Buy Whirlpool of India Ltd For Target Rs.2,802 - Sushil Finance
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Result Highlights:
During Q1 FY22, the top-line recorded a healthy 30.5% YoY growth albeit on lower base but was also impacted by the second wave. The EBITDA margin stood at 4.1% as against 4.5% in Q1 FY21 – the marginal fall in margins was on account of substantial increase in raw material costs, as a percentage of revenue partially offset by lower staff costs. At the net level, WIL reported 1.9% profit margin as compared to 1.5% in the corresponding quarter of previous fiscal, primarily on account of lower finance cost, lower effective tax rate, and share of profit as against loss from Joint Venture.
The Management stated that "The results have been very good despite the double headwinds of lockdown and inflation. It was a very challenging quarter, given the severity of the second wave and the significant supply side disruptions. Our business continues to be in good health and we feel confident about the future." The Management further stated that “Despite significant disruptions in Q1, the growth momentum for us continued.
We delivered strong operating results with 31% Revenue growth and 43% growth on Profit. We expect buoyancy in the market with pent up demand and upcoming festive season fuelling growth. There continue to be headwinds on commodity and freight costs. Overall, we continue to be optimistic about the short and medium term prospects for the company.”
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 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. We expect WIL to deliver an EPS of Rs.51.9 in FY23; assigning a target multiple of 54x we arrive at a target price of Rs.2,802 thereby changing our rating from HOLD to BUY for an investment horizon of 18-24 months
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