Hold Whirlpool of India Ltd For Target Rs. 2,364 - ICICI Securities
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Market leading revenue growth
Three pointers from Q4FY21: (1) Strong consumer off-take continued from Q3FY21, likely higher revenues from E-commerce and rural markets and selective pricing actions were chief reasons for 31.5% revenue growth YoY, (2) There is double digit volume led growth across segments and company reported higher growth than market and (3) While gross margin declined 250bps, EBITDA margin was up 50bps due to cost saving initiatives and lower ad-spend (our view).
We model Whirlpool to report an earnings CAGR of 44.8% over FY21-FY23E with: (1) recovery in volume growth and (2) price hikes in high single digits. Higher input prices are likely to impact earnings in near term. We remain positive on the company due to its established competitive advantages. Upgrade to HOLD with a DCF-based target price of Rs2,364 (implied P/E 43x FY23E).
* Q4FY21 performance: Whirlpool reported revenue, EBITDA and PAT growth of 31.5%, 38.5% and 34.1%, respectively, YoY. We believe (1) strong consumer off-take sustained from Q3FY21, (2) likely higher revenues from E-commerce and rural markets, (3) price hikes across products and (4) favorable base helped to report strong revenue growth. Gross margin declined 250bps but EBITDA margin was up 50bps due to cost saving initiatives.
* Market share gains: The company has indicated that all categories and segments showed continued momentum and business grew ahead of the markets. There was broad based double digit volume growth across segments. We model Whirlpool to report healthy revenue CAGR of 17.2% in FY22-23 post re-opening of markets.
* Inflation in input prices: Prices of key raw materials such as copper, aluminum, steel and HDPE have increased 20-40% YoY. Ad-spend is also likely to increase in FY22. While we believe the company has pricing power to pass on additional costs, there will be some impact on margins in near term.
* Impact of covid wave-2: The onset of covid wave-2 and localized lockdowns impacted revenue growth from 15th Apr’21 and there is further deceleration in growth rates in May’21. While the lockdown is likely to impact near term earnings, we expect the consumer off-take to revive once lockdown is over by end of June’21.
* Upgrade to HOLD: We model Whirlpool to report PAT CAGR of 44.8% over FY21- FY23E and RoCE to be upwards of 20% over FY22-23. We remain positive on the company’s business model due to established competitive advantages and growth opportunities. Upgrade to HOLD with a DCF-based target price of Rs2,364 (implied P/E 43x FY23E).
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