We hosted a concall with Voltas’ management for an update on the ongoing situation due to the Covid-19 lockdown. While the management sounded optimistic, we note that concerns have shifted from supply to demand side going into the summer season. The company does not foresee any risk from the supply side as factories in China have resumed operations and material supplies have started reaching India with a slight delay due to congestion at Chinese ports. Currently, capacity utilisation of factories stands at ~60% in China, which is expected to go up to 80% by the first week of April.
Voltas is adequately covered with respect to supplies in RACs till April end. Inventory in channel stands at 55-60 days, which is adequate for the peak summer season. Demand side risks have emerged on account of delayed summer, coupled with Covid-19 lockdowns. Summers are delayed by 7-10 days currently; however, according to IMD forecasts, temperatures are expected to be higher by 0.5-1.5 degree Celsius y-o-y. The company remains optimistic to recoup sales post lifting of lockdowns and does not expect the entire washout of summer season demand. Mitigation plan if lockdown persists longer: Voltas will adhere to cost-saving measures like cutting ad-spends (can be 3% of sales in peak season). Channel partners are adequately prepared to tide over this phase. In case of loss of entire summer season (too pessimistic view at this point of time), Voltas is ready to increase its A&P spend subsequently to liquidate channel inventory.
International order book stood at Rs 2,100 crore, with Voltas receiving a large order from Qatar in Q3FY20. Execution of the Qatar order has begun with no intimation from the government on shutdown. Domestic projects have shut down with most of the migrant workforce going back to their native places. Key concerns on working capital have emerged in these uncertain times. Since large exposure is toward government projects, there is certain visibility on the payment front, albeit with a delay. The company expects support from the government as some of the projects are due for payments in Q1FY21. The current order book stands at Rs 7,000 crore, with OB/Rev at 2.1x.