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Market share gains and revival in margins to drive growth
Headquartered in Gurugram, Whirlpool of India Limited (WIL) is one of India’s leading manufacturer and marketers of major home appliances like Refrigerators (57% of revenues), Washing machines (21% of revenues), Air Conditioners (9% of revenues) and Microwave ovens. It has three state of the art manufacturing facilities at Faridabad, Pondicherry and Pune. With manufacturing facility in India, the company exports to Philippines, Sri Lanka, Bangladesh and Nepal. WIL has a strong parentage (Whirlpool Corporation) background with more than 100 years of history and has global presence in over 170 countries with 92,000 employees and 70 manufacturing locations.
Strong industry tailwinds to propel growth:
The consumer durables industry has witnessed robust growth over the last five years led by increased government spending on housing, electricity and rising disposable income. We believe the industry is well poised to deliver a 13% CAGR over FY18-21E given low penetration levels, higher GDP growth, rising disposable income and easy availability of consumer finance.
* Market share gain to continue:
WIL has been consistently gaining market share over the past two years led by distribution expansion and new product launches. With strong industry growth prospects and WIL’s plan to expand its distribution reach, increased branding efforts and new product launches would drive growth for the company. Despite margin contraction (down 40bps YoY) in 9MFY19, WIL delivered a healthy performance with Revenue/EBITDA/PAT growth of 12.9%/8.7%/16.8% largely due to decent volume growth and higher other income. We expect margins to recover in Q4 given price hikes taken by the (%) company and stability in commodity and currency prices.
Outlook & Valuation:
We remain optimistic on WIL delivering double digit growth over the next few years given low penetration levels, rising disposable income and higher GDP growth. Further, despite operating in a highly competitive industry, we expect WIL to outperform led by its constant efforts on expanding its distribution reach (both rural and urban), enhanced product portfolio and increased branding efforts, which has led to market share gain in the last two years.. The company also aims to grow its export revenue (3.4% of FY18 revenues) faster than the domestic market. With positive industry growth trends and recent GST rate cut coupled with WIL’s expanding distribution network, new product launches, in-house manufacturing facilities, healthy return ratios and negative working capital makes it one of our preferred pick in the sector. We maintain our estimates for WIL with Revenue/EBITDA/PAT to grow at CAGR of 14.3%/15.2%/18.0% over FY18-21E. Hence, we recommend a Buy on the stock with a target price of Rs. 1,590.
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