Whirlpool India CMP Rs. 217 Target Rs. 281 Rating Buy 1 Stock performance (%) 1m 3m 12m WHIRL 8% 6% -10% Sensex 8% 4% 13% CG Index 19% 9% 16% Financial summary (Consolidated) Year Revenues (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) P/E(x) EV/EBITDA(x) FY14E 28,429 2,018 1,152 9.1 23.9 13.0 FY15E 31,920 2,394 1,392 11.0 19.8 10.7 FY16E 36,916 3,101 1,876 14.8 14.7 8.1 COOL & CLEAN Find Spark research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset Date Mar 20, 2014 Market Data SENSEX 21920 Nifty 6527 Bloomberg WHIRL IN Shares o/s 127mn Market Cap Rs. 27.8bn 52-wk High-Low Rs. 240-124 3m Avg. Daily Vol Rs. 21mn Index member BSE 200 Latest shareholding (%) Promoters 75.0 Institutions 13.1 Public 11.9 Vijayaraghavan Swaminathan [email protected]+91 44 4344 0022 Ravi Swaminathan [email protected]+91 44 4344 0058 Mid-Cap Idea Poised to benefit from a recovery in white goods market Whirlpool India (WHIRL), a 75% subsidiary of Whirlpool Corporation (US), is a leading white goods players with strong presence in the refrigerator and washing machine market in India. WHIRL with a market share of ~15% in these two products is also present in air-conditioners, microwave oven and premium segment of small kitchen appliances. Given its strong parentage (~100 year old brand globally), low market penetration for its key products (Refrigerators -19%, Washers – 7%) and possible market share gains on the back of new product launches, we believe WHRIL is well poised to benefit from a recovery in the white goods market. Recent announcement of increase in dearness allowance to government employees (5mn of government employees to benefit, ~Rs. 20,000 per annum per person), lower inflation and seventh pay commission are the key catalysts which could possibly drive volume growth for the industry, in our view. Investment rationale • New product launches to drive volume growth and market share gains – Weak macro-economic environment has led to muted demand for both white goods industry and WHIRL (1.3% CAGR in FY11-FY13) over the past 2-3 years. WHRIL is launching 12 new variants (40-50 SKUs) across various products over the next 2-3 months. These product launches are focused on mass markets with an aim to gain market share. Based on our dealer interaction, we believe WHIRL can gain market share from the competitors • Pick up in volumes to result in margin expansion – Low operating leverage on the back of muted volume growth over the past 2-3 years has led to EBITDA margin contracting from 10.9% in FY10 to 7.9% in FY13 inspite of gross margin remaining relatively stable. Led by possible market share gain we expect WHIRL to improve volumes, which will in-turn lead to operating margin expansion • Export market to supplement overall growth – Exports currently contribute ~8% of total revenue (FY13) with products exported to Australia, Europe and SAARC countries. While demand environment in the developed countries has been subdued, strong growth observed in Nepal, Bangladesh (50% of total exports growing at 50% y-o-y) and foray into new markets (Thailand, Philippines and MENA region) with new products are expected to contribute to incremental growth • Strong financials with debt free balance sheet and healthy return metrics– Healthy cash generation inspite of weak demand environment, stable and low working capital requirement (~22 days) and higher return metrics are definite positives • Threat from Samsung is a key concern – Samsung India, backed by its strong performance in its hand held mobile segment (Rs. 180bn and Rs. 22.1bn of FY13 revenue and EBIT respectively), has increased its focus in the white goods space. We believe any aggressive strategy adopted by Samsung in pricing/distributor margins might impact WHIRL adversely • Valuation & Outlook – WHIRL is trading at 19x one year forward P/E, above which it has traded for ~50% of the trading days in the past 5 years. We believe volume growth pick-up driven by new product launches and the resultant improvement in operating margins should result in a possible re-rating . Our target price of Rs. 281 is arrived based on 19x FY16E earnings.
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Whirlpool India CMP
Rs. 217
Target
Rs. 281
Rating
Buy
1
Stock performance (%)
1m 3m 12m
WHIRL 8% 6% -10%
Sensex 8% 4% 13%
CG Index 19% 9% 16%
Financial summary (Consolidated)
Year Revenues (Rs. mn) EBITDA (Rs. mn) PAT (Rs. mn) EPS (Rs.) P/E(x) EV/EBITDA(x)
FY14E 28,429 2,018 1,152 9.1 23.9 13.0
FY15E 31,920 2,394 1,392 11.0 19.8 10.7
FY16E 36,916 3,101 1,876 14.8 14.7 8.1
COOL & CLEAN
Find Spark research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset
Poised to benefit from a recovery in white goods market Whirlpool India (WHIRL), a 75% subsidiary of Whirlpool Corporation (US), is a leading white goods players with strong
presence in the refrigerator and washing machine market in India. WHIRL with a market share of ~15% in these two products
is also present in air-conditioners, microwave oven and premium segment of small kitchen appliances. Given its strong
parentage (~100 year old brand globally), low market penetration for its key products (Refrigerators -19%, Washers – 7%) and
possible market share gains on the back of new product launches, we believe WHRIL is well poised to benefit from a recovery
in the white goods market. Recent announcement of increase in dearness allowance to government employees (5mn of
government employees to benefit, ~Rs. 20,000 per annum per person), lower inflation and seventh pay commission are the
key catalysts which could possibly drive volume growth for the industry, in our view.
Investment rationale
• New product launches to drive volume growth and market share gains – Weak macro-economic environment has led to muted
demand for both white goods industry and WHIRL (1.3% CAGR in FY11-FY13) over the past 2-3 years. WHRIL is launching 12 new
variants (40-50 SKUs) across various products over the next 2-3 months. These product launches are focused on mass markets with
an aim to gain market share. Based on our dealer interaction, we believe WHIRL can gain market share from the competitors
• Pick up in volumes to result in margin expansion – Low operating leverage on the back of muted volume growth over the past 2-3
years has led to EBITDA margin contracting from 10.9% in FY10 to 7.9% in FY13 inspite of gross margin remaining relatively stable.
Led by possible market share gain we expect WHIRL to improve volumes, which will in-turn lead to operating margin expansion
• Export market to supplement overall growth – Exports currently contribute ~8% of total revenue (FY13) with products exported to
Australia, Europe and SAARC countries. While demand environment in the developed countries has been subdued, strong growth
observed in Nepal, Bangladesh (50% of total exports growing at 50% y-o-y) and foray into new markets (Thailand, Philippines and
MENA region) with new products are expected to contribute to incremental growth
• Strong financials with debt free balance sheet and healthy return metrics– Healthy cash generation inspite of weak demand
environment, stable and low working capital requirement (~22 days) and higher return metrics are definite positives
• Threat from Samsung is a key concern – Samsung India, backed by its strong performance in its hand held mobile segment (Rs.
180bn and Rs. 22.1bn of FY13 revenue and EBIT respectively), has increased its focus in the white goods space. We believe any
aggressive strategy adopted by Samsung in pricing/distributor margins might impact WHIRL adversely
• Valuation & Outlook – WHIRL is trading at 19x one year forward P/E, above which it has traded for ~50% of the trading days in the
past 5 years. We believe volume growth pick-up driven by new product launches and the resultant improvement in operating margins
should result in a possible re-rating . Our target price of Rs. 281 is arrived based on 19x FY16E earnings.
Cash flow s from Operations 1,440 496 1,862 2,301 EV/ EBITDA (x) 11.9 13.0 10.7 8.1
Cash flow s from Investing (735) (737) (1,000) (1,000) BV/ share (Rs.) 48.7 57.8 66.2 75.8
Cash flow s from Financing 26 (12) (340) (674) Price to BV (x) 4.5 3.8 3.3 2.9
Abridged Financial Statements Key metrics
Whirlpool India CMP
Rs. 217
Target
Rs. 281
Rating
Buy
14
Absolute Rating Interpretation
Buy Stock expected to provide positive returns of >15% over a 1-year horizon
Add Stock expected to provide positive returns of >5% – <15% over a 1-year horizon
Reduce Stock expected to provide returns of <5% – -10% over a 1-year horizon
Sell Stock expected to fall >10% over a 1-year horizon
Recommendation History
Date CMP Target price Rating
Not Applicable
Spark Disclaimer
Spark Capital Advisors (India) Private Limited (Spark Capital) and its affiliates are engaged in investment banking, investment advisory and institutional equities. Spark Capital is registered with
SEBI as a Stock Broker and Category 1 Merchant Banker.
This document does not constitute or form part of any offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. This document is
provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Nothing in this document should be construed as investment or
financial advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document.
Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this
document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. This document is being supplied to you solely
for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not
directed or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,
publication, availability or use would be contrary to law, regulation or which would subject Spark Capital and/or its affiliates to any registration or licensing requirement within such jurisdiction.
The securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this document may come are required to
inform themselves of and to observe such applicable restrictions. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction
where such an offer or solicitation would be illegal.
Spark Capital makes no representation or warranty, express or implied, as to the accuracy, completeness or fairness of the information and opinions contained in this document. Spark Capital ,
its affiliates, and the employees of Spark Capital and its affiliates may, from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the
securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company
referred to in this report.
This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through the independent analysis of Spark Capital. While we
would endeavour to update the information herein on a reasonable basis, Spark Capital and its affiliates are under no obligation to update the information. Also, there may be regulatory,
compliance or other reasons that prevent Spark Capital and its affiliates from doing so. Neither Spark Capital nor its affiliates or their respective directors, employees, agents or representatives
shall be responsible or liable in any manner, directly or indirectly, for views or opinions expressed in this report or the contents or any errors or discrepancies herein or for any decisions or
actions taken in reliance on the report or the inability to use or access our service in this report or for any loss or damages whether direct or indirect, incidental, special or consequential
including without limitation loss of revenue or profits that may arise from or in connection with the use of or reliance on this report.
Spark Capital and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, Spark Capital has
incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report:
Whirlpool India CMP
Rs. 217
Target
Rs. 281
Rating
Buy
15
Analyst Certification of Independence
The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research
analyst’s compensations was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in the report.
Additional Disclaimer for US Institutional Investors
This research report prepared by Spark Capital Advisors (India) Private Limited is distributed in the United States to US Institutional Investors (as defined in Rule 15a-6 under the Securities
Exchange Act of 1934, as amended) only by Decker & Co, LLC, a broker-dealer registered in the US (registered under Section 15 of Securities Exchange Act of 1934, as amended). Decker &
Co accepts responsibility on the research reports and US Institutional Investors wishing to effect transaction in the securities discussed in the research material may do so through Decker & Co.
All responsibility for the distribution of this report by Decker & Co, LLC in the US shall be borne by Decker & Co, LLC. All resulting transactions by a US person or entity should be effected
through a registered broker-dealer in the US. This report is not directed at you if Spark Capital Advisors (India) Private Limited or Decker & Co, LLC is prohibited or restricted by any legislation
or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Decker & Co, LLC and Spark Capital Advisors (India) Private Limited is
permitted to provide research material concerning investment to you under relevant legislation and regulations;
Disclosure of interest statement Yes/No
Analyst ownership of the stock No
Group/directors ownership of the stock No
Broking relationship with the company covered No
Investment banking relationship with the company covered No