Why Voltas Share Price is Falling

Understanding share markets is like eating a loaded burger.

You eat the burger from one side and the filling falls out from the other side. Now, when you try and eat from the other side, the filling comes out from the first side.

Similarly, when you try to understand share markets from one end, they go wayward from the other. You try to tie ends at one end, and the other thirteen ends go loose.

Share markets are tricky and very unpredictable. Just like no one expected that a Tata group company with a leading position in its business would undergo a massive fall.

I'm talking about none other than the famous AC and refrigerator maker - Voltas.

Many Tata group shares are known to produce multibagger returns. It's a perception among investors that Tata shares will continue to rally.

However, Voltas share price has seen a sharp fall in its share price recently. In the year gone by, it has fallen 29%.

Read on to find out why.

#1 Poor financial results

The net sales of Voltas stood at Rs 17.7 bn in September 2022. This is 36% lower than 27.7 bn reported in September 2021.

The company's quarterly net profit stood at Rs 1.3 m for the quarter under review. In the year ago period, the company had reported a profit of Rs 5.1 m.

The company's consolidated adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) stood at Rs 588 m in September 2022 down 36% from Rs 2,038 m in September 2021.

After the quarterly results were out on Wednesday this week, the share price saw a sharp fall of 5%.

#2 Continuous fall in margins

Voltas share price has remained under constant pressure in the recent past. The sharp fall in its margin reflects heightened competitive intensity, subdued demand, and cost pressure.

So currently, the headwinds of carrying forward high-cost inventory continue to weigh on the margin of Voltas' profits.

The company's management expects margins to be hit until the second quarter of financial year 2024. This on the back of carry-forward of high-cost inventory and a competitive landscape.

This is a long time away and margin concerns will continue to remain a worry for Voltas it appears.

Market experts are also of the view that price cuts in the coming months could add to more worries.

Quarterly financial results

Particulars (Rs in m)	Sep-21	Dec-21	Mar-22	Jun-22	Sep-22
Turnover	17,374	18,223	27,038	27,948	18,327
PBIT	1,774	1,844	2,983	2,038	588
PAT	1,232	1,286	2,116	1,405	229
Net profit margin%	7.3	7.2	7.9	5.1	1.3
Diluted EPS	3.7	3.9	6.4	4.2	0.7

Source: Equitymaster

To know more, refer to the company's quarterly results.

#3 FII Selling

Interest rates are rising in developed markets like the USA. This makes the emerging markets less attractive for FIIs because the risk-free rate of return reduces.

Hence FIIs sell their holdings in companies operating in emerging markets like India to return to the safety of dollars. The same has happened with Voltas.

FIIs have been divesting their stake in Voltas since March 2022. FII stake stood at 26.2% in the quarter ending March 2022. The stake was reduced to 24.4% by the end of the June 2022 quarter.

Even in the most recent September 2022 quarter, FIIs reduced stake by 0.3%.

For more details, check out Voltas' latest shareholding pattern.

Investment Takeaway

Voltas is the market leader in the overall room air conditioner business with a market share of 22.8%. It may be facing stiff competition but being associated with Tatas gives it an edge.

It has already taken steps to reduce costs, improve margins and increase revenues. For example, it has undertaken the BEE labelling program and Voltas Beko initiative.

Being an AC manufacturer, it had low demand but as the season changes, there will be a revival in its demand. In fact, the festive season helps the revival.

Currently, Voltas is surrounded by clouds of uncertainty but it may come out of it. But will it come out as strong as the market expects? Only time will tell.

About Voltas

Voltas is an Indian multinational home appliances and consumer electronics company headquartered in Mumbai, Maharashtra.

It designs, develops, manufactures and sells products including Air Conditioners, Air Coolers, Refrigerators, Washing machines, Dishwashers, Microwaves, Air purifiers, and Water dispensers.

The company was incorporated on 6 September 1954 in Mumbai, as a collaboration between Tata Sons and Volkart Brothers.

To know more about the company, check out Voltas' latest news and analysis.

Also, take a look at Voltas' financial factsheet.

You can also compare Voltas with its peers:

Voltas vs Bluestar

Voltas vs Johnson Controls

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