Buy Voltas, target Rs 715: Edelweiss Securities

Edelweiss Securities has a buy call on Voltas with a target price of Rs 715.

The current market price of Voltas is Rs 609.50.

Time period given by the brokerage is one year when Voltas price can reach the defined target.


Investment rationale by the brokerage-
Sustained investments in right avenues over past decade: VOLT’s leadership and superior OPMs are attributable to its business consolidation over the past decade and a half. To this end, the company made two strategic choices: a) Getting product positioning right by focusing on value based SKUs, distribution, and mass premium brand image. b) An asset-light business model for better returns/cash flows which we expect to sustain despite the decision to invest in a white goods plant.

RAC leadership; rich learnings driving strategic choices: Many business disruptions over the past two decades have pushed VOLT into revisiting its business model from being a B2B manufacturer of room air conditioners (RAC)/refrigerator (multi product) to the one focused on branding/distribution of a single product (RAC). This approach is contrary to its MNC peers’ and has paid off.

Voltbek JV – A timely and calculated bet: Voltas deliberately gave up its asset-light strategy to manufacturing with Arcelik eying a notable market share in the huge white goods space likely to be USD15bn by FY25. In our view, evolving trends in distribution with a skew towards MBO/online retail would make product expansion timing a key differentiator in creating value for stakeholders.

Outlook and valuation: Despite near-term challenges pertaining to seasonality, we see VOLT generating significant value for stakeholders over three–five years as it scales up the new categories while sustaining leadership in room air conditioners (RACs).