared to Rs.
4.35 in the same period previous year.
The corporate balance sheet continues to remain healthy with the cash and cash equivalents at Rs.
2,835 crores as at 31st March 2024.
You all have seen our Results, so I am not repeating the snapshot, which is there, I go straight to the Segment: Segment A – Unitary Cooling Products: The year 2023-2024 set a new landmark for the Company and helped us set our dominance in the air conditioning industry.
[We ended the year with a record sales of 2 million Air Conditioner, first by any brand in the India AC Market.
The drivers for the growth have been – focus on Modern trade and xx ] The split inverter category of air conditioners is in high demand, driven by consumers’ desired to have products with advanced features and its long-term advantages of savings in energy cost.
The expanded product portfolio of Voltas with newer SKUs designed in- house and competitive pricing has resulted in increased share of the inverter AC category to over 80% during the year.
Based on the success of the inverter split category, the Company has expanded its inverter portfolio in the window air conditional category as well at strategic price points during the year.
Further, during the year, there were strong demand for premium category of products, that is 4 Star and 5 Star rated products.
And the overall sales mix for Voltas for these products has also improved.
Strong brand positioning, distribution reach, leverage on the supply chain helped us retain our leadership position for the year with the YTD March market share of 18.7%.
We continue to leverage our strength in traditional channels and increase our concentration in modern trade and organized channels, as we continue to build an extensive network of Exclusive Brand Outlets or Voltas Limited May 08, 2024 EBOs.
Including Experience Zones at strategic locations, all of which will help in strengthening the market share.
Voltas has maintained its leadership position in the air conditioner category for more than a decade and has maintained its lead over the competition.
The brand is geared to further expand its retail and distribution network, grow product portfolio and gain an additional edge over the competition.
The Company also registered a significant growth in volume in other cooling products including air cooler and commercial refrigeration products.
The commercial refrigeration industry witnessed low traction throughout the year on account of reduced investment by the brands, more particularly in chocolate category, the growth of the commercial refrigerator category has remained tepid.
However, channel push and anticipated demand for cold beverages, ice creams from across the industry helped us clock positive results for the business.
Nevertheless, the outlook for this category is promising and growth drivers are visible in the current financial year.
The Air Cooler vertical has emerged as a crucial extension of Voltas’ product line, providing an impetus to the Company's position in the cooling products industry.
The acceptance of our high end product portfolio, expansion of the channel and tactical distributor schemes supported the primary delivery to the channel partners, which helped in registering growth during the quarter.
Voltas Water Heaters continued to gain good acceptance across the distributors and customers.
The Commercial Air Conditioning vertical also contributed to the growth journey for the UCP segment.
The performance of VRF, Light Commercial Air Conditioners, Packaged Air Conditioners Ducted ACs reported notable growth across sectors.
However, input price escalations and inability to pass on the same to the customers owing to stiff competition have impacted the margins for the business.
Increased commercial activity across the country coupled with focus on customer retention, and after sales service supported the overall growth for the category.
However, competitive intensity has lagged the business’ ability to garner margin accretive deals, especially in AMC jobs.
For the year, varied consumer centric finance schemes have also contributed significantly to increase in sales during current financial year and would eventually help grow the market share going forward.
Further, on the cost front, commodity prices have started to accelerate upwards, even USD-INR has depreciated over a period of time.
Both of these have been detrimental to the profitability of the business.
Nonetheless, various value engineering, and cost austerity drives have kept the profits in balance.
To summarize, for the quarter ended March 2024, UCP segment registered revenue of Rs.
2,955 crores, a 44% growth in turnover from Rs.
2,049 crores in Q4 FY ‘23.
Segment reported an EBIT of Rs.
270 crores in Q4 FY ‘24 as compared to Rs.
206 crores in Q4 FY ’23, a growth of 31%.
For the year ended March 2024, UCP segment registered revenue of Rs 8,160 crores, which is a 29% Voltas Limited May 08, 2024 growth in turnover from Rs.
6,475 crores in FY ‘23.
Segment result was Rs.
693 crores in FY ‘24 as against Rs.
538 crores in FY ’23, which is a growth of 29%.
On Capex front, we are happy to announce that our expansion plan for both our factories in Chennai and Waghodia are in line with our targets, and we would gear up for commercial production to be ready for second summer/ festive sales.
Both our upcoming plants will have strategic advantage of the location and help us cater to South and West markets.
This will enable us to meet growing demand for the underpenetrated refrigeration products which would in-turn help us deliver a powerful performance to give our consumers comfort and convenience.
With our story of volume growth, we are optimistic on utilization of our factories to the optimum scale and get a cost leverage on the business going forward.
Segment B – Electro-Mechanical Projects and Services: The segment revenue for the quarter was Rs.
1,098 crores as compared to the previous corresponding quarter revenue of Rs.
746 crores, which is a growth of 47%.
The segment result for the quarter reported a loss of Rs.
108 crores on account of delayed collection in certain overseas projects.
Healthy opening order book, quality PQE, more focused management after the transfer of business has translated into healthy business performance of the domestic project business.
The domestic project business recorded a growth of 38% for the quarter and 73% for the year ended March 2024.
The business continues to focus on governance, working capital management and high productivity to translate the orders into profits and in-turn into better cash inflow.
The order pad for the domestic project business stands at Rs.
5,024 crores respectively.
For international project business, projects in Saudi continued to deliver good performance and drive the revenue growth for the business.
Based on past experience, we reassessed our exposure especially in Qatar where we continued to face unreasonable delays in release of due receivables and prolongation of execution timelines.
We judiciously took provisions due to slow recoverability of receivables resulting in a loss for the quarter for this segment.
While the region impacted the business result and the Company has made the necessary provisions throughout the year, we are fairly optimistic to not have further set-backs from the geography and the international business should be on its way to deliver positive results in the next fiscal year.
The carry forward order book for International business as at 31 March 2024, stood at Rs.
3,030 crores largely in UAE and Saudi Arabia region.
Total carry forward order book of the segment stood at Rs.
8,054 crores vis-a-vis Rs 7,414 crores of carry forward orders as at 31 March 2023.
Segment C – Engineering Products and Services: Segment revenue and results continued to report improved performance for the quarter registering healthy growth over the previous year.
Segment revenue for the quarter was Rs.
156 crores and Voltas Limited May 08, 2024 EBIT for the quarter was Rs.
48 crores, respectively.
Segment revenue for the year was Rs.
588 crores and the segment result for the year was Rs.
206 crores.
Mining and Construction Equipment vertical has achieved its targeted numbers despite facing pressure for margin reductions.
India's infrastructure projects and the revival of the mining sector present growth opportunities for the business.
M&CE focused on enhancing its market share in its power screen business and had a healthy supply of its machines.
The recent allowance for commercial mining of coal and the relaxation of FDI norms in the mining sector by the government are positive developments for the business.
These initiatives are expected to boost business for this vertical in the coming years.
The Textile Industry experienced volatility characterised by fluctuations in cotton and yarn prices.
The textile market remained sluggish due to highly subdued export demand for yarn.
As a result, capex within the industry was decreased across the sector which led to reduced utilization levels of spinners.
Despite the aforesaid factors, the business performance of our textile machinery vertical, or TMD, reached all-time high levels due to its healthy order book and through continued focus on after-sales business.
VOLTAS LTD · Management
The home appliances industry in India has witnessed a healthy growth, fuelled by a surge in demand for both large and small appliances.
Voltbek, leveraging Arçelik’s technical expertise and Voltas' strong brand presence, expanded its footprint in Indian households by manufacturing Made in India products in Sanand, Gujarat, and focusing on enhancing its distribution network, particularly in South and West India.
In the ensuing year, Voltas Beko achieved significant milestones, becoming the fastest growing Indian consumer durable brand in just five years, selling over 5 million appliances, despite multiple headwinds of COVID.
Voltas Beko has solidified its position among the top brands in semi-automatic washing Machines for 2023-‘24.
Voltbek has also seen growth in the market share of refrigerators, washing machines, and semi-automatic table-top dishwashers.
Voltbek has delivered a volume growth of over 50% in revenue and quantity compared to last year, largely due to new product development and increase in billing locations.
Voltbek is dedicated to expanding its market presence across various product categories by deploying customized approaches for market penetration and growth.
These initiatives will involve prioritizing top retailers, adopting channel-specific tactics to enhance market reach in key regions through retail and distribution channels, and maintaining a strong focus on boosting e-commerce and omni-channel development.
New product launches, including larger capacity refrigerators and enhanced features, will help us in our growth trajectory to attain targets for breakeven and 10% market share.
Outlook
At the Board Meeting held on 7 May 2024, for adoption of accounts for the year ended 31 March, 2024, the Board declared a dividend of 550%, despite various provisions taken by the Company Voltas Limited May 08, 2024 in its international projects business over last two years.
The Board deliberated the importance of higher volume growth in its UCP business which delivered healthy segment results and its commitment to pass on the share of profits to its shareholders.
At a consolidated results level, this distribution of dividends amounts to a 72% payout of its profits during the year by way of dividend.
Cooling products being a weather dependent and seasonal product, the summer period becomes critical for the industry and Company for growth.
The current weather forecast and increased footfall projects towards sustainable growth.
The Company is adequately prepared to secure the opportunity both on the supply and consumer demand front and will continue to pursue its aggressive strategy to strengthen market share in a profitable way.
For projects business, we will continue to follow cautious and adopt risk mitigated approach while selecting new orders.
The execution of the orders in hand is paramount to ensure timely completion of the project with tendered margin.
Thanks.
We can open for question and answers.
Moderator · Conference Operator
Thank you so much.
The next question is from the line of Rahul Gajare from Haitong Securities India Private limited.
Please go ahead.
Rahul Gajare
I have got two questions.
The first one is on the project business.
Sir, in the project business, is it possible you could share with us the provision that was booked in the fourth quarter?
And whether all of this was specifically from the Qatar project?
And if this is the last of the provision that we have seen over the last two years in Qatar and how are the projects in the other regions?
And your outlook for FY ‘25 as far as the project business is concerned?
Moderator · Conference Operator
Thank you.
The next question is from the line of Pulkit Patni from Goldman Sachs.
Please go ahead.
Pulkit Patni
The first one is just an observation.
The first time you released a number in terms of volumes right at the end of the quarter, is it a practice that you are going to be continuing going forward as well?
Every quarter we would get to know the volume number immediately thereafter?
Moderator · Conference Operator
Thank you so much, sir.
Our next question is from the line of Nikhil Kale from Invesco.
Please go ahead.
Thank you so much.
The next question is from the line of Bhavin Vithlani from SBI Mutual Funds.
Please go ahead.
Bhavin Vithlani
Sir, I have a couple of questions.
First is, as you mentioned, the very strong growth in industry, industry stocked out, and even then you are guiding for high-single-digit margins.
So, we are not seeing margin expansion.
So, if not now then when?
That is the question.
Second is, if you could maybe take out, I mean, if you could just help us with what is the provision that you made in the overseas project?
Because we are seeing a big quantity in it, what actually is the provision?
And taking that provision out, what is the EBIT margin in the projects business for the quarter as well for the year?
You gave some return on capital number; it will be helpful to understand the absolute you get in this.
Third is, in Beko you had earlier guided for breakeven in FY ‘25 and positive trajectory on the margins from thereon, and you get to a high-single-digit margins in Beko as well.
If you could just help us where are we in that journey so that?
Moderator · Conference Operator
Thank you.
The next question is from the line of Girish from MS. Please go ahead.
Girish
I just had a couple of bookkeeping questions.
If you could help us on Voltbek, your revenue for FY ’24, and of the 26,000 touch points that you have on AC, how much is Voltbek right now selling at?
And if you can give the billing points as well from the dealer perspective.
And the second question was on AC, if you can just break us through the UCP on commercial refrigeration, commercial AC and air coolers for FY ‘24 year-ending, percentage.
Thank you.
Moderator · Conference Operator
Thank you.
Ladies and gentlemen, we will take that as our last question for today.
I would now like to hand the conference over to Ms Bhoomika Nair for closing comments.
Bhoomika Nair
Thank you for giving an opportunity to host the call and wish you all the very best for the upcoming years.
Thank you very much.
Any closing comments from your side, sir?
Voltas Limited May 08, 2024
Moderator · Conference Operator
Thank you.
On behalf of DAM Capital Advisors Limited, that concludes this conference.
Thank you for joining us.
You may now disconnect your lines.
Questions and answers
“Voltas Limited Quarter 4 and Financial Year 2024
Moderator · Conference Operator
Thank you very much.
We will now begin the question-and-answer session.
Our first question is from the line of Ankur Sharma from HDFC Life.
Please go ahead.
Ankur Sharma
The first question was on the room AC business.
If you could share your market share as of end of March ’24, and also where do you think you can take this number to in the current year?
We understand you have taken a lot of initiatives, especially on the modern trade side tie-ups with a lot of large national retail brands.
So, if you could just help us, where do you see your market share in current year?