YES Securities' research report on Whirlpool of India
Whirlpool’s standalone revenue came in below ours and consensus estimates with, revenue declining 18.3% yoy. This decline is largely on sluggish demand for the entry level products which is well known and primary sales to the dealers have been very minimal as channel inventory was high and they were gearing for new revamped product launches ahead of summer season. Our channel checks suggest that the old inventory in the channel has been cleared and channel filling would start aggressively from Q4 ahead of peak summer season and WHIRL is going to offer dealer friendly schemes to push the sales in peak summer season. On the margin front, WHIRL continues to see gross margin erosion of 85bps yoy, as they were holding high-cost inventory with them. EBITDA margin contracted 356bps on higher expense towards commercialization of the new front load washing machine plant. WHIRL has now started to launch slew of innovative products in mid to premium segment in washing machines and refurbishing its product portfolio in refrigerator to give more value to entry level customers and providing best after sales service to improve customer satisfaction. We feel worst in terms of market share loss and margins in currently priced in. Considering sharp correction in stock price, rural demand expected to bounce back on increased farm yields and focus on premium portfolio we upgrade the stock to BUY. Despite near term headwinds, we continue to believe WHIRL’s strong parentage, brand presence and a well penetrated distribution network along with refreshed product portfolio is likely to drive market share gains. Buyout of ELICA giving them added play in the fast-growing kitchen category. We have built in moderate estimates for FY24 and reduced our target multiple to 40x considering risk to the rural demand.
We upgrade the stock to BUY with PT of Rs1,707 valuing it at 40x vs 45x earlier. There could be upside risk to our estimate if we see quick turnaround of rural markets.
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