Voltas gains RAC share as Atomberg compressor JV targets margin expansion

Investment View and Target Price

Elara Securities retains its Accumulate rating on Voltas and raises its target price to Rs 1,410 from Rs 1,360. The broker views Voltas as a key beneficiary of underpenetrated room air conditioner (RAC) demand, supported by its market leadership, recovery potential in Voltbek, improving prospects in the electromechanical projects (EMP) segment and the planned compressor joint venture with Atomberg Innovation.

Elara expects earnings to compound at 62 per cent over FY26-FY29E, with average ROE and ROCE of 15 per cent and 14 per cent, respectively, over FY27-FY29E.

Q1 FY27 Financial Performance

Margin performance was supported by price increases and operating leverage despite input-cost inflation and foreign-exchange losses.

Unitary Cooling Products: RAC Growth and Market-Share Gains

Unitary Cooling Products (UCP), which represents 82 per cent of sales, grew 32 per cent year on year. RAC sales increased by about 50 per cent year on year, with volume growth of 45 per cent.

Management said Voltas sold 1 million RAC units within 81 days, expanded its Tier 2 and Tier 3 channel reach, and increased its year-to-date secondary RAC market share to 17.3 per cent from 15.9 per cent a year earlier. This represented a 400-basis-point lead over the nearest competitor.

The company cited cumulative price increases of around 10-12 per cent, comprising 7-8 per cent linked to changes in BEE norms and 4-5 per cent to offset input-cost inflation. Commercial air conditioning and refrigeration demand remained muted as sharp price increases slowed demand.

UCP EBIT margin improved by 170 basis points year on year to 5.3 per cent, aided by price increases, strategic sourcing, backward integration and operating efficiencies.

Atomberg Compressor Joint Venture

The planned 50:50 joint venture with Atomberg Innovation is central to Elara's longer-term margin thesis. The venture is intended to manufacture RAC compressors, initially with capacity of about 2.8 million units, for 3-Star and 5-Star, 1.5-tonne products.

Management indicated that the product is under testing and that the plant should take around 18 months to become operational. Revenue contribution could begin in FY28-FY29. Since compressors account for around 30 per cent of the RAC bill of materials, Elara expects the venture to lower import dependence, advance backward integration and support margin expansion.

Performance of Other Business Segments

Electromechanical Projects and Services

EMP revenue declined 27 per cent year on year due to disruption in international operations. The EMP order book stood at Rs 63,000 million as of June 2026. Management reported sustained domestic order momentum in EMS, metro, data centres and industrial infrastructure, but said tensions in West Asia had affected new order inflows.

Voltas is therefore pursuing calibrated, fixed-price order booking, with a preference for faster-gestation and private projects.

Engineering Products and Services

EPS revenue grew 17 per cent year on year, led by textiles machinery, crushing and screening equipment and the Mozambique business. However, segment EBIT margin declined by 370 basis points year on year to 25.9 per cent because of product mix.

Voltbek

Voltbek delivered its highest-ever quarterly sales volume and value. However, management pushed its breakeven expectation back by two to three quarters because of input inflation and supply-chain disruption.

Earnings Estimates and Valuation

Elara lowered its FY28 EPS estimate by 8 per cent because near-term margin pressure may persist amid geopolitical tensions. It raised its FY29 EPS estimate by 5 per cent, as the compressor venture is expected to support margins.

The Rs 1,410 target price is based on an unchanged 37 times June FY28E P/E multiple applied to June 2028E EPS of Rs 38.

Key Risks to Monitor

• Input-cost inflation and foreign-exchange losses.
• Geopolitical disruption, including the impact of West Asia tensions on operations and order inflows.
• Weak commercial cooling demand following sharp price increases.
• Slower EMP order inflows and execution.
• A further delay in Voltbek reaching breakeven.