Continuing their upward streak for the fifth consecutive trading session, Whirlpool of India shares surged 3.3%, hitting a 22-month high of ₹1,760 apiece. This rally has resulted in a 15.50% gain for the stock in the current month and a 45.33% increase from the March 2024 low of ₹1,211 apiece.
Despite the strong rally, the stock may continue its ascent, based on projections from the domestic brokerage firm Equirus Securities. The firm believes that the demand for entry-level SKUs has begun to improve, which is expected to drive further growth.
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The brokerage stated that the company lost its path after Mr D’Souza’s departure in December 2019, resulting in substantial losses in channel engagement, poor performance, and delayed product launches. Additionally, the company experienced continued demand pressure in entry-level SKUs post COVID, which led to substantial market share losses for Whirlpool.
However, since Mr Narsimhan Eswar took charge, there has been a sharpened focus on bridging product portfolio gaps, improving channel engagement, and implementing strategic initiatives for better channel extraction, it noted.
These internal and external strategic changes, the brokerage believes, are likely to drive market share growth in the mid-to-long term.
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Recent trends suggest that brands like Haier and BEKO have been gaining market share, often at the expense of industry giants like LG and Samsung. On the other hand, Whirlpool has successfully defended or marginally increased its market share.
What lies ahead?
According to the brokerage’s channel checks, there are early signs of a revival in entry-level demand. It believes there is a strong case for the company to achieve solid double-digit volume growth once entry-level demand, both normal and pent-up, reaches its full potential.
Notably, industry feedback indicates that the company’s market share in refrigerators has been the highest in recent months over the last 18–24 months. In the absence of scale and amid stiff competition, the company’s EBITDA margins declined from 11.2% in FY20 to 5.9% in FY24.
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However, channel checks indicate a better pricing environment ahead, which, along with increased scale, will aid margins. Thus, the brokerage projects FY25E and FY26E EBITDA margins to be 8.4% and 9.5%, respectively.
Revised target price higher
The brokerage has revised its target price higher to ₹2,362 apiece from an earlier target of ₹1,887 apiece, maintaining a ‘Long’ view on the stock. Taking the stock’s previous closing price into account, the target price signals 39% more upside.
“Renewed management aggression along with demand revival should lead to superior earnings growth and offer a strong case for multiple re-rating. During Mr. D’Souza’s tenure, Whirlpool has traded at premium valuations as compared to current P/E valuations at 42x. Going ahead, with better performance, we expect stock to command a higher multiple,” said Equirus Securities.
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Whirlpool is primarily engaged in the manufacturing and trading of refrigerators, WM, AC, MW, and small appliances and caters to both domestic and international markets. It provides services in the areas of product development and procurement to Whirlpool Corporation and other group companies.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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Published: 11 Jun 2024, 02:27 PM IST
