InvestorQ : Why is ICICI Securities bullish on Whirlpool of India?
Riya Dwivedi made post

Why is ICICI Securities bullish on Whirlpool of India?

shrinidhi Rajan answered.
2 months ago

ICICI Securities has given a buy call on Whirlpool of India Ltd with a 33% upside price target. Whirlpool of India is a mid-cap consumer durables company having a market capitalization of Rs19,568 crore. The stock had touched a year high of Rs2,250 and a low of Rs1,365 and is currently quoting at around Rs1536. ICICI Securities is bullish on the stock with a price target of Rs2,000, which would represent a upside potential gains of around 33% from its current price levels. The stock is currently closer to its lows.

The call is on the back of measures taken by the company to address the issue of commodity inflation. In FY22, Whirlpool of India reported the lowest return ratios in more than 10 years as the operating and the PAT margins took a steep hit on account input material inflation. The premium and mid-premium segments were largely immune as the pricing power was evident for that segment. However, the entry-level products were impacted due to the segment being more price sensitive part of the market.

In response, the company has heavily initiated cost-saving measures which includes cutting down on logistics and transport cost, operating expenses, working capital costs, reducing the funds locked up in the working capital cycle etc. It has also cut its advertisement spend as a share of sales to protect EBITDA margins. At the same time, Whirlpool also held its market share by launching a range of innovative products in refrigerators and microwaves. These products have kept the ball rolling even as the entry level segment was getting hit.

Above all, in tune with the times, Whirlpool of India has also invested heavily in digital platforms for building the capability to deliver orders in 48 hours. As a result, the net working capital days increased from -1 in FY21 to 12 in FY22 leading to weak FCF generation. At the same time ,the turmoil in Sri Lanka meant that the exports to that country were badly 8impacted. The bet is on Whirlpool’s competitive advantages as well as a steady launch of premium products in this market.

ICICI Securities expects the revenues and PAT of Whirlpool of India to grow at a CAGR of 17.5% and 47.5% respectively between FY22 and FY24. They also expect the ROCE to expand drastically from the current 7.7% to 13.9% in FY24. These projections have helped ICICI Securities to arrive at a DCF valuation of Rs2,000, which implies discounting of the FY24 earnings at a price earnings ratio of 48X. However, ICICI Securities has warned that major risks to the model in the form of delay in launches and input costs still remain.