Whirlpool share’s price-to-story: Why a 20% single-day fall may not be a buy

Despite these headwinds, Whirlpool still trades at 50x trailing earnings. The implied growth rate (i.e., the future growth expectations baked into the stock price) is 20%. In contrast, the implied growth rate for its global parent is just 3%.

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26 Aug, 2025 12:21

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Even as stock markets remain jittery amid relentless foreign investor selling, disappointing earnings, and uncertainty surrounding Trump’s policies, large single-day corrections don’t always present buying opportunities—whether for a quick buck or even long-term returns. Today’s trade exemplifies this as shares of one of India’s leading consumer durable players, Whirlpool India, plunged 20%, with no clear reason why there should be a bounce back.

The stock nosedived after Whirlpool India’s holding company, Whirlpool Corporation, announced plans to reduce its stake in the Indian unit to about 20% by mid to late 2025 through one or more market sales, down from the current 51% ownership.

This move follows a similar stake sale nearly a year ago, when Whirlpool Corp offloaded 24% of its Indian unit for about $468 million to reduce debt. At the time, Whirlpool Corp CEO Marc Bitzer justified the sale by pointing out that Whirlpool India was trading at an earnings multiple of 50x, significantly higher than its parent, making it an asset arbitrage opportunity.

Whirlpool isn’t alone—many multinational companies have opportunistically sold stakes in their Indian subsidiaries to capitalise on high valuations. While this benefits foreign parents and their shareholders, the real suckers have been domestic mutual funds. With a flood of domestic inflows forcing them to buy stocks regardless of valuations, Indian mutual funds have been eager buyers. When Whirlpool’s parent sold a 24.7% stake, domestic mutual funds, including the “Big Daddy” of Indian mutual funds, SBI Mutual Fund, along with Nippon MF and others, snapped it up at Rs 1,280 per share. That quarter (March 2024), domestic institutional investors (DIIs) increased their stake in Whirlpool India from 12.63% to 33.68%. Since then, their holding has slightly declined to 30.81%. Following today’s 20% correction, Whirlpool’s stock is now at Rs 1,260—just below the price at which these funds had purchased it.

The market has multiple concerns about Whirlpool. First, there’s the massive supply overhang. Given the current market conditions, any further stake sale by the parent may have to happen at a lower price than the last transaction and the prevailing stock price. While this alone doesn’t impact business fundamentals, it raises a critical risk: if the parent company’s stake falls to just 20%, it could increase royalties for using the global brand, technology, and product lineup. This would directly hit Whirlpool India’s bottom line.

Second, India’s consumer story, many analysts argue, is overrated. Demand hasn’t shown the secular rise that was once expected. Household leverage is at an all-time high, and middle-class incomes are under pressure.

Third, competitive pressures are rising in consumer businesses. Several consumer companies are seeing their competitive moats erode as local challengers emerge and alternative distribution channels become more accessible.

By the way, these concerns aren’t limited to Whirlpool—they apply to a large number of consumer companies.

Despite these headwinds, Whirlpool still trades at 50x trailing earnings. The implied growth rate (i.e., the future growth expectations baked into the stock price) is 20%. In contrast, the implied growth rate for its global parent is just 3%. Perhaps neither estimate is accurate—India’s long-term growth for the company may not be as high as 20%, while the global parent’s growth may not be as low as 3%. Investors often make the mistake of assuming developed market growth rates for companies hailing from these market, but that’s flawed reasoning. Multinational parents reflect the growth of their subsidiaries too, meaning they can clock higher growth rates than what their home markets alone clock.

Now, what about the rest of the consumer pack back home? The average valuation multiple for consumer durable stocks in India currently stands at 61x trailing earnings. As economic growth and consumer spending slow, and with liquidity-driven market exuberance fading, these lofty valuations will inevitably face challenges. It’s hard to justify these stocks on earnings multiples alone. What has propped them up so far is what I call "price-to-story multiples." But that story is changing now.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.