Cool ride for Whirlpool's investors on healthy pick-up in demand

Healthy demand improves earnings visibility; shares scale to all-time high and post the highest daily gain since March

Shares of household appliance maker Whirlpool of India, which scaled to their all-time high of Rs 2,578.40 in intra-day trade on Thursday, are on track for their best monthly return since Oct 2019. The shares, which on Thursday posted their highest daily gain since March, are rising on the back of a healthy pickup in demand and easing of supply chain issues, which points to improved earnings outlook.

While a large part of the growth in the September 2020 quarter was driven by healthy pent-up demand, analysts say strong festive season sales coupled with new product launches and market share gains is seen sustaining this growth momentum in the quarters to come.

Demand for at-home products has remained stable even post the festive season as fears over a second wave of Covid-19 and detection of a new strain of the virus in United Kingdom continue to hamper travel and leisure. Rural consumption also remains healthy. Subsequently, the company is confident of recording double-digit growth in the third and fourth quarters of the current fiscal. Lower penetration levels and focus on fixing the gaps in its product portfolio provide further confidence over the long-term prospects of the company, say analysts.

“Whirlpool’s distribution-led strategy with focus on Tier-III and Tier-IV cities is bearing fruit with market share gains in both refrigerators (+350 basis points) and washing machines (+520 bps) from last 2-3 years,” said Naval Sheth, Research Analyst, Emkay Global. “After aggressive distribution expansion, Whirlpool has now started to focus on product refreshment at shorter intervals, which should help in sustaining market share with rising competitive intensity,” he added.

Moreover, capacities are running at full steam as supply chain issues are largely ironed out. Buzz regarding the company setting up dedicated manufacturing units for both finished products and components under the “Make in India” initiative have also boosted sentiment.

“Whirlpool continues to offer a structural growth opportunity over the long term with strongest balance sheet and cash flows in the industry. We marginally increase our earnings estimates by 1- 3 per cent over FY21 to FY23,” said brokerage firm Nirmal Bang.

Lower employee costs and other expenses aided margins last quarter. However, rising input costs and reversal of some cost savings may have a negative impact on margins in the near-term. On an average, copper prices have increased 20 per cent over the previous year so far this quarter and aluminium prices have risen by 12 per cent during the same period.

While the business prospects remain healthy, the sharp rally in the last fortnight means that the stock's valuation premium has only increased and hence, near-term upside may be capped.