Buy Whirlpool of India Ltd For Target Rs.2,766 - Yes Securities
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Disappointing Q1 points to a slow recovery; but comfort remains on business potential and valuations
Valuation and view –
1Q saw lower than estimated demand for cooling products in general as peak summer season was disrupted by the Covid‐related restrictions. For WHIRL, Q1 is the best quarter in terms of profitability with its product mix inclined towards refrigerators which have a higher margin profile. As far as washing machine is concerned, the peak season will start from Q2 which will lead to recovery in revenue as restrictions have eased off considerably. Gross margins contracted 295bps yoy (lowest since FY14) as headwinds on commodity and freight cost continue.
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. Company is confident of buoyancy in the market with pent up demand and upcoming festive season to fuel growth 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 have cut our EPS estimates for FY22/23 by 21%/14%. We introduce our FY24 estimates and now expect FY21‐24E Revenue/EBITDA/PAT CAGR of 15%/23%/28% on a favorable base and arrive at our PT of Rs2,766 valuing the company at 50x FY24 EPS and maintain BUY as stock is trading lower than its average historical valuations.
Result Highlights
* Quarter summary – WHIRL has delivered below expectations both on revenue as well as margin front. Gross margin contracted 295bps yoy as company has not been able to pass on increased commodity prices.
* Growth momentum moderates – Whirlpool saw moderate growth in Q1 despite favorable base as demand for refrigerators moderated in tier 2,3,4 cities (more impacted by the second wave) where WHIRL has strong hold.
* Commodity inflation impact – Gross margins contracted by 295bps to 33%, lowest in the past five years on the back of high prices of key commodities. We expect gross margin to remain muted in 1HFY22.
* Market share – Our channel checks have suggested that Whirlpool has managed to maintain market shares in both refrigerator and washing machine categories.
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