Whirlpool of India - Weak margin performance in H1FY21 - ICICI Securities

We maintain our SELL rating on Whirlpool of India (Whirlpool) due to (1) increasing competition (expected) in refrigerator segment, which has been the main growth driver for the company; (2) relatively low growth in washing machine (washers), room AC and service revenues; and (3) high valuation with the stock trading at a historical high of 54.6x FY20 P/E (trailing) considering the EBITDA growth of 11.3/15% in the last 3/5 years.

Moderate H1FY21; Whirlpool has reported 22/49/54% decline in H1FY21 sales/EBITDA/PAT, respectively. The gross margin has also declined 200bps on a YoY/ basis in H1FY21. On the EBITDA margin front, Whirlpool's performance is weaker than peers (Havells, Crompton and Blue Star). On a trailing 12 month basis, revenue/EBITDA/PAT is 12/33/36% lower than FY20. Maintain SELL with an unchanged target price of Rs1,502 based on 30x FY22E earnings (unchanged).

- Revenue growth continues to be driven by refs, but is difficult to sustain due to increasing competition. Ref revenue growth has been 13%/15% in FY19/FY20, higher than washers (12.6%/11.7% in FY19/20) and room AC (-28%/11.7% in FY19/20). Services revenue has grown by 10%/8% in FY19/FY20. Trade discounts remain at 18% of gross product revenue (~11.6% in FY14). Ref/Washer constitute 62/22% of the product mix with RAC/others making the remaining 6/10% as of FY20. Overall revenue growth remains around ~12/11% in FY19/FY20, respectively. Consensus growth expectations have been typically 12-13% for ref/washers. We continue to highlight that steady-state revenue growth will be lower than 15% for Whirlpool without market share growth. While market share growth has happened in the past, it is difficult now due to increasing competition (Voltbek/Lloyds).

- Standalone EBITDA grew by a modest 5% in FY20 and 11% CAGR in last three years despite gain in market share. FY20 EBITDA margin remains at 11% despite improvement in gross margin. Gross margin reached a 3-year high of 39% in FY20 (in-line with higher share of refs, the highest-margin product for Whirlpool). Combination of lower discretionary spending, higher base and increasing competition set up a challenging outlook for FY21/22.

- Strong cash balance should ideally lead to higher dividends in the absence of any inorganic growth. Whirlpool has a strong cash balance of Rs19.5bn as of H1FY21. Considering the company has maintained dividend at Rs5 per share for FY20, return ratios will start declining in the absence of inorganic growth.

Shares of WHIRLPOOL OF INDIA LTD. was last trading in BSE at Rs.2045 as compared to the previous close of Rs. 2119.55. The total number of shares traded during the day was 9192 in over 1823 trades.

The stock hit an intraday high of Rs. 2178 and intraday low of 2035. The net turnover during the day was Rs. 19221331.

Source : Equity Bulls

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