Whirlpool of India - RESULT UPDATE – Q4FY13 - SPA Securities

Whirlpool of India (WPL) registered lower than expected sales and PAT of INR 6,269mn (down 3% YoY) and INR 248mn (down 33% YoY) respectively in Q4FY13. EBIDTA margin contracted by 165bps YoY to 7.66% on the back of higher RM and employee cost. We expect sales growth to pick up in the current fiscal on the back of expected improvement in macro-economic environment. While margins would continue to remain under pressure in the short term owing to cascading effect of rising metal prices like copper, aluminum & steel and weakness in INR against USD. However, due to lack of availability of data (for reasonable estimates) with change in disclosure norms in the annual report in terms of quantity wise break-up, we are discontinuing our coverage on the company.

Lower demand impacted sales

WPL reported de-growth in sales by 3% YoY to INR 6,269mn in Q4FY13, on the back of subdued demand environment. The demand was largely impacted by sharp hikes in product prices by ~15-20% in last two years amid sluggish macro-economic environment with increasing pressure on the discretionary spends. For the full year FY13, the company registered sales of INR 27,727mn, a YoY growth of 4%. The slowdown impact was witnessed by whole consumer durable industry where almost all the players missed their sales target by wide margin. WPL was able to increase its market share on the back of new product launches (about 160 in Q4FY12).

Margins under pressure

EBIDTA margin of the company declined by 165bps YoY to 7.66% in Q4FY13 on the back of high RM and employee cost. Control on other expenditure which declined by 113bps YoY partially negated the margin contraction. For the full year FY13, despite gross margin expansion of 103bps YoY, EBIDTA margin declined by 50bps YoY to 7.89%. This was majorly due to 19% YoY growth in employee cost. Other expenses also increase by 45bps YoY in FY13 on the back of rising fuel, power and logistics cost. Margins are expected to continue to remain under pressure owing to rising cost of RM and reducing ability of the company to pass on the increase in costs to the customers amid subdued demand environment.

Increasing free cash flow

After the payment of all preferential shares, the company is now generating healthy cash flows. Its cash balance has gone up from INR 859mn in FY12 to INR 1,550mn in FY13. Higher cash balance also resulted in higher other income of INR 236mn in FY13 compared to INR 123mn in FY12 that contributed to PAT growth despite fall in EBIDTA margin. We expect healthy free cash flow would result in the company to consider dividend distribution going ahead.

Outlook & Valuation

Subdued macro-economic environment, high RM and operating cost impacted WPL's performance in the last two years. Although, the current economic slowdown would keep the sales growth under pressure in the short term, it is expected to pick up on the back of higher election spending, falling interest rates and improving global economic environment in the current fiscal. Margins although would remain under pressure in the short term but would recover on the back of improving product mix and recovery in the economy. Despite short term concerns, we continue to remain positive on the medium to long term growth prospects of consumer durables sector in India and WPL being one of the top players would also be a key beneficiary of this growth. However, due to lack of availability of quantity-wise breakup (with change in accounting disclosures in AR), we have decided to drop the coverage on the company.

Source : Equity Bulls

Keywords