Whirlpool of India posted in-line Q1FY18 numbers with 15% and 11% revenue and Ebitda spurt. Key highlights were: (i) despite GST headwinds, WHIRL clocked double digit revenue growth (peers declined); (ii) operational performance was spearheaded by parent’s comprehensive business strategy to augment product portfolio to plug key gaps, especially in core products like refrigerators & washing machines; and (iii) despite 200bps surge in raw material costs, WHIRL stymied Ebitda margin dip via comprehensive cost cutting initiatives (other expenses down 100bps), in line with Project Akraman. We believe, WHIRL’s strategy has already started yielding fruit (improving profitability), and we expect the outperformance to sustain given reasonable earnings growth/free cash (24%/33% CAGR over FY17-19e) and full benefits to accrue over next 2-3 years. WHIRL remains one of our top picks in the consumer durables basket. Maintain Buy with target price of Rs 1,511.
Q1FY18: Hits & misses
Despite GST and unseasonal rains headwinds, WHIRL managed to grow 15% y-o-y (16% volume growth) in a tough quarter (peers Havells and Voltas managed flat to negative growth). Ebitda margin declined marginally, down 60bps y-o-y, due to higher value items getting de-stocked faster, thus affecting the product mix adversely and higher other costs due to GST transition. The company is investing $50m in Whirlpool Brazil’s bond offering.
Sprucing up competitive profile; scope to improve profitability
We believe parent’s strategy to plug product gaps in current portfolio is bearing fruit. Whirlpool of India’s target of $1 bn revenue by FY20 implies 17% revenue CAGR, which, we believe, is achievable given the ramp-up in the past two years in top line spearheaded by new product launches. We expect Whirlpool of India to clock profitable growth led by better cost management and sustained efforts to command higher ASP for products.
Outlook and valuations: Rerating ongoing; maintain Buy
We believe, WHIRL is the best positioned MNC in the high-end white goods space as the company has undoubtedly improved its competitive profile versus large peers and is likely to sustain strong improvement in top line and operating margins. At CMP, the stock trades at 31x FY19e. We maintain ‘BUY/SO’.