At Whirlpool analyst meet, management laid out its 4-pillar strategy on Brand, Product, Growth and Foundation. Meaningful investment on brownfield capacity expansion is on the anvil. Target is to grow in double digits, with revenue doubling in 3-5 years. WHIRL remains our preferred pick in consumer durables: (1) An underpenetrated market is a strong tailwind; (2) Strong brand recall across categories; (3) Renewed focus from US parent as well as robust execution from current management is bringing WHIRL closer to the customer (filling product gaps, increasing shop-floor reps, distribution expansion). However, margin expansion to be limited given reversing commodity cycle and sustained investments in ad/distribution. Estimate Sales/PAT CAGR of 15%/22% over FY18-20. Maintain HOLD (rich valuations) with revised TP of `1,450 as we roll over to FY20E EPS.
Wheat from the chaff is separating. Management expects a strong hockey-stick recovery in the economy going forward and believes that companies with sound business practices stand to benefit disproportionately. Growth in consumer discretionary is highly correlated to GDP – growth in durables kicks in as GDP grows in excess of 7% (eg over FY06-11, when GDP growth averaged 9%, Whirlpool India’s topline grew at CAGR of 20%). The confidence comes from a confluence of factors: (1) Lagged effect of 7th Pay Commission payouts, (2) Two consecutive years of above-average monsoon to spur rural and semi-urban demand, and (3) Strong policy thrust on electrification. WHIRL has not expanded capacity in the past 7-8 years; all plants are running at high capacities and will require expansion over the next 3-5 years. The company intends to invest large amounts in brownfield expansion over the next few years. It will invest in inventories while gradually ramping up capacity across product lines, but will not invest ahead of the curve.
WHIRL has a very strong brand recall and will continue to make steady investments in advertising and promotions. In the past 5 years, expenses related to advertising and promotions have averaged 1.8 % of sales. Competition is a reality in the business and companies need to constantly invest to stay relevant.