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Industry slowdown and margin headwinds hit performance but prospects promising; maintain BUY

Result Synopsis

Whirlpool’s standalone revenue has declined 3.9% yoy as industry has been facing headwinds where industry volume declined 14% in Q3. Entry level products saw higher impact as volumes in that category declined significantly more than the premium products (DC refrigerator volume declined 20% vs frostfree ref volume decline of just 6%); similar case with the washing machines semi‐automatic volumes (‐20%) declined more than fully automatic (‐4%). WHIRL had lost some market share in Q1 and Q2 part of which it has recouped in Q3. WHIRL has devised strategy of regaining its lost market share and further building on it in ensuing quarters. It is now planning to become more aggressive in mid to premium segment by setting up front load washing machine capacity where it hardly has any presence (0.6% share), refurbishing its product portfolio to give more value to entry level customers and providing best after sales service to improve customer satisfaction. We continue to remain positive on the stock as we believe company can again start growing faster than the market as it has best‐in‐class distribution reach (72% coverage) and well entrenched strategy to crack the premium market and maintain BUY as it has already seen a significant correction.

Despite near term headwinds, we continue to believe WHIRL’s strong parentage, brand presence and a well penetrated distribution network is capable of driving market share gains. Buyout of ELICA will give them added play in the fast‐growing kitchen category. We have moderated our gross margin assumptions as company has not been able to pass on increased commodity prices and now has strategy in place to focus on premium end of the market. We now expect FY21‐24E Revenue/EBITDA/PAT CAGR of 12%/18%/19% and arrive at our PT of Rs2,202 valuing the company at 50x FY24 EPS and maintain BUY. The key risk which can lead to a downgrade in multiples would be failure to drive share gains and improve margins in the upcoming summer season.

Result Highlights

* Quarter summary – WHIRL missed estimates on revenue and operating margin as industry saw volume decline of 14% in Q3, with entry level products seeing a much sharper decline than premium products. Gross margin contracted 604bps yoy on high commodity inflation.

* Margins – EBITDA margin contracted just 155bps yoy despite sharp contraction in gross margins as it has been able to control its costs better than peers.

* Market share – Company had lost market share in 1HFY22, while it has started to re‐ coup its lost market share in Q3 and expects to grow faster than the industry in Q4 with its strategy of focusing on mid and premium end of the market.

* Elica consolidation – WHIRL now owns majority of the share in Elica and expects to leverage its distribution to become market leader in fast growing kitchen category.

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