Equity Research: Whirlpool Of India Limited

Summary

Whirlpool of India Ltd is an totally India-based producer of domestic home equipment. The Company is in general engaged in manufacturing and buying and selling of Refrigerators, Washing Machines, Air Conditioners, Microwave Ovens and small home equipment and caters to both domestic and worldwide markets. It provides services in the vicinity of product improvement, and procurement services to Whirlpool Corporation, The United States and other group businesses. The Company additionally offers Water Purifiers, Built-In Appliances and Induction cooktop. The Company gives add-ons for Refrigerators, Washing Machines, Air Conditioners, Microwave Ovens and Water Purifiers. It gives Surge Protector and Affresh Accessories. Its plants are positioned at Faridabad, Haryana; Rajangaon, Pune, and Thirubhuvanai Village, Puducherry.

ABOUT

• Whirlpool of India Ltd is one of the leading Emerging Fortune 500 consumer durables Companies established in 1980 as Whirlpool Corporation, United States. The company initially started its operation in India by forming a joint venture with the TVS Group of India where it set up its first washing machine production factory. It later established itself in the refrigerator market after partnering with Kelvinator India Limited to form a subsidiary. All these were merged to become Whirlpool of India Limited. 

• Based in Gurugram, Whirlpool of India is one of the major appliance companies, with its specialization in home appliances such as refrigerators, washing machines, air conditioners kitchen appliances/purifiers. It also deals in product development and procurement for Whirlpool Corporation, USA, and its group concern. To diversify the organization’s business in cooking and built-in appliances, Whirlpool of India bought an 87% acquisition of KitchenAid.

• Whirlpool of India operates three manufacturing units: Refrigerators, the product range under the Faridabad division of the washing machines namely the semi-automatic ones Frost-free and direct cool refrigerators under the Pune division, and the washing machines under the Puducherry division. The company also procure products which include air conditioners for production and microwave ovens, as a manufacturer and distributor to over thirty markets all over the world.

SHAREHOLDING PATTERN

In Q4 FY24, Whirlpool Corporation, the promoter company, divested 24% of its stake in the Indian subsidiary. Despite this divestment, Whirlpool Corporation maintains a majority interest through a wholly-owned subsidiary. Foreign Institutional Investors (FII) increased their stake from 3.64% in Q3 FY24 to 6.48% in Q4 FY24, while Domestic Institutional Investors (DII) increased their stake from 12.63% to 33.68% during the same period. Notably, mutual fund holdings rose significantly from 11.12% to 31.14%, and insurance holdings from 1.46% to 2.40%.

Top Public Shareholders:

• SBI Small Cap Fund: 9.72%
• Aditya Birla Sun Life Trustee Pvt. Ltd.: 6.00%
• Kotak Emerging Equity Scheme: 4.26%
• UTI-MNC Fund: 2.96%

CONCALL SUMMARY

Market Focus and Performance

• Strategic Focus: India remains a key market for growth due to its potential opportunities.
• Performance Impact: Revenue and profit were affected by COVID-19, increased competition, and commodity costs.
• Developments: New product launches and enhanced warranty offerings.
• Market Trends: Positive market share momentum in recent months.
• Q3 2023 Financials: Double-digit revenue growth, improved EBITDA, and PBT.

Business Strategy

• Growth Focus: Emphasis on sustainable growth through consumer insights, product leadership, and supply chain quality.
• Defensive Strategies: Implementing P4G to mitigate market volatility.
• Execution Excellence: Improving margins and sales execution, including a retail executive program.
• Long-term Guidance: Targeting high single-digit revenue CAGR with similar PBT margin growth.

Operational Updates

• Manufacturing: Strong footprint with facilities in Faridabad, Pune, and Puducherry.
• Sales Network: Pan-India distribution and service network to bolster retail demand.
• Cash Generation: Improved working capital and strengthened balance sheet.
• Export Focus: Monitoring export opportunities, though not a primary focus in the near term.

Product Innovation and Quality

• Diversification: Focus on innovation in premium segments.
• Competitive Position: Targeting competitors with brand inspiration and supply chain resilience.
• Distribution Expansion: Opportunities for vertical and horizontal growth.
• Quality Commitment: Maintaining high product quality despite market challenges.
• R&D Investment: Continued focus on innovation and consumer insights.
• Elica Portfolio: Addressing competitive pressures with quality and innovation.
• New Product Lines: Potential within existing categories.

Financial Updates

• Stake Sale: Whirlpool Corporation plans to sell up to 24% stake to retire debt.
• Royalty Fees: No expected changes in royalty and technical know-how fees.
• Cost Management: Monitoring material costs for maximum impact.

FINANCIALS

• Sales Growth: FY23 net sales reached ₹6,668 crore, an 8% YoY growth. In 9M FY24, net sales were ₹5,097 crore, a 2% YoY growth, affected by competitive pricing adjustments.
• EBITDA: FY23 EBITDA was ₹370 crore, an 11% decline YoY, due to higher input costs and expenses. 9M FY24 EBITDA was ₹259 crore, a 2% decline YoY, with efforts to restore competitiveness.
• PAT: FY23 PAT was ₹224 crore, a 60% YoY decline, with a 3.4% PAT margin. 9M FY24 PAT was ₹145 crore, a 10% decline YoY, affected by regulatory changes.
• ROCE: FY23 ROCE was 9.08%, impacted by a decline in operating profit.
• ROE: FY23 ROE was 6.64%, influenced by lower profitability.
• Cash Flows: FY23 generated ₹270 crore CFO, with high inventories. CFI saw a ₹101 crore outflow due to property and equipment purchases. Dividend payments and lease repayments led to a ₹101 crore outflow from financing activities.
• Working Capital Cycle: Maintained a negative working capital cycle due to higher payable days.
• Free Cash Flow: FY23 free cash flow per share was ₹11.60, with a ₹181 crore capex for new and upgraded manufacturing facilities.

MANAGEMENT

Management remains focused on new product launches, rural reach expansion, and cost optimization. Optimism prevails for a rebound in consumer sentiment, despite global uncertainties. Key appointments include Debopriyo Sengupta as Vice President of Human Resources and Amit Aggarwal as Head of Information Technology.

SECTOR OVERVIEW

• Challenges: The consumer durables industry faced inflationary pressures and weakened demand due to interest rate hikes.
• Premium Products: Continued demand growth, whereas mass products saw muted demand due to lower disposable income in semi-urban and rural areas.
• Competition: Intense competition from new entrants and established players, driven by aggressive pricing and sales investments.
• Government Initiatives: Programs like rural electrification, affordable housing, and PLI schemes are expected to support the sector.

PEERS

Today Whirlpool of India continues to occupy a strong position in the refrigerator and washing machine markets of the country, but during the period under consideration lost some market share due to increasing costs and competitors. The major strategic priorities target the further consolidation of the company’s position within the premium segment, improving the product line and the company’s pricing strategy.

VALUATION AND FUTURE OUTLOOK

The management anticipates improved full-year revenue growth compared to the first nine months of FY24. Strategic imperatives include product leadership, premiumization, supply chain resilience, enhanced sales execution, and industry-leading growth. The focus remains on strengthening the brand, expanding rural reach, and leveraging the SAARC markets for export growth. Potential risks include higher input costs, delays in product launches, increased competitive pressure, and further market share losses.

Valuation: 

• PE Ratio: Currently trading at a TTM PE multiple of 98.42x.
• Dividend Yield: FY23 equity dividend was ₹5 per share, with a payout ratio of 28.96%.

Data from:

Sharescart.com

Company website