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Strong operating performance; Balance sheet strengthens

Two-year revenue CAGR came in strong at 15%, best among peers

* Revenue was up 32% YoY in 4QFY21 and was 9% ahead of our estimate, with two-year CAGR at 15%. Operating leverage led to EBITDA margin expansion of 60bp YoY to 10.7%. Adjusted PAT grew 42% to INR1.2b and was 6% ahead of our estimate.

* Strong pent-up demand post the first lockdown enabled the company to end FY21 with broadly flat revenue. The management commentary suggests market share gains across all categories. Whirlpool has not resorted to aggressive cost cuts like peers, thus leading to a 200bp EBITDA margin contraction in FY21 – a key reason for its underperformance v/s peers in the past one-year.

* Whirlpool’s revenue growth performance doesn’t suggest any market share loss, providing us confidence as a strong White Goods franchise. As the economy recovers from COVID-related lockdowns, we expect margin to normalize as operating leverage kicks in, thereby driving strong earnings growth over the next 2-3 years and likely catch up with the stock performance. To account for the second COVID wave, we cut our FY22E/23E EPS by 20%/4% and TP to INR2,900 (from INR3,020 earlier) based on unchanged target FY23E P/E of 55x. Maintain Buy.

Strong operating performance led to earnings beat

* 4QFY21 snapshot: Revenue grew 32% YoY to INR17.8b (two-year CAGR: 14.6%, best among our coverage universe) and was 9% ahead of our expectation. EBITDA grew 39% YoY to INR1.9b and was 14% ahead of our estimate. EBITDA margin expanded 60bp YoY to 10.7%. Adjusted PAT grew 42% YoY to INR1.24b and was 6% ahead of our expectation.

* FY21 snapshot: Revenue declined marginally to INR59b. EBITDA decline was severe at 19% YoY due to under-absorption of fixed costs. EBITDA margin contracted 200bp YoY to 9.2%. Adjusted PAT fell 26% YoY to INR3.5b.

* Balance sheet strengthens further: Cash flow from operations grew 38% YoY to INR5.2b, aided by an improvement in the working capital cycle. It generated an FCF of INR4.3b and improved its cash balance to INR20.6b (73% of the net worth). Utilization of cash balance is a key monitorable.

Valuation and view

* Whirlpool’s 4QFY21 two-year revenue CAGR of 14.6% is best in our coverage universe and provides us confidence that the company continues to see market share gains rather than general apprehensions of a risk to market share. It hasn’t resorted to aggressive cost cutting measures during COVID-19. As the economy recovers from the lockdowns, operating leverage should aid margin normalization by FY23E to 11.4%. While topline growth has been at par with our coverage universe companies, the low base of FY21 should help in faster earnings growth as peers witness margin erosion from a high base of FY21. This should help the stock catch-up with its peers. To account for the second COVID wave, we cut our FY22E/23E EPS by 20%/4% and TP to INR2,900 (from INR3,020 earlier) based on unchanged target FY23E P/E of 55x. Maintain Buy.

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