Voltas has delivered impressive results despite challenging market conditions. Here is a look at how a go-getter attitude worked well for the company
Corporate turnaround stories are often narrated as heroic tales of guts and gumption. In reality, though, it’s about effective and understated transformation, and sheer hard work. These, along with a leadership-driven culture that encourages creative solutions and bold risk-taking, are the factors behind the impressive growth story of global engineering services company Voltas.
Voltas’s success is reflected in the company’s financials and market ranking. Last year (FY 2016-17), Voltas retained its leadership position in the highly competitive room air-conditioning market for the third year in a row. It also reported a 30% increase in net profit at 5.1 billion and a 21% return on capital employed (ROCE).
Sanjay Johri, managing director, Voltas, attributes the company’s stellar performance to a go-getter attitude: “The leadership culture has changed in the past five years. Our leadership teams are now strongly focused on results, on seeking new opportunities and not getting deterred by challenges. While doing all this, we have adhered to the Tata values, which are important to us.”
This mindset of focusing on new opportunities has powered Voltas through a period that saw many roadblocks to getting back to business-as-usual. For instance, when Voltas’s domestic projects group, which is in the business of executing turnkey electromechanical and air-conditioning projects for corporates, witnessed a slowdown in investments, the team managed to find a way around this by turning to the infrastructure sector, and particularly to government projects, which has been picking up.
Voltas has been a part of the air-conditioning and electrical work at the Kolkata and Chennai airports, the underground metro stations in Delhi and Chennai, and new hospitals being built by the governments in Delhi, Bhopal and Patna among other cities. Voltas has also been providing last mile connectivity to villages on the electricity grid in Madhya Pradesh since 2010, and in Rajasthan recently.
The company’s industrial effluents and sewage treatment unit bagged a contract for the prestigious Namami Gange project, an integrated conservation mission to clean and conserve the Ganga river. “We are able to do all this profitably, which is a great achievement for our domestic projects business,” says Mr Johri.
The new approach has worked well for Voltas’s global operations too. The electro-mechanical projects (EMP) division operates in Dubai, Doha, Muscat, Saudi Arabia and Singapore, and has several iconic projects to its credit. These include the Burj Khalifa in Dubai, the luxurious Emirates Palace Hotel in Abu Dhabi, and the Doha Festival City, one of the largest malls in the Gulf region.
Thanks to soaring oil prices, the Middle East was seen as a region of great opportunity, until around five years ago. As crude oil prices began to decline, the Gulf economy suffered. “We have focused strongly on balancing risk and reward. We now have a strong risk assessment process, which has helped us turn around the international projects business. Voltas is one of the few contractors in the EMP space in the Middle East that is still on its feet,” says Mr Johri.
Political and structural shifts play a big role in some of the areas where Voltas operates, especially in mining and construction equipment, and textile machinery.
Over the past few years, the domestic market for mining and construction equipment has witnessed a downturn due to the coal block allocation scam and suspension of mining in many parts of the country. However, the Voltas team quickly got cracking and leveraged new opportunities. “Our construction equipment business continues to grow. We are picking up orders in these plants because of the increased impetus on road construction and the opening up of iron ore mines,” says Mr Johri.
Voltas also entered Africa in 2012, where it maintains a fleet of high-value machinery at mining sites operated by a Brazilian company. “Our operation in Mozambique has sustained and grown over the last five years. We are getting more business there due to our track record,” says Mr Johri.
The textile machinery business unit performed well too, despite fluctuating cotton prices and a reduction in cotton yarn imports by China. “Spinning machinery used to be our mainstay earlier. Now, we’ve turned our attention to other types of textile machinery. Our focus on sale of spares, auxiliary equipment and consumables has helped us do well, despite the challenges,” Mr Johri explains.
Amidst all this, Voltas’s flagship room air-conditioning business continues to remain a source of pride and profits for the company. The unitary products group, as it is called internally, has been a market leader for the past three years with a share of 21.4%.“One out of every five air conditioners sold in India is a Voltas product. This is significant, considering the strong competition from multinational companies,” says Mr Johri.
A multi-pronged strategy helped maintain the brand’s dominance on its home turf. This included widening of Voltas’s sourcing network and product range, strengthening the supply chain, and aggressively expanding distribution to nearly 12,000 points of sale. This was supported by research-based consumer insights, leading to a powerful advertising campaign that connected strongly with consumers.
Meanwhile, Voltas continues to dominate the commercial refrigeration business with a market share of over 30%.“Modern retail, particularly food chains, will grow faster, so there will be additional opportunities to widen our product range,” says Mr Johri.
“The company also entered the much larger, albeit unorganised, market for air coolers in India in 2015. It has been an encouraging start with 250,000 units sold in the initial two years of operations, with demand expected to grow significantly in the coming years.
Voltas’s success in room air-conditioning has bolstered its confidence to enter the fiercely competitive consumer durables market. The company recently signed a $100 million joint venture (JV) agreement with Ardutch BV, a subsidiary of Arçelik AS, which is a part of the Koç group — Turkey’s largest industrial and services group. The JV will manufacture and sell white and brown goods in India. Beko, the flagship brand of Arçelik, has been the fastest-growing home appliances and consumer electronics brand in Europe for the past seven years.
This partnership brings together the complementary strengths of both partners, explains Mr Johri: “Arçelik delivers proven technology, and they are in the top three in most European countries for these product categories. We bring capabilities in sales, distribution, marketing, customer insights and an understanding of Indian operating conditions. This powerful combination will help create a new business at least as big as our flagship room air-conditioning division.”
A domestic manufacturing facility will be set up and the products manufactured in India are expected to hit the shelves in the second half of 2018.
The domestic projects group and the EMP division together have a strong order book of 45 billion but the company is being careful, about the projects it works on.“We are going about it prudently because we want to balance risk with reward and the kind of margins we want to achieve,” says Mr Johri.
The success of the mining and construction business in Mozambique has whetted the team’s appetite to explore larger opportunities in other parts of Africa. Demand for textile machinery is also likely to pick up, thanks to the ongoing consolidation in the textile industry.
To stay ahead in the game, Voltas is banking heavily on digital technology that will help enhance service quality and efficiency. The company has been one of the pioneers in the use of technology and the Internet of Things (IoT) to remotely monitor and maintain its air-conditioning installations across the country since March 2015. “When we have collected adequate data, we will be able to use analytics to predict the preventive maintenance required,” says Mr Johri.
Despite a challenging year, Voltas has successfully leveraged its strengths to deliver better-than-expected results for its various lines of business. This positive attitude at both the senior leadership and employee level could bring in more good cheer in the coming years.