Weak volumes remain an overhang on Whirlpool stock; Q2 sales hit

The stock of consumer durables major Whirlpool of India has lost about 13 per cent from its highs in August on market share loss and concerns on profitability. The pressure on the stock could continue, given the muted volume recovery in entry level segments, underperformance compared to the sector and margins pressures in the September quarter for the 2022-23 financial year (Q2FY23).

Emkay Research, in a report last month, highlighted that Whirlpool has been the biggest loser in the refrigerator category, shedding 160 basis points (bps) year to date (YTD) and has been losing share each month since the start of March this year. The company has also lost share in the washing machine category, dropping 210 bps since January this year. July was the seventh consecutive month of market share loss and follows 90 bps share loss in FY22 over FY21. Q2 estimates seem to suggest that it may not be able to arrest the share loss in the near term.

Most brokerages expect the company to post a decline in revenues over the year ago quarter ranging between 5-7 per cent, given the high base of last year which was aided by pent up demand due to Covid-19-led lockdowns. Over a normalised base (Q2FY20) revenue growth is expected to be about 10 per cent, led by price hikes.

Volume growth, according to Kotak Institutional Equities, is expected to remain muted due to weak demand for mass entry products. Market share losses in washing machines and refrigerators in the quarter also led to the weak revenue growth performance for the company.

The Street will also be tracking the margins movement of the durable maker. While average prices of key commodities, such as copper and aluminium, have witnessed a sharp correction, given the high cost inventories and rupee depreciation, the full benefit of the fall in prices is expected to be realised in Q3FY23.

Most brokerages expect the company to post a 30-130 bps contraction in gross margins. Volatility in commodity prices and rise in competitive intensity are expected to weigh on margins. At the operating level, there is a sharper 200-260 bps cut in margins due to higher employee costs and other expenses.

Brokerages have a mixed rating on the stock which had seen a 30 per cent rally from its lows in June to its highs of August before undergoing a correction. It is currently trading at Rs 1,596.85 a share. While Kotak Institutional Equities has a ‘sell’ rating with a target price of Rs 1,460, Centrum Research has a ‘buy’ rating with a target price of Rs 1,900. Given the pressure on volumes and market share loss, investors should await a reversal of its sales trajectory and a better entry point before considering the stock.