Buy AC stocks Voltas, Blue Star post 30% corrections, says Emkay Global; here's why

Untimely rains are a killjoy for AC demand. But following a 30 per cent-plus fall in share prices of Voltas Ltd and Blue Star Ltd, Emkay Global believes it is the apt time to buy AC stocks. Weather-related demand volatility is cyclical in nature and not a structural issue, Emkay Global said adding that the recent stock corrections appear to be driven more by temporary weather disruptions than by deterioration in the long-term fundamental story. 

"While CY25 marks the fourth major weak summer over the past 15 years, the consistent pattern of sharp stock corrections has also been followed by stronger rebounds in both—volumes and stock prices, when summer intensity returns," Emkay Global said.

Given the unseasonal weather outlook in 2025, Emkay Global is penciling in 3 per cent room air conditioner (RAC) volume decline for the industry in FY26E and a recovery-led 18 per cent rebound in FY27E.

"We trim FY26E/27E EPS by 7 per cent/2 per cent for Voltas and by 8 per cent/10 per cent for Blue Star Ltd. The risk-reward seems favorable hereon for Voltas, with valuations near the Covid-19 lows; hence, we reiterate BUY on Voltas with unchanged target of Rs 1,450. We retain Buy on Blue Star Ltd with our target cut by 11 per cent to Rs 1,850 apiece," Emkay said. 

Voltas and Blue Star are down 31 per cent each year-to-date. Over the last 15 years, weak or erratic summers have consistently disrupted RAC demand and triggered sharp stock corrections (30-40 per cent) for Unitary Cooling Product (UCP) players. 

In time-periods such as 2012-13, 2015, 2018, and 2025YTD, unseasonal rains and below-normal temperatures resulted in flat or negative UCP revenue growth. 

"For instance, FY12 saw 20 per cent industry volume de-growth, with Voltas/Blue Star UCP revenue down 3.2 per cent/up 6.6 per cent YoY. In Q1FY16, erratic rains in the North pulled down Voltas' UCP by 7 per cent YoY, while slowing down growth for Blue Star to 17 per cent against 28 per cent in Q4FY15," Emkay Global noted.  

Q4FY18 also saw muted 15 per cent industry growth against over 20 per cent expectations, with UCP revenue declining 2 per cent/8.3 per cent YoY for Voltas/Blue Star. While H1CY24 brought one of the harshest summers, H1CY25 summers began on a softer note due to unseasonal rains during April/May 2025, leading to sharp stock corrections, Emkay said.

Stock rebounds
In the past, the RAC sector has rebounded sharply after a weak summer. In 2014, 2017, 2020, and 2024, pick-up in summer intensity led to strong double-digit volume growth (15–20 per cent) and even higher UCP revenue growth.

For instance, H1 2014 marked a turnaround after two muted summers, driving 11 per cent industry volume growth and UCP revenue growth of 12 per cent/16 per cent for Voltas/Blue Star in Q4FY14, triggering stock rallies of 120 per cent and 157 per cent by 2015. 

"Recently, harsh H1CY24 summer led to sharp demand uptick, with UCP growth of 44 per cent/35 per cent YoY in Q4FY24 and 51 per cent/44 per cent in Q1FY25 for VOLT/BLSTR, leading to stock rallies of 86 per cent/120 per cent between Jan-24 and Oct-24," Emkay Global said.