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During Q3 FY22, the top-line recorded a moderate 3.2% YoY growth. The EBITDA margin stood at 5.4% as against 6.7% in Q3 FY21 – the fall in margins was on account of significant increase in raw material costs, as a percentage of revenue partially offset by lower staff and other expenses. At the net level, WIL reported 2.9% profit margin as compared to 4.8% in the corresponding quarter of previous fiscal, primarily on account of high operating cost due to lower industry demand, unprecedented cost inflation, the impact of which was substantially mitigated by price increase and cost productivity actions. The company reported an EPS of Rs.3.48 as against Rs.5.62 in Q3 FY21 and Rs.6.98 in Q2 FY22.

During 9M FY22, the top-line increased 9.0% YoY to Rs.4,489.7 cr; the EBITDA margin fell from 8.0% in 9M FY21 to 6.0% in 9M FY22 primarily due to substantial increase in raw material cost, as a percentage of revenue partially offset by lower employee costs and other expenses, as a percentage of revenue. The adjusted net profit stood at Rs.158.3 cr as against Rs.221.8 cr in the corresponding quarter of previous fiscal. The adjusted net margin fell from 5.4% to 3.5% reflecting the weak operating level performance. The adjusted EPS stood at Rs.12.5 as compared to Rs.17.5 in 9M FY21. The sales of the company has broadly mirrored the industry volumes trend – during the first three quarters, the industry sold 3.0 mn, 3.4 mn and 4.6 mn units as against 2.1 mn, 3.7 mn and 5.3 mn units in the previous fiscal. Q3 FY22 witnessed ~14% YoY volume decline on account of rising inflation and lower pent-up demand. The Management continue to remain optimistic driven by several factors including low penetration, rising GDP per capita and infra boom led by electrification of villages in the recent years. More than 12,000 villages were electrified which is likely to drive demand, going forward.

The estimated penetration rates stood at ~33% for refrigerators, ~14% for washers, ~9% for water purifiers, ~5% for air-conditioners & ~2% for microwaves. The Management stated that "Our results this quarter showed a topline growth of 3.2% with volumes getting impacted by a muted industry demand against a high comparator the previous year. We faced unprecedented cost inflation, the impact of which was substantially mitigated by calibrated price increases and cost productivity actions. Top-line growth should recover through the year as the economy opens up."

Result Highlights:

With the acquisition of Elica, Whirlpool considers ‘cooking space’ as a very good opportunity for the future – the kitchen range – chimneys, induction hoods, built-in combo oven, built-in microwave ovens, dishwashers, etc. will further strengthen the existing portfolio. This space has a penetration rate of nearly 1% and the company expects to outgrow the overall market growth in the coming years. WIL’s overall market share has been in range of 15-20% across the segments; the Management stated that the company had lost some market share a couple of years back but has regained that lost share.

The capex has historically been in the range of 3-4% and the company expects the same trend going forward till the capacity utilizations peak to ~85-90%. Currently, the utilization has fallen to 60-70% in the refrigerators category while in the washers, it has dropped to 75-80%. The company has also been investing into building a technologically strong customer care services which has remained a key challenge in the consumer durables space.

OUTLOOK AND VALUATION

WIL is a leading home appliances maker with leadership in refrigerators and washing machines. The company is backed by strong parent and a global leader, Whirlpool Corporation, USA. The parent is keen on making India a manufacturing hub and a global sourcing major, thereby, enhancing capacities. The Management is also focusing on increasing dominance in other product categories which are currently small. Further, the strong fundamentals including consistent growth, debt-free status, robust cash position, relatively high margins, negative working capital cycle alongwith strong brand equity plays a key role. Going forward, in-line with the Management, we continue to remain optimistic on the business in the long run in light of low penetration rates of electric goods, rising per capita income and growing number of electrified villages in the country, however, we have further revised our estimates for FY22 downwards to factor in the performance of 9M FY22. We expect WIL to deliver an EPS of Rs.46.3 in FY23; maintaining our target multiple of 54x, we derive our target price of Rs.2,500 for the stock and we maintain our BUY rating for the stock with an investment horizon of 12-18 months.

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