VOLTAS

Struggles with Margins,

BLUESTARCO

Holds Ground Amid Sector Weakness

India’s consumer discretionary sector has faced cyclical demand pressures, with air-conditioner stocks

and correcting 15–20% from December 2024 peaks. While GST 2.0 initially offered relief by lowering appliance tax rates, external factors such as rising input costs, rupee depreciation, and weather-driven demand weakness have eroded the benefits. Recent Performance - Voltas: FY25 revenue growth of 30% YoY, but margins pressured by competition and promotions. - Blue Star: FY25 revenue growth of 24% YoY, margins protected by 30%+ share in commercial refrigeration and backward integration. - FY26 tough for both: Voltas’ channel inventory at 45 days vs <30 days historical, Blue Star expected 3% topline decline. GST 2.0 Impact - Appliances moved from 28% GST slab to 18%, briefly boosting demand. - Gains faded as prolonged rains, stronger winter, and rising costs offset benefits. - Copper prices up 60% YoY, rupee depreciation (~5%) raised import costs (Voltas imports 20–30% of products). - New BEE star-rating norms added compliance costs. Segmental Trends - Voltas: Struggled in RACs, losing share to competitors. - Blue Star: Commercial cooling resilient, aided by data-centre demand, but RAC sales expected to fall 8% YoY in FY26. - Both firms gained market share despite topline pressures. Silver Linings - Voltas’ inventory dropped from 60 days (Oct–Nov) to 45 days, showing improvement. - Operating leverage expected to support margins once volumes recover. - Long-term demand drivers: heat intensity, rising incomes, urbanisation. Outlook & Valuation - RAC penetration in India only 12%, offering long runway. - Industry growth projected at 16% CAGR FY26–FY30 (Motilal Oswal). - B2B cooling demand from data-centres, EVs, battery storage adds resilience. - Valuations: Voltas expensive at 87x P/E, Blue Star relatively attractive at 68x P/E.