Voltas: Summer sales under threat due to lockdown, economic woes

Investors are jittery over the 21-day nationwide lockdown, which will play spoilsport as far as Voltas Ltd’s June quarter (Q1 FY21) earnings go. Q1 is critical for the air conditioner (AC) manufacturer, given that sales rise during these three months as the temperatures soar.

However, the management is optimistic. In a recent analysts’ call to highlight the Covid-19 impact, it said there will be sufficient time after the 21-day lockdown (ends mid-April) for the company to cash in on summer demand.

However, the big risk is an extension to the lockdown, or a delay in consumers returning to stores to buy products. Besides, the impact of the pandemic on the economy may lead to a fall in discretionary spends.

“While management sounded optimistic (on the call), we note that concerns have shifted from supply side to demand side going into the summer season,” said analysts at Motilal Oswal Financial Services Ltd in a note to clients. The brokerage firm factored in a loss of 25 days’ peak season product sales. Earlier, there were worries about supply issues from China, although these are now been resolved.

Voltas plans to push room air conditioner (RAC) sales as soon as the lockdown is lifted. Towards this end, the company has already filled sales channels with 55-60 days of inventory. But whether this translates into strong sales in Q1 depends on how things play out as far as the spread of the virus goes.

In the first nine months of FY20, the firm’s AC volumes had grown by 35% year-on-year. Within that, RAC volumes, where Voltas has a 24% market share, grew 29% y-o-y.

Further, the electro-mechanical projects segment, which was already battling a slowdown in overseas and domestic markets due to a liquidity crunch, could dampen revenue and profit traction. “With Covid-19 hampering movement of goods and with many countries opting for lockdown, execution and revenue growth in this segment will be weak for couple of more quarters,” said analysts at Motilal Oswal.

Analysts also expect delays in large government orders and project payments due to the shift in focus on arresting the pandemic. All these factors may stretch working capital requirements and hinder profit traction.

Voltas shares have fallen 33% from their highs in February, more or less in line with the fall in the broader market.


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