Whirlpool Share price: Q1 disruptions amid Covid-19 to impact FY22 sales, Jefferies says; recommends HOLD with revised target price

Brokerage firm Jefferies says that Whirlpool dealerships across many regions were closed post mid-April 2021, due to state lockdowns which has had an impact on sale of summer products in the month of April and May. Whirlpool is mainly into white goods business and manufactures ACs, coolers, fans and refrigerators. 

Jefferies Retain Hold rating on Whirlpool with revised price target of Rs 2465 (vs Rs 2560). 

June offtake is expected to be better, with gradual unlocking across select regions, it said. 

See Zee Business Live TV Streaming Below:

Commodity prices started rising from mid-Q3FY21. However, meaningful pricing action began from Q4, in tranches (YTD +10-15%). Full benefit of price hikes could reflect from Q1FY22. Also, from Apr '21, select dealers have indicated price hikes of 3% in ACs, 3-5% in Refs, and 4-5% in Fans.

Q1 disruption would impact FY22 sales, as it is a seasonally strong quarter for Whirlpool. Also, YoY gross margin decline over past few quarters is a key monitorable, While Jefferies cut FY22 EPS sharply by 15%+ (factoring loss of key summer sales), cuts in FY23-24e are more moderate at 4-8%. Jefferies acknowledge Whirlpool as a robust franchise in Durables and estimate +9%/+13% sales / PAT CAGR over FY20-24e, mainly driven by volume traction (operating leverage). However, most positives seem to be priced in at the current market price of Whirlpool.

Whirlpool India Key Risks:

1)      Upside - Higher volume growth and margin expansion with superior operating leverage
2)      Downside - Volatility in RM and INR could impact margins
3)      Also, Whirlpool exhibits low free-float and liquidity

Whirlpool India Company Background:

Whirlpool entered India in the late 1980s as part of its global expansion strategy. It forayed into the market under a joint venture with TVS group and established the first Whirlpool manufacturing facility in Pondicherry for washing machine category. In 1995 Whirlpool acquired Kelvinator India Limited and marked an entry into the refrigerator market as well. The same year the company also saw acquisition of major shares in TVS joint venture and later in 1996, Kelvinator and TVS acquisitions were merged to create Whirlpool of India Limited. This expanded the company's portfolio in the Indian subcontinent to washing machines, refrigerator, microwave ovens and air conditioners.