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Add Whirlpool of India Ltd For Target Rs.2,364

Good business passing through a rough phase

Whirlpool which has strong competitive advantages such as (1) established brand, (2) pan-India distribution and (3) strong support of its parent is passing through a rough patch due to loss of key summer season for two consecutive years due to lockdown. We expect the consumer off-take to normalize with receding covid cases and model Whirlpool to report revenue and PAT CAGR of 17.2% and 44.8%, respectively over FY21-23.

While there will be short term impact due to steep inflation in input prices, we believe the company is also on track to gain market shares across key segments which is DCF accretive. Maintain ADD with a DCF-based target price of Rs2,364 (implied P/E 43x FY23E).

* Q1FY22 performance: Whirlpool reported revenue, EBITDA and PAT growth of 30.5%, 18.9% and 62%, respectively, YoY. Two-year revenue and PAT CAGR were - 17.6% and -57.2%, respectively. While gross margin declined 300bps due to higher input prices, EBITDA margin declined just 50bps YoY due to cost saving initiatives. With 860bps lower effective tax rate, the net profit was up 62% YoY.

* Weaker performance than peers: As May’21 and June’21 were affected due to lockdown, Whirlpool reported relatively slower growth compared to peers. We also note most products of Whirlpool were declared non-essentials. There were restrictions of sales via e-commerce too in some states like Maharashtra.

* Loss of key season for second consecutive year: As the lockdown was imposed in June quarter in FY21 as well as FY22, Whirlpool has lost key summer season for two consecutive years. Its products like refrigerators and air conditioners have higher revenue saliency in Summer season. However, we model the consumer off-take to normalize with receding covid cases and model Whirlpool to report revenue CAGR of 17.2% over FY21-23.

* 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.

* Maintain ADD: 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. Maintain ADD with a DCF-based target price of Rs2,364 (implied P/E 43x FY23E). Key risks are steep increase in competitive pressures and steep inflation in input prices.

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