UBS has upgraded its rating on Tata Group's Voltas from “neutral” to “buy” and substantially increased its price target to ₹1,800 from the previous ₹885, marking the highest target on the street for the AC stock. This new target suggests a potential upside of 38% from current levels.

What Happened: The brokerage’s revised valuation of the cooling segment at 55 times 12-month forward price-to-earnings, up from 35 times, reflects expected market share gains.

UBS predicts Voltas will capture a 23% market share in the room air conditioner (RAC) segment by the financial year 2026, surpassing the consensus estimates of 19.5%. This optimism stems from Voltas’ successful restructuring of its supply chain and improved cost structure in its RAC segment.

Additionally, UBS expects the VoltBek joint venture to increase market share and achieve breakeven by 2026, contributing significantly to profitability with an anticipated incremental revenue of ₹10,000 crore, or 60% of the projected revenue for 2027 in the consumer electronics segment.

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UBS also notes that Voltas has reached a low point in market share and margins in the Unitary Cooling Products (UCP) segment but maintains its position as the most cost-effective room AC manufacturer due to its robust supply chain.

Despite Voltas shares already rising 34% in 2024 and 53% over the past 12 months, UBS sees further re-rating potential as the market share gains materialize. Compared to Bluestar, which has increased nearly 90%, Voltas’ current valuations appear “undemanding,” trading at a 12-month forward price-to-earnings multiple of 56x against Bluestar's 53x.

Price Action: Voltas Ltd. shares were up 3.25% at ₹1342.70 on Monday morning.

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