IGI Logo

Elica acquisition to be next value driver

We believe the acquisition of Elica would be the next value driver for Whirlpool considering (1) it provides entry in the high-growth segment of premium kitchen appliances, (2) the dependence on Whirlpool brand will reduce, (3) there is better scope to expand distribution network and (4) there will be synergies in RM sourcing and media buying. Considering Elica generates higher margins than Whirlpool, the acquisition will be margin accretive. Whirlpool suffered in FY21 and FY22 due to lockdown in the key season of summer. However, we model the consumer off-take to normalise and model Whirlpool to report revenue and PAT CAGR of 16.6% and 28%, respectively, over FY21-24E. Maintain ADD with a revised DCF-based TP of Rs2,500 (implied P/E 43x FY24E; Earlier TP: 2,262).

* Attractive acquisition in kitchen appliances: Whirlpool of India increased its stake in Elica PB India Private Limited from 49% to 87.25% in Sep’21. The premium kitchen segment is growing at mid-high teens and offers long-term growth potential considering low penetration. Elica operates in segments such as kitchen chimneys, hobs, cooktops and dishwashers.

* Financial performance: Despite covid-19 disruption, Elica India reported revenues of Rs3bn in FY21, up 9.2% YoY. The PBT margin also improved 309bps YoY to reach 20.1% in FY21.

* Margin-accretive acquisition: Elica has PBT margin of 20.1% in FY21 vs 8% for Whirlpool. As Elica operates in premium products, it generates higher profitability. We believe the acquisition will be margin accretive.

* Indicative RoI on Elica acquisition: Whirlpool has invested total Rs5,970mn in two tranches to acquire 87.25% stake in Elica. Considering Elica’s FY21 PBT Rs621mn in FY21 and assuming an effective tax rate of 25%, we believe the RoI works out to 6.8%. However, considering synergy benefits and growth prospects, we believe RoI to be higher than cost of capital in coming years.

* Synergy benefits: There will be multiple synergy benefits such as (1) distribution expansion, (2) lower dependence on Whirlpool brand, (3) synergies in raw material and media sourcing and (4) expansion in premium kitchen segment.

* Maintain ADD: We model Whirlpool to report PAT CAGR of 28% over FY21-FY24E and RoCE to be upwards of 16% over FY23-24. We remain positive on company’s business model due to established competitive advantages and growth opportunities. Maintain ADD with a revised DCF-based TP of Rs2,500 (43x FY24E EPS).

To Read Complete Report & Disclaimer Click Here

or More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

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