Management Speak: Whirlpool of India (Unrated) - Positive on market share gains

We attended Whirlpool analyst meet. Below are the key highlights:

Positive on growth despite economic slowdown: Management expects to sustain double digit growth despite muted demand. Growth will be driven by market share gains on four key strategic pillars: 1) revitalising the ‘Whirlpool’ brand, 2) refreshing and revamping product portfolio, 3) creating growth opportunities and 4) strengthening efficiencies. While refrigerators and washing machines are key drivers of growth, Whirlpool is also looking at growing its adjacencies such as air purifier, RAC, water purifier, etc apart from cooking products (recently acquired Elica).

Increasing ad spend to revitalise the brand: Whirlpool has sharply increased its ad spend by 95% during the festive season to refuel its brand, highlighting Whirlpool’s entire product portfolio. Concurrently the company is expanding distribution (in last 4 years doubled to 1 lac+ retailers) with incremental focus on higher counter share.

Revamping product portfolio: Whirlpool endeavours to come up with new and innovative products every 2 months. The company has recently launched new products such as (1) revamped the aesthetics in semi-automatic washing machines (WM) (2) launched 5-star rated WM ahead of market (mandatory shift to 5 star from 2021) (3) single door direct cool (DC) with auto frost feature, etc. Management is planning on introducing the new products in a phased and timely manner, targeting specific geographies in order to avoid inventory build-up of old products.

Focus on profitability: Margins have improved in 1HFY20 on back on better product mix such as higher ‘Frost Free’ refrigerators, auto frost in single door, etc. Moreover, profitability was augmented by stringent cost controls, increasing operational efficiencies, adopting technological upgrades and digitising operations to reduce cost structure with improved supply chain, sales visibility, etc. Overall, management is careful to ensure that volume growth is ahead of growth in fixed costs. Further it is expanding its refrigerator manufacturing capacity in Pune, with the high end products to be imported, while RAC will continue to be outsourced.

Valuation and view

Despite increasing competition from players like Volt-Bek, Haier, Havells, etc; management is quite confident of growth led by market share gains. This would be a key area to be monitored considering the increase in competitive intensity, considering its large market share position in its key areas of refrigerators and washing machines. Whirlpool is trading at 43x FY21E consensus earnings. Unrated.