IGI Logo

Weak print; Margin recovery still underway

Whirlpool’s Q2FY23 revenues were flat YoY, implying volume decline in our view. Three-year revenue CAGR works out to 5%. While input inflation has cooled off in the past 3-4 months, the company (similar to peers) reported 246bps lower gross margin YoY; we believe liquidation of high-cost inventory was the chief reason. We believe this issue is transitory in nature and should get resolved in H2FY23. We also note that the large opportunity in white goods offers healthy long-term growth potential. We cut our estimates to factor-in the weak Q2FY23. We believe the company is likely to protect its market shares (even at the cost of margins) in the medium term, which is DCF-accretive. Growth in Elica India business (which has high EBITDA margin) will also likely be margin-accretive. We model Whirlpool to report revenue and PAT CAGRs of 19.6% and 39.2% over FY22-FY24E. Maintain BUY with a revised DCF-based target price of Rs2,000 (earlier: Rs2,175) implying a multiple of 54x of FY24E EPS.

* Q2FY23 performance: Revenues were flat YoY. EBITDA and adjusted-PAT fell 31.3% and 44.7%, YoY. Three-year revenue and PAT CAGRs were 5% and -28% respectively. While gross margin contracted 246bps YoY, EBITDA margin was down 253bps YoY. PAT margin fell 254bps YoY to 3% in Q2FY23.

* Update on Elica India: Whirlpool reported Rs1,226mn and Rs167mn revenue and EBITDA respectively, from Elica (consolidated-standalone) in Q2FY23. We note the EBITDA margin declined 115bps QoQ for Elica from 14.8% to 13.6% in Q2FY23. Elica continues to enjoy strong margin than Whirlpool’s consolidated EBITDA margin of 5.5% during Q2FY23. We believe growth in Elica business will likely be marginaccretive for the company.

* Margins under pressure: Whirlpool’s gross margin continued to be under pressure during the quarter. While input material prices have corrected in past 6-8 months, we believe high-cost inventory and high staff cost impacted profitability. We believe this impact is transitionary in nature and we model the company to report an EBITDA margin of 7.3% in FY23E.

* Maintain BUY: We model Whirlpool to report revenue and PAT CAGRs of 19.6% and 39.2% over FY22-FY24E respectively, and RoCE to move to 12.8% in FY24. We remain positive on the company’s business model due to its established competitive advantages and growth opportunities. Maintain BUY with a revised DCF-based target price of Rs2,000 (implied P/E 54x FY24E). Key risks are: steep increase in competitive pressures and steep inflation in input prices.

To Read Complete Report & Disclaimer Click Here

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

SEBI Registration Number INZ000183631

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