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Worst in terms of margin behind; Upgrade to ADD

Result Synopsis

Whirlpool’s standalone revenue came in below ours and consensus estimates with, revenue declining 7.4% yoy. This decline is on back of ~12% price increase on yoy basis indicating higher volume decline for the company. Entry level products have been witnessing demand slowdown in high inflationary environment. Our channel checks suggest WHIRL is losing out on market share in hyper competitive market as other players have been pricing their products aggressively in questto gain market share. On the margin front, WHIRL continues to see gross margin erosion of 350bps yoy, while on sequential basis it has improved 124bps on lower commodity prices.Grossmargins are still way below their historical averages.   Although it has devised strategy of regaining its lost market share and further building on it in ensuing quarters, we feel market share gains will be a difficult and long drawn process in current hyper competitive scenario. WHIRL is now planning to become more aggressive in mid to premium segment by commissioning front load washing machine capacity where it hardly has any presence (0.6% share),refurbishing its product portfolio to give more value to entry level customers and providing best after sales service to improve customer satisfaction. We feel worst in terms of market share loss and margins in currently priced in, its efforts in moving to premium products will benefit company going forward. Considering sharp correction in stock price, rural demand expected to bounce back on increased farm yields and focus on premium portfolio we upgrade the stock to ADD.  

Despite near term headwinds, we continue to believe WHIRL’s strong parentage, brand presence and a well penetrated distribution network is capable of driving market share gains. Buyout of ELICA giving them added play in the fast?growing kitchen category. We have marginally reduced EPS estimates in FY24 considering higher depreciation expenses. We upgrade the stock to ADD with PT of Rs1,808 valuing it at 45x FY24 EPS.  The key risk which can lead to upgrade would be quick turnaround of rural markets and improvement in margins owing to lower commodity prices.

Result Highlights

* Quarter summary – WHIRL missed ours and consensus revenue estimates with its standalone revenue declining 7.4% on yoy basis. Gross margin contracted 550bps yoy to 29.7% while on sequential basis it improved 124bps.

* Margins – EBITDA margin expanded 320bps yoy declining was largely on account of flow through of lower gross margins.  

* Market share – Our channel checks suggest company has lost market share in current hyper competitive scenario; however, we expect the company to arrest market share decline given its strategy of focusing on mid and premium end of the market.

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