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Elica remains strong value driver; Margin tailwinds ahead due to deflation in commodity prices

While Whirlpool’s Q1FY24 was muted (as expected), we note three positives (1) Elica has continued to report strong revenue growth (19% YoY) led by strong product portfolio expansion and integration with supply chain of Whirlpool, (2) In our view, Whirlpool’s EBITDA margin has likely bottomed out in H1CY23. With correction in commodity prices, we model gradual recovery in margins ahead and (3) Whirlpool reported 3% volume growth on consolidated basis. Standalone business has likely reported volume decline, in our view. We cut FY24-25E earnings by 9-12% to factor in weak Q1FY24. However, we believe the industry is likely to revive in H2FY24 led by festival buying and favourable base. We model Whirlpool to be beneficiary of revival in industry. Maintain BUY with revised TP of INR 1,680.

Q1FY24 results

Whirlpool reported revenue, EBITDA and PAT decline of 2%, 6.4% and 9.3%, respectively YoY. Unseasonal rains in North India in Apr-May’23 impacted off- take of air conditioners and refrigerators. Correction in commodity prices led to gross margin expansion of 120bps. However, EBITDA margin contracted 20bps due to higher other expenditure (higher ad-spend in our view).

Update on Elica

Elica has continued to report strong performance with 19% revenue growth YoY. Its EBITDA margin expanded to 20% in Q1FY24 from 14.8% in Q1FY23. We believe as Elica is able to report healthy growth due to (1) strong product portfolio and (2) benefits of integration with Whirlpool supply chain.

India is one of the three strong pillars of growth for parent

The Parent is focusing on three growth pillars as (1) focus on small appliances globally, serve full cooking journey, (2) focus on major appliances in Americas as well as accelerate India growth and (3) also grow commercial appliances. We believe strong India focus of parent augurs well for Whirlpool India.

Valuations

We model Whirlpool to report revenue and PAT CAGRs of 9.6% and 28.4% over FY23-FY25E respectively. We remain positive on Whirlpool due to its established competitive advantages and growth opportunities. Maintain BUY with a DCF-based TP of INR 1,680 (implied P/E 51x FY25E).

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