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Muted quarter; Maintain BUY on hopes of a strong recovery in 2HFY22

Our view

Whirlpool delivered an in‐line flattish revenue performance for the quarter on the back of 15% growth in the previous year. The quarter was expected to witness subdued demand as this time around, Covid cases have impacted tier 3,4,5 cities and rural areas where Whirlpool has a strong hold and demand recovery was faster in premium products in metros cities where the company still has product gaps. We expect 2HFY22 to be better for WHIRL as we expect demand to recover in rural areas and distribution reach of the company will facilitate growth even on high base. Increasing its stake in ELICA PB would further provide a fillip as kitchen appliances have seen strong traction in the premium segment. We continue with our positive stance on the stock for now and maintain BUY; however we will revisit our recommendation if WHIRL is unable to see higher traction in 2HFY22 as well.   

Result Highlights

* Quarter summary – WHIRL has delivered in‐line performance on both revenue and margin front. Gross margin contracted 340bps yoy as company has not been able to pass on increased commodity prices.

* Growth momentum moderates – Whirlpool saw flattish growth in Q2 as it had to encounter high base of previous year and demand recovery was slower in tier 3,4,5 and rural areas.

* Commodity inflation impact – Gross margins contracted by 340bps to 33.2%, on the lower side as it has not been able to pass on increased prices.  We expect gross margin to recover gradually in 2HFY22.

* Market share – Our channel checks have suggested that Whirlpool has managed to maintain market shares in both refrigerator and washing machine categories.   

Valuation

Despite near term headwinds, we continue to believe WHIRL has strong parentage, brand presence and a well penetrated distribution network capable of driving further market share gains. Further buyout of ELICA will give them added advantage in fast growing kitchen category. We have moderated our gross margin assumptions as company has not been able to pass on increased commodity prices and its strategy to increase share of premium products is yet to achieve any meaningful results. We now expect FY21‐24E Revenue/EBITDA/PAT CAGR of 14%/23%/26% and arrive at our PT of Rs2,607 valuing the company at 50x FY24 EPS and maintain BUY.

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