Whirlpool

Stock No More A Value Buy; Next 2 quarters To Decide Course

 

THE stock of Whirlpool India has emerged as one of the best performing stock in the consumer durables segment for 2009. Against an average gain of 75% of Sensex, the company's stock has more than quadrupled in 2009.

   While Whirlpool is a household brand in India in white goods segment, the company's financial performance always left much to be desired. It finally came out of the woods in FY09 and reported over 50% growth in net profit last year followed by 54% growth during the first of the year.

   In the past five years the revenues experienced a compounded annual growth rate of 17%. However, the company reported net profits only in the last two financial years thanks to improving sales, tight control on costs and rising revenues from after-sales services. A declining debt burden and improvement in cash flows further added to its profitability.

   Whirlpool India manufactures and sells a number of consumer durables through three production units situated. The company has also set up its Global Product Development Centres in India, which develops product design for the Whirlpool global. The company claims to control nearly a quarter of the Indian consumer durables market.

   Due to the economic slowdown in the aftermath of global financial crisis, the company company's revenues as well as profitability were hit during the second and third quarters of FY09. However, this low base effect turned positive for the company in the past quarter as its revenue expanded 39% while net profit rocketed by a whopping 1333% during the September 2009 quarter. In the latest quarter, the largest chunk of the company's revenue has come from the sale of microwave ovens followed by that from air conditioners, washing machines and refrigerators.

   Over the next three years, Whirlpool India plans to invest approximately Rs 300 crore in capacity expansion, new product launches and branding and market development. Having consolidated its market position in urban India, the company is now planning a big push in the small towns and rural India by launching new products and renewing old product lines. The company also plans to raise prices across product categories by 2% due to rise in input costs.

   With the latest run in the price, the stock is trading near its 15-year high. The P/E ratio is near 18, a bit higher than its average in 2008-2009 and it's no more a value buy. Its future trajectory will depend on its growth plans in next two quarters besides the impact of the rising metal prices on its margins.