IGI Logo

Price hikes and demand propel sales yet margins falter

Whirlpool of India’s (WHIRL) consolidated revenues were Rs20.8bn (Q1FY20-23 CAGR at 2%), 11%/6% above our/consensus. Healthy demand in mid & premium segment and price hikes taken in prior quarters aided topline. Gross margin declined 370bps YoY and 300bps QoQ to 29.3% as commodity costs were at its peak in Q1. EBITDA margin was also weak at 6.3%, below our/consensus estimate of 8.7%/10.6%. EBITDA at Rs1.3bn was also impacted by higher other expenses at Rs3.1bn, up 37%/28% YoY/QoQ. Lower operating margin led to PAT at Rs837mn, below our/consensus of Rs993mn/Rs1.3bn. ELICA India sales were on expected lines at Rs973mn, with healthy gross/EBITDA/PAT margins at 45.6%/14.8%/6.9%. The management believes that inflation has peaked but its impact on consumer spending (especially entry segment) is putting stress on demand and hence short term external environment will be volatile. Factoring in Q1 performance, we increase our revenue estimate by 4%/6% for FY23E/24E but cut EBITDA margin by 50bps for FY23E. Our FY24E earnings are revised up by 8%, leading to an upward revision in target price to Rs1,900 (Rs1,760 earlier) based on unchanged P/E of 40x FY24E EPS. Post the recent run-up in stock price, our rating stands downgraded to ADD (from BUY).

Mid and premium segment drives topline

WHIRL’s Q1FY23 sales were at Rs20.8bn, above our estimate of Rs18.8bn. While industry wide recovery was seen in mid & premium segment; the economy segment was subdued amid high inflation. The cooking business (through WHIRL & ELICA) continue to progress well and is likely to become a key growth pillar. We expect FY22-24E revenue CAGR of 18% led by drivers such as: (1) Front-load washing machine led by saving 20% CBU import duty post commissioning of in-house manufacturing in H2CY22 (Rs25bn industry, WHIRL has only 0.6% market share vs. 20% in top-load), (2) scale up of Elica India (WHIRL has taken controlling stake of 87.25%), and (3) launch of premium SKUs in Refrigerators

Peak commodity costs and high competition impacts margin

WHIRL’s Q1FY23 gross margin fell 370bps YoY & 300bps QoQ to 29.3% as Q1 had peak commodity costs. EBITDA margin was also weak at 6.3%. Over FY16-20, WHIRL operated at a gross margin of 38-41% and an EBITDA margin of 11%-12.4%. Softening of input costs will improve gross margin henceforth. However; we believe the competitive intensity has heightened with foray of deep-pocketed players (Voltas Beko, Lloyd) while existing peers remain aggressive (LG, Samsung, Haier). Thus, we expect WHIRL’s EBITDA margin to be restricted to 9-10% over the medium term, as a matter of prudence.

Scale up of Elica India to aid consolidated financials

In Q1FY23, Elica India posted revenues of Rs973mn, with gross margin of 45.6% (Rs443mn gross profit), EBITDA margin of 14.8% (Rs144mn EBITDA) and PAT margin of 6.9% (Rs67mn PAT). Elica India’s Q1FY23 performance was better than the preceding two quarters (Q3 and Q4 FY22), since it became 87.25% subsidiary of WHIRL.

Downgrade to ADD post recent run-up in stock price, revised target at Rs1,900

We expect WHIRL to report 18% revenue CAGR and 58% EPS CAGR, on a low base, over FY22-24E. Strong financial profile (negative NWC, strong cash flows and healthy growth prospects) will support valuation; but high competition will restrict P/E re-rating.

To Read Complete Report & Disclaimer Click Here

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331

Above views are of the author and not of the website kindly read disclaimer