A clutch of mutual funds, led by SBI Mutual Funds, bought into Whirlpool of India on February 20 as parent Whirlpool Mauritius sold a 24 percent stake in the company. But the Street is not rushing in to buy the stock for now.
Whirlpool of India shares were trading flat, not far from a 52-week low of Rs 1,257 touched in February last year.
The stock has not recovered from the steep fall in November last year when the parent first announced its intention to pare stake.
So what explains the market apathy?
The company has been hit hard by weak demand in the consumer durables sector. High commodity prices worsened the matter further, with the result that the stock price has halved in the last three years.
Green shoots were visible in the company’s December-quarter performance with revenues and net profits showing growth after five quarters of decline. Whirlpool’s standalone revenues were up 19 percent powered by a double-digit growth in the refrigerator and washing machine segments.
Kitchen appliance maker Elica, where Whirlpool holds the majority stake, also grew by 7 percent in the quarter.
Broking firm Nuvama attributed the growth to price calibration done by the company in H1FY24, lower base of the previous year and the festive season.
Another heartening feature was that the company was able to gain market share after a long time, according to Yes Securities.
Nirmal Bang Equities credits product launches, with a shift to premium models, as the reason for the market share gain.
Nuvama points out that the Whirlpool management gave a high single-digit revenue and margin growth guidance during its analyst call in February for the medium to long term. Yes Securities says the guidance takes into account the challenging market conditions for the consumer durables industry with weak demand and high competition.
Gross margin for the company has improved around 35 bps due to stable raw material prices. According to Yes Securities, it is still below the company’s previous highs and there is scope for improvement.
Nirmal Bang says the company’s focus on “premiumisation, prudent quality and cost management and superior execution” will help it gain market share in the medium term. Yes Securities also backs the company to win back the market share with new products.
Another vote of confidence for the company is mutual funds increasing exposure to the stock. SBI Mutual Fund bought the biggest chunk of 7.21 percent stake. Other buyers included Aditya Birla Sunlife Mutual Fund, DSP Mutual Fund, ICICI Prudential Mutual Fund, and Nippon India Mutual Fund.
The buying from the big mutual funds is also expected to increase investor confidence in the company.
Nirmal Bang said the stock is trading close to its fair value assumption after correction over the promoter selling stake in the company. “We upgrade to Accumulate with a revised target price (TP) of Rs 1,305, valuing it at 35x December 2025 EPS,” the brokerage said in a note. Yes Securities also upgraded the stock to ‘buy’ with a target price of Rs 1677, “valuing the stock at 40x rolling forward our multiple to FY26 EPS”. It estimates the FY23-26 revenue/EBITDA/PAT to average a 10 percent/27 percent/33 percent.
Nuvama maintained its ‘reduce’ call with a target price of Rs 1260 (38x PE on FY26), reasoning that market has built consensus of double-digit growth for next 3 years compared to the single digit guidance and that stock will face more earnings cut.
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