Thread by @Mjkfinvestment

Thread on Whirlpool of India 🧵

Market cap: 27,580 crores
Revenues: 5,992 crores
P/E: 87.80
P/B: 10.39
ROCE: 28.6%
ROE: 20.3%

Here we go👇

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WHIRL has established itself as a strong and fast growing brand in the White Goods space, especially in Refrigerators and Washing Machines.

The MNC company, which has been witnessing improving market share, commands the third position in both these categories with the top

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top two slots occupied by Korean giants - LG & Samsung (both unlisted in India).

A strong distribution network & move to rural India, in-house CAPEX, and innovative product offering have been growth drivers for the company. Despite investing on capex, employee expansion,

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R&D, and advertising spends, it commands a high RoE/RoIC.

Going from strength-to-strength in the White Goods space:

WHIRL commands a volume market share of 17-18% in each category.

Gaining market share in volume terms & its product portfolio is poised for strong

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13-15% structural growth over the next decade, even beyond the low base-led growth due to the COVID-19 outbreak.

Product portfolio expansion and higher ad spend aiding brand recall.

The company’s portfolio also includes ACs and Kitchen Appliances.

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It entered into the Air Purifier segment in CY18;

In the same year, WHRIL acquired a 49% stake in Elica PB India, a manufacturer of kitchen cooktops;

The company has focused on brand endorsements via celebrities & the print media increasing its ad spends to ~2% in FY20

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from 1.3-1.5% over FY17-19.

Focus on in-house manufacturing suggests long-term planning:

The company has spent ~INR7.5b on CAPEX over FY17-20, believing in the long-term benefits of in house manufacturing capabilities, in quite a contrast to other White Goods companies -

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VOLT and BLSTR;

Despite such high CAPEX, its RoIC (~80%) is best in class, suggesting strong profitability and cash flow generation.

The competitive intensity remains high with the entry of domestic players like Lloyd and Voltbek, expect the management to be aggressive

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in defending its market share; An MNC franchise deep-rooted in Indian consumers’ minds:

It is the No.1 player in North America and Latin America, and the No.2 player in Europe and Asia.

Whirlpool has been growing its footprint in India:

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Manufactures most products in-house, with Refrigerators manufactured in Pune & Faridabad & Washing Machines at Puducherry.

In highly competitive AC market (more than 30 players), WHIRL has ~4% share and is trying to gain a foothold in the market with new product launches.

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WHIRL enjoys double-digit margin despite high competitive intensity:

With in-house manufacturing for Refrigerators and Washing Machines, the company has been able to effectively manage its supply chain, thus ensuring strong cost controls;

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The company pays ~0.9% of sales as royalty to the parent company;

RoEs has remained suppressed over FY14-20 given the huge cash war chest on its Balance Sheet;

But a better measure to gauge the operating performance would be RoIC which has been in the 80-90% range.

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WHIRL to continue command a high RoIC given its strong brand positioning.

Consumer financing aiding growth in White Goods in particular

Over FY10-20, BAF’s Consumer Durables and Mobile Phones AUM clocked 40% CAGR, indicating the rising availability of credit & finance

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The penetration of Refrigerators stands at 30% v/s ~10% for Washing Machines. ACs - the least penetrated at just ~7%.

Volume terms LG is the market leader ~29% market share, followed by Samsung and WHIRL; Godrej commands ~17% market share in the semi-automatic Washing

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Competitive intensity to grow with the entry of domestic players:

With its acquisition of Lloyd, HAVL is expected to target the Consumer Durables sector aggressively and leverage its expertise in increasing distributor base and gaining market share;

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With the entry of Voltbek, competition is expected to intensify further as VOLT is the market leader with the best distribution network in ACs;

WHIRL delivered 14% CAGR over FY09-20 in Washing Machines, primarily driven by sales of semiautomatic/top-load variants.

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Refrigerators are the company’s main product, with a revenue contribution of 55-65% over FY09-20;

Over the last 11 years (FY09-20), it has delivered a revenue CAGR of 11.4% in Refrigerators;

AC market:

India significantly lags other countries in terms of AC penetration;

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Fierce competition for market share in the under-penetrated RAC industry:

Competitive intensity in the Room AC (RAC) industry remains high, with more than 40 brands competing for market share;

Brand, distribution, service center network & Dealer margins are key factors

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to grab or retain market share;

In ACs, products like compressors, motors, & refrigerants are imported; theY form a bulk of product cost;

WHIRL delivered 17.3% revenue CAGR over FY09-20, despite a small base,

Knowing its limited brand positioning within the AC segment

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the company has rightly followed an outsourcing model v/s in-house manufacturing for Refrigerators and Washing Machines.

Share of Refrigerators in total revenue remained in the 57-64% range during FY14-20;

The same for Washing Machines and ACs stood at 21-22% and 6-10%.

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Imports still a mainstay in supply chain:

In ACs, products like compressors, motors, & refrigerants are imported; form bulk of the product cost;

Components - Inner door units (IDUs) & outer door units predominantly made in India via domestic contract manufacturers like AMBER;

Exports to propel growth; China+1 strategy can be game-changer

Exports constituted ~10% of sales in FY09. While export growth has lagged over past decade, the recent addition of new capacities is likely to propel growth in exports

The management has hinted about using

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EBITDA rose by 21.3% CAGR over FY14-20. A negative working capital cycle suggests brand strength;

Despite ~13% FCF CAGR over FY14-19, the FCF-to-PAT conversion ratio has been close to ~80% over the same period;

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In-house manufacturing capabilities and high RoIC are underappreciated;

Strengths:

👉Strong parentage,
👉Experienced top management,
👉Local manufacturing capabilities help in cost control,
👉Top player in Refrigerators and Washing Machines.

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Weaknesses:

👉Dependency on few categories,
👉Lower spends on research and development.

Opportunities:

👉Lower penetration of White Goods.

Threats:

👉Strong competition.

End of thread🧵

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