BUY. CFA Institute Research Challenge Hosted in India Symbiosis Centre for Management and Human Resource Development WHIRLPOOL OF INDIA LIMITED

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1 Initiating Coverage Report WHIRLPOOL OF INDIA LIMITED Exchange: NSE/BSE Ticker Symbol: BSE: , Bloomberg: WHIRL IN Sector: Consumer Electronics Industry: Household Appliances BUY CMP (17/10/15) Target Price Upside INR INR % CFA Institute Research Challenge Hosted in India Symbiosis Centre for Management and Human Resource Development 0

2 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Initiating Coverage Report WHIRLPOOL OF INDIA LIMITED Exchange: NSE/BSE Ticker Symbol: BSE: , Bloomberg: WHIRL IN Sector: Consumer Electronics Industry: Household Appliances BUY CMP (17/10/15) Target Price Upside INR INR % This report is published for educational purposes only by students competing in the CFA Institute Research Challenge WIL: A swirling growth story Key Stock Data E 2017 E Revenue 33, , ,192.4 PAT (INR mn.) 2, , ,172.5 EPS P/E(x) 38.4 x 37.7 x 35.7 x EV/EBITDA ROE (%) Market Cap 52-Week range INR 86.6 bn INR Rs Free Float 8.6% Major Shareholders: Whirlpool Mauritius Limited Table of Contents 75% Business Description 2 Corporate Governance 3 Industry overview and Competitive Positioning 3 Investment Summary 5 Valuation 7 Financial Analysis 9 Investment Risks 10 Appendix 11 Whirlpool of India Limited (WIL) is well placed to tap the underpenetrated consumer durables space in India with strength of the brand, strong support from parent and its sound financial health. Its presence across various product segments and its strong focus on consumer satisfaction through innovation drives its growth. With estimated revenue and EPS CAGR of 14% and 17% respectively over FY E along with high free cash flows on account of strong pick up in the pent-up demand, we recommend a BUY with a price target of INR Highlights Improving Economic Outlook A positivity in the macro economic environment is felt with India being the fastest growing economy with GDP at 7.5 percent YoY in Q1 2015, inflation under control (4.41% in Q2 FY2016) and interest rates gradually falling (reduced to 6.75% in September 2015). IIP has also shown positivity and consumer sentiment is also improving which is good sign for the consumer durables industry which is highly dependent on these factors. Underpenetrated Indian consumer durables market The current penetration stands at 26% for refrigerators, 12% for washing machines, 8% for air conditioners and 5% for microwaves. This offers a big headroom for growth for companies in this segment. WIL, backed by its brand image, parent support, technical expertise and strong financials is strongly placed leverage the situation. A strong financial performance The revenue CAGR is expected to be 14% over FY E period with the profit margins growing at 17% CAGR on account of improving outlook of the industry, management s intent to increase presence across market segments and aggressive push in the new market segments will lead to increased revenues. Apart from that a net cash balance sheet, no leverage and no capital expenditure in the near future will allow the company to outgrow the industry. Key Risks: Slow economic growth, rise in commodity prices, currency fluctuations and competition Exhibit 1: WIL stock performance with SENSEX & BSE Consumer Durables Index Upside: 21.05% Whirlpool SENSEX BSE Consumer Durables Index CMP Target Price Source: Bloomberg 1

3 INR million CFA Institute Research Challenge Exhibit 2: Segment wise Revenue break-up (INR million) FY 2013 FY 2014 FY 2015 FY 2016E Refrigerators Washing Machine Others Exhibit 3: Market share % & volume growth % Market Share Volume growth Exhibit 4: Imports a % of total costs % Mutual Funds 8% Source: Company Reports, Student Estimates Source: Euromonitor Total Input costs Import % Source: Student Research Imported Exhibit 5: Shareholding Pattern Corporate Public Bodies 9% FIIs 2% 6% Source: Company Reports 0 30% 20% 10% 0% Promoter s 75% Business Description Whirlpool of India Ltd. entered into India in late 1980`s under a joint venture with TVS group. It is a 75% owned subsidiary of Whirlpool Corporation, the global leader in the home-appliance industry and it established its first manufacturing facility for washing machines in Pondicherry. The company in 1996 acquired Kelvinator India Limited and also transferred the TVS share to form Whirlpool of India Ltd. expanding its business line to refrigerators, microwave ovens and air conditioners, and it is the 4 th largest consumer durable company in India. The company has annual manufacturing capacities of 1.8 million (mn) direct cool refrigerators, 0.81 mn frost-free refrigerators, and 0.65 mn washing machines at its 3 manufacturing facilities in Faridabad, Puducherry and Pune (Appendix 4 ) Business Model WIL has a Trading + Manufacturing based Model in which Refrigerators and Washing machines are manufactured completely in India, while A/Cs, Microwaves, and other kitchen appliances are traded. Refrigerators and Washing machines contributed around 83% of the total revenues of FY WIL has recently entered into new segments built in kitchen appliance and water purifierswhich the company expects will contribute to 10-15% of the future revenues against the 5% at the present. Company Strategies Focus on Urban Penetration: With its current sales concentrated in the top 50 cities of the country, WIL expects to tap the urban and semi-urban markets only as penetration levels even in the urban segment are low. (40% in refrigerators and ~20% in air conditioners and washing Machines). For tapping this market, WIL has expanded its distribution network (Appendix 23) and also entered the modern trade channel. Diversifying product portfolio through Innovation The company has entered into new segments like built in kitchen appliances, water purifiers. The A/C segment is also relatively small. These are high growth segments and based on technological prowess and superior brand portfolio of its parent Whirlpool Corp., WIL expects to increase the contribution of this segment from the current INR 300 million to INR 1 billion by The company also plans to open new flagship stores of inbuilt kitchen appliance store range. Focus on premium products: WIL taking lineage from its parent has been strong in providing premium products with latest technologies (Appendix 24). This helps the company to enjoy price differentials and higher profitability than its peers booking a revenue CAGR of 11% even during lean period of FY2009-FY2014. (Appendix 3) Improving market share: The company is targeting to improve its market share to 15% by FY2021 and it is planning reach there by introducing newer and improved versions of its products more frequently than before. Also improvements and efficiencies in dealer networks are on the radar. (Appendix 28) Shareholding Structure Whirlpool Mauritius Ltd (holding company) holds majority stake in Whirlpool of India Ltd on behalf of Whirlpool Corporation Inc., USA (Ultimate Holding Company). They hold 75% (95,153,872) of the total share value of the company. Of the 25% public shareholding 13.52% of the shares are held my institutional investors and 11.48% by non-institutional investors. Copt hall Mauritius Investment Ltd and HDFC Large Cap Fund (Stock Account) are amongst the public shareholders holding more than 1% of the share. (Appendix 8) Corporate Management The Company is ably led by the management with a clear strategy in place to ensure continued and sustainable growth in the future for the company. Mr. Arvind Uppal the current chairman and Managing Director has been re-appointed by the shareholders for a period of five years commencing from June 22nd 2015 showing faith in the management. (Appendix 37) 2

4 Year Consumer Durables 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% Exhibit 6: WIL Awards & Recognitions Award & Recognitions WIL s Protton World Series Refrigerator was selected for the Good Design Awards 2015, Japan ICWAI National Award for Excellence in Cost Management Trophy for Export Excellence in EPO Service for outstanding export performance' Whirlpool Pondicherry Washer Facility Gold Award Sullivan Manufacturing Excellence Award Received the ENERGY STAR Sustained Excellence award Named one of the 100 Best Corporate Citizens by Chief Responsibility Officer (formerly Business Ethics) The 'Best Innovative Product' in the popular refrigerators category Source: Company Data Exhibit 7: Indian Market Size (INR bn) Washing Machine E E Refrigerators E Air Conditioners Television Source: EY and FICCI Industry Report 21.0% 85.0% Refrigerators White Goods Brown Goods 8.8% 70.0% Washing Machine Refrigerators Washing Machines ACs TVs Microwaves Other Domestic Appliances Exhibit 9: Market Penetration India vs Global Average India Global Average Source: Euromonitor 3.0% 1305 Exhibit 8: Consumer Durables Industry Source: Student Research 60.0% Air Conditioner Corporate Governance Corporate Governance Whirlpool of India Ltd. has a strong corporate governance structure. The board structure of WIL is clearly defined in the report on Corporate Governance in the Annual Report. With 4 (four) Non-Executive Independent directors, the board complies with clause 49 of listing agreement regarding 50% of the board to comprise of Non-Executive Directors (Appendix 37). The strengths of WIL is seen in the following areas: Committees: Established Audit, Nomination and Remuneration, Stakeholders Relationship and Corporate Social Responsibility Committees (Appendix 38). Whirlpool Code of Ethics: Whirlpool Corporation has a set code of ethics which is applicable to all its subsidiaries which strengthens the overall governance of WIL. Whistle Blower Policy: WIL has a robust Whistle Blower Policy that provides a formal mechanism for all employees of the Company to approach their Supervisor. Risk Management Policy: The Company has set up a core group of leadership team, which identifies, assesses the risks and the trends, exposure and potential impact analysis to give management a better grasp of possible risks the business may face. Social Responsibility The company actively finds opportunities to leave a lasting impact on the society. Through Integrated Child Development Program WIL has sponsored to educate 300 children in three villages adjacent to the Pune plant. This programme aims to provide all-round development to needy students through their Classes VII X. Also, under its Skill Development program, imparted vocational training to almost 1,900 youths across India through training partners recognized by National Skill Development Corporation (NSDC). Beneish M Score Model Beneish M Score is a mathematical model which takes financial ratios as eight variables to decide if there are any manipulations in the accounts and earnings. WIL has M-score of-2.74 (Appendix 9). According to this model, a company having M-score below is not manipulating its earnings. Industry Overview and Competitive Positioning Current State & Future Drivers: From FY the consumer durables industry grew at a muted CAGR of ~10% due to weak demand as a result of unfavourable macroeconomic conditions (Appendix 27). Going forward there is a good headroom for expansion in India given the current low penetration levels of 12% & 26% against the global average of 70% & 60% for Washing Machines and Refrigerators respectively. By 2020 India is slated to become the 5th largest Consumer Durables Market and market of White Goods is expected to increase to INR 600 billion by 2020 with a CAGR of 17%. (Appendix 27) Urban markets account for the major share (65 per cent) of total revenues in the consumer durables sector in the country. On the other hand, rural markets are also likely to witness growing demand in the coming years as the government plans to invest significantly in rural electrification. (Appendix 17) Macroeconomic Conditions India's GDP grew 7.5 percent YoY in Q1 2015, up from a growth of 6.6 percent in the previous period assisted by a strong expansion in manufacturing and services sectors. With India remaining the world`s fastest growing economy for 2 nd straight quarter and the forecasted GDP for the next 5 years being around 8%; these events have an encouraging implications for the Consumer Durables Industry. (Appendix 27) Initiatives taken by RBI and lower global crude and commodity to control inflation has resulted in CPI gradually coming down from a high of 11% in Q3 FY2014 to 4.41% in Q2 FY2016 (Appendix 19). Furthermore, RBI has set the target of bringing down CPI to 4%, so this would induce people to buy more discretionary products like the consumer durables as IIP for the month of August 2015 came at 6.4% higher as compared to the level in the month of August 2014, with consumer durables index recording a 17% growth. A series of rate cuts by RBI with the benchmark repo rate coming down to 6.75% in Sep`15 from 8% in Dec` 15, therefore we believe that availability of cheaper credit will help in spurring purchases through financing. 3

5 Rank CFA Institute Research Challenge Volumes (mn, CY 2000) Volumes (mn, CY 2014) CAGR US Middle UK Germany France Mexico Russia Brazil China Indonesia Thailand Malaysia India Exhibit 10: Global Penetration Comparison Exhibit 11: Brand comaprison Whirlpool Hitachi IFB LG Samsung Videocon Lower Premium Source: Euromonitor Price Source: Student Research Variants Technology Brand Recall Exhibit 12: Customer Target In Store Presence Whirlpool Hitachi IFB LG Samsung Videocon Source: Student Research Exhibit 13: Porter's Five Forces Analysis Bargaining power of suppliers Rivalry among existing competitors Threat of new entrants Bargaining power of customers Threat of substitutes Improving Demographics As per the census 2011, more than 50% of the total population falls in the working age group of years, hence the growing incomes and aspirations of this group is expected to drive the demand for White goods. (Appendix 21) The growing number of Middle class families, with their increasing disposable incomes, will lead to the change in their spending patterns towards consumer durables, Urbanisation is increasing in India and will continue to do so in the years to come due to direct and indirect exposure to Western lifestyles. (Appendix 21) Government Initiatives Launch of Make in India promises to ease indigenous production and is expected to strengthen the case for Domestic Manufacturing of the Consumer Durables thereby reducing the input costs in the long term by lessening the dependency on the imports. Goods and Services tax (GST) is slated to come into force from April 1, 2016, and once it is rolled out the consumer durables are likely to benefit greatly from it because of an expected ~20% reduction in their logistics cost on account of subsuming of CST and other taxes. (Appendix 26) Rise in organized retail Organized retailing will not only streamline the supply chain, but also facilitate increased demand, especially for high-end and branded products. Organized retail industry is expected to cover a market share of 15% 18%, from around 3% currently by Impending Bureau of Energy Efficiency (BEE) Norms According to the Government norms, all the consumer durable manufacturers need to adopt new BEE norms from April This will increase the pricing pressures on the overall industry. In the short term margins can get hurt due to rise in costs, but historically industry has passed on the cost to the consumers so a gradual volume-mix shift towards higher rate products is bound to an improvement in the margins in the long term. (Appendix 25) Realizations to improve based on premium product offerings Average realizations for the home appliance industry have grown at a CAGR of 2.8% in CY period. Although volumes are currently skewed towards lower priced models, going forward the volume mix is expected to shift to higher value products. In the refrigerator segment, the price difference between direct cool models and frost free models is ~50% & in the washing machine segment, price difference between top load and front load is ~60%. The AC market has already started shifting towards split ACs from window ACs. (Appendix 15) Competitive Positioning (Refer Appendix 24) Despite being in a highly competitive market WIL has been able to keep its market share and margins high (NP Margin 6.3%). It has strong capabilities in the Washing Machine and Refrigerators segment and follows LG and Samsung as the third largest player. WIL has always aptly recognised the opportunities in the market and has been a leader in the technological and innovation domain, helping it maintain its margins. Support from parent has also led to Whirlpool to be recognised as a global leading brand and helps WIL draw customers. The following points summarise its positioning: The company has a strong distribution network and enjoys great loyalty and trust in the market. From our primary research, we understand that although distributors earn a margin of ~15% which is less than those offered by peers (~20%), the timely disbursements, other incentives like holiday packages etc. make the dealers stay with WIL and push its products in the market. (Appendix 38) WIL has kept its ad spend (Appendix) limited but has pushed its products aggressively through the distributors and modern trade. The new launches with premium pricing are pushed through stores like Croma, Vijay Sales etc. as they attract the SEC 1 segment who pay for the technology. With no debt, efficient working capital management, good cash balances and sound profitability, WIL has fared better than its Indian peers as summarised in Exhibit 14. Source: Student Research 4

6 INR million CFA Institute Research Challenge Exhibit 14: Indian Peer Comparison on key factors and financial strength Company Major Portfolio OPM Trend Net Profit margin trend Number of Working Capital Days Whirlpool of Refrigerators, India Ltd. Washing Machines, Microwave 59 Oven, AC, Water purifiers Hitachi AC, Refrigerators 24 Financials Mtk cap: INR bn P/E: 38.0 x EBITDA Margin: 10.05% EV/Sales: 2.7x Mtk cap: INR bn P/E: 48.7 x EBITDA Margin: 8.77% EV/Sales: 2.6x Symphony Air Coolers 70 Mtk cap: INR bn P/E: 58.9 x EBITDA Margin: 27% EV/Sales: 12.6x Voltas AC 77 Mtk cap: INR bn P/E: x EBITDA Margin: 5.89% EV/Sales: 1.7x Blue Star IFB AC, Refrigerators Washing Machine, Microwave, Kitchen Appliances Mtk cap: INR bn P/E: 20.2 x EBITDA Margin: 5.63% EV/Sales: 1.4x Mtk cap: INR bn P/E: 49.8 x EBITDA Margin: 6.86% EV/Sales: 2.1x Phase Akraman1.0 Akraman2.0 Akraman3.0 Source: Bloomberg, Student Research Exhibit 15: Revenue Growth 35.0% 30.3% 26.3% 30.0% 25.0% 20.0% 16.4% 15.0% 9.6% 10.0% 4.6% 2.5% 5.0% -2.1% 0.0% -5.0% FY FY FY FY FY FY FY Revenues Source: Company Data Exhibit 16: EPS Growth Focus Growth YoY 140.0% 119.9% 120.0% 100.0% 80.0% 71.3% 60.0% 40.0% 20.0% 3.2% -3.8% 0.0% -25.5% -20.0% -40.0% FY FY FY FY FY EPS Source: Company Data Growth YoY Exhibit 17: Details of project Akraman Highest number of product launches Restructuring Distribution Improving shop floor conversion Source: Company Data, Student Research Investment Summary We initiate coverage of Whirlpool of India Ltd. with a BUY recommendation and a target price of INR using Discounted Free Cash Flow to equity and Relative Valuation methodologies, offering a 21.05% upside from current stock price of on October 17, WIL is one of the leading Indian players in the consumer durables segment holding over 12% market share with strong capabilities and foothold in the refrigerator and washing machines segments. WIL with its sound financials and strong parent support is expected to benefit from the growing demand in the industry and positive macro-economic factors. The company is well placed with strong financials WIL recorded a sales and revenue growth of 11% and 12% CAGR even during the slump period of FY2009-FY2014. With an increase in consumer demand post FY2014, the company has shown a robust turnaround with 16% YoY growth in revenues, margin expansion by 2.6% and EPS growth of 71% YoY in FY2015. Although part of these realisations were supported by a fall in commodity prices in the last fiscal with ~40% reliance on imports, it was able to log in premium pricing as well. Post FY2009, WIL has turned into a net cash company with no long term liabilities. With its three state-of-theart manufacturing facilities running at an overall average utilization of 50%, the company has enough headroom for expansion without incurring large capital expenditure in the foreseeable future (Appendix 2) And the growth is expected to continue WIL had set in ambitious targets of increasing its revenues 2.5X in the next three years with a CAGR of 35% over the FY14-17E period. Although we saw a weak summer impacting Q1 15 growth leading to management lowering its volume guidance from 10% to 5%, we believe that positivity showed by encouraging IIP numbers of 4.1% in April- August period (Consumer durables contributes more than 5.5% to IIP) combined with pickup in demand pre festive season will help the company report an overall 22% YoY growth in revenues for FY16. With its focus on premiumization, we believe that this strategy will pay more in the future and the company will be able to focus on the premium end of each sub-segment in future thereby competing on the technology front rather than on the price front and retaining its focus on profitability. For taking on competition, the company introduced project Akraman. The details are provided in Exhibit 17 The company has also diversified its product portfolio, focussing on maintaining markets in the refrigerator and washing machine segment and making the market in the high growth segments of built in kitchen appliances, air conditioners and microwaves by 5

7 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Exhibit 18: Market Penetration India vs Global Average % Exhibit 20: Segment Wise revenue (INR Mn.) and sales growth FY 2013 FY 2014 Other appliances Microwave 85.0% Refrigerators India Source: Euromonitor Washing Machine FY % 70.0% Washing Machine Global Average FY 2016 FY 2023 Spares for finished goods AC Refrigerators 3.0% 60.0% Air Conditioner Exhibit 19: Interest Rate movement (%) Source: RBI Data Source: Company Data, Student Estimates Whirlpool of India Q211 net down nearly 53% at Rs cr putting greater focus on these. The company has entered into special tie-ups with real estate firms like DLF to fit kitchen appliances in their projects apart from opening exclusive built-in showrooms called 'Whirlpool Haute Kitchen'. With this WIL expects to increase the contribution of this segment from the current INR 300 million to INR 1 billion by The company is also building a strong franchise of split A/Cs with its new Climate Control technology. Sensing the opportunity, WIL has also tied up with modern trade outlets like Flipkart for sale of its products. With strong support from parent (Appendix 5) Whirlpool Corporation, the parent of WIL, is the world s largest home appliance maker by revenue (US$20 bn in CY2014) with market leadership in the developed world. The company under its product innovation for local markets strategy expects to drive growth in the Indian markets. India is an important territory for Whirlpool Corp to drive its presence in Asia. WIL imports A/Cs and built in range of kitchen appliances from Whirlpool s subsidiaries abroad. Whirlpool Corp has also acquired 51% stake in Hefei Rongshida Sanyo Electric Company based in China. Once the synergies start building in, WIL s ability in product development and product sourcing from China will improve significantly. Whirlpool Corp charges a royalty payment of ~1.6% for all this. Supported by growth in the industry The consumer durables industry has a good headroom for expansion in India given the current low penetration levels in the various segments specially related to the white goods industry (Appendix 20). The growth is mainly derived from urban areas with ~65% of total revenues supporting the target market for WIL (Appendix 28). We expect the penetration levels to rise going forward on account of improvements in affordability of households indicated by the growing per capita income and availability of finance. It may be noted that more than 50% of the total Indian population falls in the working age group of 15 to 54 years and with growing incomes and aspirations the demand for white goods is expected to be driven by this age group. There has also been a shift in the consumer preference towards more premium products like the automatic washing segment, split A/Cs, frost-free refrigerators etc. which are the strength areas for WIL. On the other hand, there is intense competition in the industry with other Asian players like LG, Samsung taking over a good share of the market (~40%) leading to price wars. Adding to this, the new BEE norms effective April 2016 might also put pressure on margins in the short term, but historically industry has passed on the cost to the consumers so a gradual volume-mix shift towards higher rate products is bound to bring an improvement in the margins in the long term. (Appendix 25) And other macro-economic factors The country s GDP is expected to grow at 7% levels till 2020 (Appendix 27). With this growth, a huge increase in discretionary spending is also expected. This increased demand is further fuelled by lowering inflation and interest rates in the economy. Another major impetus for increased demand will be the 7th pay commission which is likely to improve demand for white goods segment. The weakening of rupee may put pressures as ~40% of its products are imported but we that the growth factors offset this pressure. Exhibit 21: WIL price movement over 5 years and key happenings Sensex and NSE crashes on chinese yuan devaluation Whirlpool Q414 net profit rises 44% to Rs 35.5 cr Whirlpool of India Q413 net profit declines by 33% Whirlpool Q215 results rises 2 Folds to 40.7 Announcement of Fed tapering September AGM, Volume Guidance reduced Make In India Launch Make In India Announcement Source: Bloomberg, Student Research 6

8 Beta Computation Beta(industry) 1.46 D/E (industry) 0.18 Beta unlevered 1.31 Whirlpool D/E 0 Beta levered 1.31 Cost of Equity Beta 1.31 Risk free rate (10- year Government bond yield) 7.53% Equity Risk Premium 5.71% Cost of Equity 14.98% D/E 0 WACC 14.98% Method Price Weight Value DCF % P/E % EV/ Sales % EV/EBITDA % Relative % Price Target CMP Upside 21.05% Source: Student Estimates Terminal Growth Growth of new segments and A/c Exhibit 22: Computation of Beta Source: Bloomberg, Student Estimates Exhibit 23: Computation of Weighted Average Cost of Capital Source: Bloomberg, Student Estimates Exhibit 24: Computation Target Price Exhibit 25: Sensitivity Analysis WACC % 14.5% 15.0% 15.3% 15.5% 3.0% % % % % Growth of Refrigerator & Washing Machine % 10% 12% 14% 16% 10% % % % % Source: Student Estimates Valuation The price of Whirlpool of India Ltd. has been rising from 2014 due to a boom period in the overall consumer durables industry. At the CMP, WIL is trading at 38.0x P/E, 2.7x EV/Sales and 23.9x EV/EBITDA. Considering company s healthy financials, growing consumer durables industry, favourable government policies and strong parent support, we issue BUY recommendation with a price target of INR We have considered two standard approaches to value WIL: Discounted Cash Flow (DCF) Method and Relative Multiples Valuation. Giving 60% weightage to DCF and 40% to Relative multiples we get a target price of INR (Exhibit 23). Discounted Cash Flow Method Looking at the historical trends, it has been found that there is high correlation between per capita income growth of India and the growth of consumer durables sector. The industry grows with a multiplier of 2.3x of per capita income growth (Appendix 27). And then based on the market share which is expected to increase every year, we have computed the revenues for WIL (Appendix 30). WIL currently derives majority of its revenues (83%) from its refrigerator and washing machine which is expected to continue even in future. However, due to management s aggressive marketing and focus on newer segments, revenues from air conditioners, microwaves and newly introduced kitchen appliances is expected to grow at a faster pace and thus, we expect a higher YoY growth in these segments (Appendix 28). We have forecasted the earnings of the company in two phases. The first phase includes a detailed year-to-year forecast up to 2023 and a constant growth rate of 5% is assumed for the terminal phase. The target price so achieved using this approach is INR 803. The DCF Model involves following assumptions: Cost of Goods Sold: With the acquisition of Hefei Rongshida Sanyo Electric Company based in China, Whirlpool Corporation will gain manufacturing scale and a competitive cost structure. Leveraging these synergies, WIL s ability in product development and product sourcing from China will improve significantly which would reduce COGS as a percentage of Sales (Appendix 2) Capital Expenditure: Historically, the capex has been close to 3% of the revenues and over the next 5-10 years, there is not going to be a huge capex requirement. If at all any capex requirement arises, it would be met by the existing manufacturing plants whose capacities are not fully utilized. Weighted Average Cost of Capital: Since the company has zero debt and has no plans for expansion and hence taking debt, the cost of equity will be its WACC. The Cost of Equity is calculated using CAPM (Appendix 32). The risk-free rate of 7.5% is arrived using 10-year government bond yield and beta was computed using bottom up approach (Appendix 32). Terminal Growth: The cash flows, being very uncertain in this industry, have been projected till 2023 post which a terminal growth rate of 5% is assumed. This assumption is in line with the cyclicality of the industry which might hamper the growth. Short-term Investments: Since WIL is sitting on huge cash and has no plans for expansion or raising debt in future, we have assumed that it would invest 5% of its revenues in short-term investments. Sensitivity Analysis We performed sensitivity analysis on factors which directly impact out valuation assumptions. From sensitivity analysis we found that our valuation is mainly sensitive to Terminal growth, rate of growth of revenues from refrigerators and washing machines and WACC. Monte Carlo Simulation A Monte Carlo Simulation tool was utilized in analysing the potential outcomes of Whirlpool`s growth prospects. This methodology simulates a range of possible outcomes for the multiple variables determining the intrinsic value of WIL s stock price. Key factors for this model include WIL s growth opportunities, WACC and Input costs. 7

9 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 Oct-15 Frequency CFA Institute Research Challenge Exhibit 26: Monte Carlo Simulation 10,000 simulations were run which accounted for each possibility of a feasible change in important company specific, industry macroeconomic factors. These inputs leads to a Price target range of INR 720 and INR 970 with a 90% confidence level. Student Research Exhibit 27: WIL vs IFB Comaparison Jan Jan-15 WHIRLPOOL IFB Source: Student Research Exhibit 28: Relative Multiples comparison with peers Company EV/EBITDA P/E EV/Sales WIL 23.9 x 38.0 x 2.7 x SYMPHONY 40.2 x 58.9 x 12.6 x Hitachi: HLS 22.2 x 48.7 x 2.6 x Blue Star 19.6 x 20.2 x 0.9 x IFB 22.1 x 49.8 x 1.8 x VOLTAS Ltd 18 x 22 x 2 x MEDIAN 22.07x 42x 2.22x Source: Bloomberg, Student Research Relative Valuation Method (Appendix 33) Apart from the DCF method, we also analysed trailing price relatives of comparable firms, after selecting the appropriate peer group, we identified the most appropriate local peer of Whirlpool India ltd. as IFB (NSE:IFBN) since its major business lines are Washing Machines and Refrigerators which constituted around 98% of the sales of WIL in FY15. For multiples price valuation we chose EV/Sales, EV/ EBITDA and P/E multiples, all based on one-year forward medians. EV/Sales was chosen specifically due to the cyclical nature of White Goods industry, and capital intensive nature requires valuation through EV/EBITDA. Analysis using P/E Method: We constructed P/E bands based on 2 year forward median values and we observed an historical discount of 30% for WIL over its peers group median values. We value WIL at INR 880 using 35.7x median P/E for FY`17. Historically, WIL has traded below its median 2 year Forward P/E multiple, Recently all the stocks in this sector have been trading at higher P/E valuations, WIL has also followed the same trend. This change is completely justified by change in the political scenario and improving macroeconomic environment resulting in a positive sentiment Source: Bloomberg, Student Research Exhibit 30: P/E Bands Chart Adj Close 11x 16x 24x 32x 42x Exhibit 29: 1 Year Fwd P/E Median: 22.86x Analysis using EV/Sales Method We observed that median EV/Sales of the peer set to be 2.32x and the subsequent analysis leads to an intrinsic value per share of INR for WIL, a ~20% discount to the current trading price, which further re-affirms our Buy recommendation Analysis using EV/EBITDA Method The observed median EV/EBITDA for FY17 was found at 16.7x from the peer set and the workings with 2-year forward EBITDA (FY16E) leads to an intrinsic value of INR for WIL, a ~25% discount to the current trading price. So there is a huge upside for the stock. 1 yr Fwd P/E multiple Median Source: Bloomberg, Student Research Due to the discount at which WIL`s CMP is trading we remain confident that this valuation using the multiples strongly reaffirms our Buy recommendation and validates our target price of INR with an upside potential of ~21.05% (See Appendix for complete valuation). 8

10 INR million % INR million CFA Institute Research Challenge Financial Analysis Exhibit 31: Key Financial Ratios Key Ratios FY 2013 FY 2014 FY 2015 FY 2016 E FY 2017 E FY 2018 E Shareholder Ratios EPS Profitability Gross Profit Margin (%) EBIT (%) Net Profit (%) Exhibit 32: Segment wise Revenue Break up and growth FY FY 2014 Refrigerators AC Others FY 2015 Exhibit 33: PAT, PAT margin, EBIT Margin FY FY FY FY FY FY PAT EBIT Margin (%) PAT Margin (%) FY 2016 FY 2017 Source: Company Data, Student Research FY 2018 Source: Company Data, Student Research 60% 40% 20% 0% Exhibit34: RoE Trend 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Washing Machine Microwave Growth FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Median Whirlpool Source: Company Data, Student Research - Performance RoE (%) RoA (%) Efficiency Asset Turnover (X) Receivable Days Inventory Days Working Capital Days Liquidity Current ratio Quick Ratio Overview Exhibit 30 depicts the financial condition of WIL for the next three years based on our underlying assumptions. The company is fundamentally sound and has the strong backing of its parent Whirlpool Corp. which is a global leading consumer durables company. WIL is a net cash company with zero long term debt. (Appendix 3) Growth driven by macro-economic variables WIL was able to record a revenue CAGR of 11% even during the slump period of FY Post that as the demand has picked up, WIL reported 16% YoY growth in revenues. Going forward as well, the company is going to benefit from macro-economic factors like increasing per capita incomes and stabilising interest and inflation environments. Also, given the strong headroom for market penetration from current levels, it is expected that WIL over the next 5 years will be able to report healthy growth of 17% CAGR in revenues. Profitability to remain strong WIL has kept its focus on premium products resulting in sound profitability. Based on the shift in consumer preferences towards premium products and WIL s own technological capabilities it is expected that it will be able to grow at profits of 16% CAGR over the next 5 years. Net cash company with high liquidity Post FY2009, WIL has done away with long term debt and maintains high liquidity with a cash balance of INR 5.3 billion in FY Because of good internal capital formation and no requirements for capacity expansion in the near future (Plants are operating at ~50% capacity currently), no pressure of financing charges would be there for the company and the liquidity position will remain strong. The current ratio has improved as WIL has better working capital management than it peers with average working capital days of 56.8 despite it being in an industry which has to carry high inventory. 9

11 Low Severity High INR million CFA Institute Research Challenge Exhibit 35: DuPont Analysis ROE Decomposition In the analysed historical period WIL has given good return on equity mainly driven by good profitability. The profitability is further due to its sound operating model which has allowed it to have strong operating margins even during slump periods. (EBIT Margin: 6.5% in FY 2009). The financial leverage is high, but WIL has no long term debt. The short liabilities are well covered by current assets (Current ratio is 1.64 for FY 2015). WIL is operating at only about half of its total capacity which leads to great scope for increasing revenues without incurring further capex in the near term. Investment Risks 12.0% 11.5% 11.0% 10.5% 10.0% 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% Source: Company Data, Student Research Exhibit 36: Steel as a % of total Cost FY 2008 RR2 CR2 CR1 11.3% 9.7% FY 2009 FY 2010 ER1 ER3 11.4% FY % 9.4% FY 2012 ER2 FY 2013 Source: Company Data, Student Research 10.7% 10.2% FY 2014 IR1 RR1 7.8% FY 2015 Exhibit 37: Imports as a % of Total costs % 27% 33% Total Input costs Source: Company Data, Student Research Imported Exhibit 38: Investment Risk Sensitivity Low Probability High Source Student Estimates 40% 35% 30% 26% 25% 20% 15% 10% 5% 0% Economic Risk Revival of growth (ER1) Revival of growth is the single largest concern for the industry. It is therefore imperative that GDP growth returns to the 8%+ level, creates surplus income in the hands of consumers, which is a critical factor for discretionary businesses such as Whirlpool`s to thrive. Economic Risk Higher commodity Prices (ER2): The major inputs for WHIRLPOOL are Compressors, Steel and other components which majorly includes Plastics and PCB Boards. Recently, it has benefitted from falling steel prices seen in the expansion of the profitability margins. Steel costs have come down from 10.2% in FY`14 to 7.8% in FY`15. So, there is a downside risk of bottoming up of steel prices in the future which can impact the margins adversely. Economic Risk Currency Risk (ER3) Whirlpool imports around 30% of its raw materials primarily from US and European countries, hence there is a major risk of any untoward currency depreciation impacting the Cost of Goods Sold and subsequently the margins. Industry specific risk Intense competition (IR1) India`s high growth potential has drawn several foreign players into the market, and as Industry grows we expect aggressive expansion by the current and new players, which might upset the growth prospects of WIL, as Historically WIL hasn`t compromised on margins, thus intense competition is a key risk for the margins of WIL. Company Specific Risk Less focus of the Parent (CR1) The home appliance industry requires frequent product launches with contemporary design and features, requiring continuous investments in product development and product innovation in accordance with the tastes of the local market. Low focus on the Indian Market by the Parent may cause Whirlpool to lose its marketing standing in the long run. Company specific risk Increased Royalty payments (CR2) Over the years, WIL`s royalty payments have ranged from % of the total revenue. If there is any increase in these payments then it is bound to have a negative impact on the profit margin of WIL. Regulatory Risk Impending BEE Norms (RR1) Energy efficiency for Direct Cool (or single door) refrigerators, which was voluntary until December 2014, has become mandatory from January Energy norms for Air Conditioners and Frost Free refrigerators will get tougher in January E-Waste Rules, which came into effect in May 2012, is being revised to make producers more accountable. Finally, CSR is now mandatory for companies such as Whirlpool. All these have added to costs, both direct and indirect. Regulatory Risk More FTA`s on the anvil (RR2) More FTA s are on the anvil, e.g. with Australia, Japan and EU. India is actively participating in the Regional Comprehensive Economic Partnership (RCEP) agreement, a formation of 16-member countries comprising of 10 ASEAN members and its six FTA partners namely India, China, Japan, Korea, Australia and New Zealand. This may alter the contours of trade for our industry and company. Equity Research Report ends here 10

12 Appendix 1: Profit & Loss Statement In Millions of INR except Per Share FY 2013 FY 2014 FY 2015 FY 2016E FY 2017E Revenues Refrigerators 17, , , , , Washing Machine 5, , , , , Refrigerators +Washing Machine 23, , , , , AC 1, , , , , Microwave Spares for finished goods 1, , , , , Other appliances , , , Gross Sales 30, , , , , Less: Excise Taxes 2, , , , , Add: Sundry/Other Operating Income Total Revenue 27, , , , , COGS 17, , , , , Operating Expenses 5, , , , , Operating Profit 4, , , , , Salaries Wages and Employee Benefits 2, , , , , Depreciation Expense Total Operating Expenses 26, , , , , EBIT 1, , , , , Total Financial Costs PBT 1, , , , , Tax Expense , , Tax % 28.70% 29.44% 29.95% 34.61% 34.61% PAT 1, , , , , Source: Company Reports and Student Estimates 11

13 Appendix 2: Balance Sheet In Millions of INR except Per Share FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Assets Cash & Near Cash Items 1, , , , ,908.5 Short-Term Investments , ,032.0 Accounts & Notes Receivable 1, , , , ,295.3 Inventories 5, , , , ,722.2 Other Current Assets Total Current Assets 8, , , , ,531.8 LT Investments & LT Receivables Net Fixed Assets 4, , , , ,329.9 Gross Fixed Assets 9, , , , ,188.0 Accumulated Depreciation 5, , , , ,858.0 Other Long-Term Assets , ,147.7 Total Long-Term Assets 4, , , , ,477.6 Total Assets 13, , , , ,009.4 Liabilities & Shareholders' Equity Accounts Payable 5, , , , ,172.8 Short-Term Borrowings Other Short-Term Liabilities , , , ,607.5 Total Current Liabilities 6, , , , ,780.3 Long-Term Borrowings Other Long-Term Liabilities , ,326.7 Total Long-Term Liabilities , ,326.7 Total Liabilities 7, , , , ,106.9 Total Preferred Equity Minority Interest Share Capital & APIC 1, , , , ,395.6 Retained Earnings & Other Equity 4, , , , ,506.8 Total Equity 6, , , , ,902.4 Total Liabilities & Equity 13, , , , ,009.4 Source: Company Reports and Student Estimates 12

14 Appendix 3: Historical Ratios Ratios FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Median Whirlpool Median Whirlpool Median Whirlpool Median Whirlpool Median Whirlpool Liquidity Current ratio Quick ratio Shareholder Ratios Earnings per share Book Value Investment Valuation ratios Operating profit per share Net Operating Profit Per Share (INR) Debt Coverage Ratios Interest cover Total Debt to owners fund NA 0.8 NA 0.6 NA 0.5 NA Profitability Ratios EBITDA Margin (%) Cash Profit Margin (%) Net Profit Margin (%) Return On Net Worth (%) Management Efficiency Ratios Inventory Turnover Ratio Debtors Turnover Ratio Investments Turnover Ratio Fixed Assets Turnover Ratio Number of Days In Working Capital

15 Appendix 4: Current Plant capacity Plant Production capability Production Capacity Current Utilization Faridabad, Haryana Direct Cool Refrigerators 2mn units (6,000 units/day) 80% with Double shift Ranjangaon, Pune Frost Free Refrigerators 0.8 mn units (2,500 units/day) 60% with single shift Puducherry Washing Machines 1 mn units (3000 units/day) 60% with single shift Overall Capacity Utilisation ~50% Source: Student Research Appendix 5: Whirlpool Corporation The Whirlpool Corporation is an American multinational manufacturer and marketer of home appliances, headquartered in Benton Charter Township, Michigan, United States. It is the number one major appliance manufacturer in the world, with approximately $20 billion in annual sales, 100,000 employees and 70 manufacturing and technology research centres throughout the world in The company markets Whirlpool, KitchenAid, Consul, Maytag, Brastemp, Amana, Bauknecht, Jenn-Air, Indesit and other major brand names in more than 170 countries. The company is known as one of the leading innovation and Technology Company in the world. It derives maximum revenue from American and Latin American regions. Of late the company has started increasing its footprint in Asian region owing to the large opportunity present here. The major territories in Asia are India and China. The company in October 2014 completed the acquisition of Hefei Sanyo to gain stronger presence in the Asian markets % Revenue breakup 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% 4.1% 4.0% 15.1% 19.5% 24.6% 23.4% 50.8% 53.1% North America Latin America EMEA Asia Source: Company Data 14

16 Appendix 6: Whirlpool Corp Market positioning Brazil UK US Whirlpool #2 #3 #4 Whirlpool #2 #3 #4 Whirlpool #2 #3 #4 China Italy India #1 #2 #3 Whirlpool Whirlpool #2 #3 #4 #1 #2 Whirlpool #4 Source: Student Research 15

17 Appendix 7: WIL Business Model WIL deals with two types of goods: Trading Goods: Goods that are semi-finished that are used to produce a Finished Product. They are traded multiple times. Manufactured/ Finished Goods: In contrast, finished goods are sold to the customers directly and there is no further trading involved. Manufactured Goods Trading Goods (Includes spares for finished goods) Refrigerator Washing Machines Air Conditioner Microwaves and Kitchen Appliances Whirlpool of India Faridabad Plant Whirlpool of India Puducherry Plant Beijing Embraco Snowflake Compressor Company Ltd Whirlpool Corporation Inc., Usa Whirlpool of India Ranjangaon Plant Others Whirlpool Microwave Product Developments Ltd (Hong Kong) Whirlpool Europe Source: Student Research Appendix 8: Institutional Investor Details % Shares Owned: 12.52% # of Holders: 32 Total Shares Held: 158,78,465 Net Change: 1,85,175 # New Positions: 2 # Closed Positions: 1 # Increased Positions: 7 # Reduced Positions: 6 # Net Buyers: 1 Source: Company Report 16

18 Appendix 9: Beneish M-score Beneish M Score is a mathematical model which takes financial ratios as eight variables to decide if there are any manipulations in the accounts and earnings. Model considers following 8 variables: 1. DSRI - Days' sales in receivable index 2. GMI - Gross margin index 3. AQI - Asset quality index 4. SGI - Sales growth index 5. DEPI - Depreciation index 6. SGAI - Sales and general and administrative expenses index 7. LVGI - Leverage index 8. TATA - Total accruals to total assets M Score is then calculated using following formula: M = *DSRI *GMI *AQI *SGI *DEPI 0.172*SGAI *TATA 0.327*LVGI 4.679*0. If the M Score calculated is less than -2.22, the company is not manipulating its earnings. M-Score Calculation for Whirlpool of India Ltd. DSR GMI AQI SGI DEPI SGAI LVGI TATA M-score As M-Score for WIL is less than -2.22, there are no manipulations in the financial statements. 17

19 Appendix 10: Market Share Break-up The White Goods industry is dominated majorly by foreign players, namely LG, Samsung. These 2 company has around 40% of the total market. Rest of the market is divided between Whirlpool, Videocon, Godrej and Others. Below is the market share break up for the year 2014: Home Appliance Industry Market share(2014) Electrolux 5% Haier 4% Others 16% LG 26% Godrej 10% Whirlpool 10% Videocon 11% Samsung 19% LG Samsung Videocon Whirlpool Godrej Electrolux Haier Others Source: Euromonitor When we see component wise market share, we observe that LG is the dominant plater across all the categories followed by Samsung. WIL is the 4the largest player over all with individual market shares of 11%, 12% and 3% in the Refrigerator, Washing Machine & AC segments, respectively. Company Refrigerator Washing Machine Air Conditioner Microwave LG 22% 32% 18% 39% Samsung 19% 24% 12% 18% Videocon 11% 16% 7% 6% Whirlpool 11% 12% 3% 5% Electrolux 6% 4% Godrej 14% 6% Haier 4% Panasonic 7% 5% Daikin 8% Voltas 20% Blue star 5% Others 13% 10% 20% 23% Total 100% 100% 100% 100% Source: Student Research 18

20 Appendix 11: Porter s Five Forces Analysis of Consumer Durables Industry Bargaining power of suppliers Threat of new entrants Bargaining power of customers LEGEND 0 - No threat to the business 1 - Insignificant threat to the business 2 - Low threat to the business 3 - Moderate threat to the business 4 - Significant threat to the business 5 - High threat to the business 0 Average Score 2.6 Rivalry among existing competitors Threat of substitutes Threat of new entry LOW: Generally companies need a lot of investment to set up the manufacturing cost or import from their parent country to the local market. Though technology intensive, given the cut-throat competition bringing about product differentiation in the minds of the customers is still a challenge. As Whirlpool of India and its peers have been in the market for a long time the crucial retail distribution network is established and loyal. New entrant would find it difficult to penetrate the markets visà-vis existing players. Economies of scale In the consumer durables industry the companies play on volumes Bargaining power of customers MODERATE: The customers are spoilt for choice in the white goods segment. It is also important to note that the inherent value of the goods is high which hinder customers from switching to similar products on a regular basis. Though there are no direct switching costs, customers do tend to use the durables to last their complete lifetime while taking the support of a very good after sales service. The bargaining power of the customers is limited to the sense that when the products a technologically lagging or the price of the goods is out-of- sync with the market there can be a correction forced by switching brands. Threat of substitutes LOW: Threat of substitutes tends to be higher in electronic goods like mobiles and kitchen appliances. As there are is a lot of competition from cheaper and traditional substitutes in kitchen appliances. Whirlpool of India has no mobile segment and a limited exposure to the kitchen appliances segment. Threat of substitutes is almost non-existent in the air conditioners, refrigerator segment. With women being the primary target customers, the growing percentage of women in the working class would drive this further down in the future. Rivalry among existing competitors SIGNIFICANT: Presence of a large market in an emerging market like India has attracted many global players to the country, Whirlpool of India being one of them. This, in addition with the domestic players, caused intense rivalry in the field where product differentiation is limited. The overall penetration of the market has been low and with the semi-urban and rural markets relatively unexploited the rivalry among existing competitors is expected to go higher. Bargaining power of suppliers LOW: As one of the key factors to enter and succeed in the consumer durable industry is to establish the supply chain, all the players including Whirlpool of India have longstanding relationships with their suppliers and most of the components are built in-house to reduce this dependency. Moreover, it takes a lot to modify an existing supply chain and this would directly impact sales. Though the number of suppliers who offer similar services is high, their bargaining power tends to be low 19

21 because they need the Consumer durable companies as much as the companies need the suppliers result in a very balanced scenario. Future Outlook as a Whole With government initiatives like make in India and the steeply raising disposable income in the country makes India a hotspot for the next years. After which there would still be a huge replacement demand. There will still be challenges due to lack of infrastructure, high distribution costs which will hinder the penetration process. Overall, the future for the consumer durables industry looks very promising. Appendix 12: Impact of various factors on industry Negative Impact Positive Impact 20

22 Appendix 13: SWOT Analysis Threats SWOT Analysis Strengths Weakness Opportunities Strengths Offers products for all income levels with special focus on the premium segment (400+L capacity) Well established distribution network with recent foray into the online (e-commerce) space Good Brand Visibility and a Global operating platform R&D and continued innovation in energy efficiency, cooling and storage techniques Weakness Demand is seasonal and dependent on external factors like Monsoon Low purchasing power of Customers in India Lack of a clear strategy for business growth and penetrating Indian Markets Opportunities In India, the penetration levels are rather low and thereby a lot of scope for expansion Rural markets will take some time to mature after which they can be penetrated Increasing Income levels and Rapid Urbanization Rapidly expanding Sub-Continent (Nepal, Sri Lanka, Bangladesh etc.) and South-East Asian markets and higher focus on export. Threats Cheaper imports from Asian countries Import duties imposed on raw materials are steadily increasing Make in India and other government initiatives might lead to the entry of more local players in the air conditioning and kitchen appliances segments 21

23 Appendix 14: Industry Volumes No. of Units (mn.) CAGR (%) Refrigerator Air Conditioner Washing Machine Microwave Oven Total Volumes The overall industry is expected to grow at a CAGR of 11% till 2025 and individual volumes of Refrigerators, ACs, and Washing Machines are expected to grow 7.2%, 12.6% & 8.1%, respectively. This volume growth is led by a continued trend of premiumization and an expected shift in industry volumes towards higher star rated products which denotes higher energy efficiency, thus Volume growth is sustainable in the long term horizon. Source: EY and FICCI Industry Report 22

24 Appendix 15: Shift in Consumer Preferences Washing Machines The pattern of Sale of Washing Machines has changed over the years with Semi-Automatic machines constituting around 86% of the total Washing Machines sold in 2000, and in 2014 the sale of Automatic Machines picked up momentum by increasing to 32% and is expected to grow at a CAGR of ~7% yoy Shift in prefernces (%) Semi Automatic Fully Automatic Air Conditioners: Shift in Air Conditioner preferences (%) AC sales break up has gone under a substantial change. In 2000 Split ACs only constituted around 29% of the total ACs sold, but in 2014 the sale of Split ACs and has increased to 82%, and with the advent of BEE norms, this trend is likely to be continued Window Split Source: Euromonitor 23

25 Appendix 16: Financing Patterns Home appliances purchase transactions is largely done through Cash or Credit Cards in India, and television accounts for more than half of the home appliance financing in India. Mode of Purchases Share of Financing in Consumer Durables Cash Credit Cards Other Financing TV AC Others Source: Student Research Appendix 17: Electrification Government has introduced a scheme for electrification drive plan for Rural India titled Deen Dayal Upadhaya Gram Jyoti Yojna(DDUGJY), under this the Government has allocated INR 700 Billion under the 12 th 5-year plan, to improve the supply of electricity. Electrification trend Total Urban Rural Source: Student Research 24

26 Appendix 18: Replacement Cycles Replacement cycles - years Dishwashers Automatic washer dryers Automatic washing machines Semi-Automatic Washing Machines Built-In Hobs Ovens Cooker hoods Cookers Microwaves Fridge freezers Fridges Split air conditioners Window Air Conditioners Cooling fans Food preparation appliances Heating appliances Irons Body shavers Hair care appliances Coffee machines Freestanding Hobs Mini-Ovens Cylinder vacuum cleaners Handheld vacuum cleaners Source: Euromonitor 25

27 Appendix 19: Global Comparison Current GDP Levels (in USD billion) Indonesia Mexico Spain Russia Australia Korea Canada Brazil Italy India France United Kingdom Germany Japan China United States , , , , Source: World Bank data Global Inflation India Inflation % Global Inflation % Source: World Bank data 26