WHIRLPOOL OF INDIA LIMITED Target Price INR 786.5 Initiating Coverage Report Symbiosis Centre for Management and Human Resource Development, India UPSIDE 15% 1. Improving Indian Economy 2. Strong brand operating in a favourable industry 3. Strong Financial Performance Price (17/10/15) INR 682.75
Company Legacy FIIs 6% Corporate Bodies Public 9% Mutua l Source: Company data, Team Research Promoters 75% Promoters: Whirlpool Corporation Inc., USA through Whirlpool Mauritius Ltd
Home Appliance Industry Market share(2014) Consumer Durables Industry Haier 4% Others 16% LG 26% Electrolux 4% White Goods Brown Goods Godrej 10% Whirlpool 12% Videocon 9% Samsung 19% LG Samsung Videocon Whirlpool Godrej Electrolux Haier Others Refrigerators TVs Company Refrigerator Washing Machine Air Conditioner Microwave Washing Machines Microwaves LG 22% 32% 18% 39% Samsung 19% 24% 12% 18% ACs Other Domestic Appliances Whirlpool 12% 12% 8% 9% Videocon 11% 12% 7% 6% Source: Team Research Electrolux 6% 4%
Product Portfolio Product Portfolio Refrigerator Washing Machine Air Conditioner Microwaves and Kitchen Appliances French Door Fully Automatic 360º Machine Split Convection Grill Multi Door Double Door Single Door Fully Automatic Top Load Semi Automatic Window EAT Water Purifier Latest additions RO Water Purifier Built in Appliances Induction Cooktops Source: Team Research
1 India: The Growth Story
1 Macro 12 10 8 6 4 2 0 GDP Growth Rates 7.3% 2008 2010 2012 2014 2015 10 8 6 4 Inflation Movement 5.2% India China World 2 2012 2013 2014 2015 9 Interest Rate movement 8 7 6 6.5% 5 4 Source: OECD, Team Research
1 Macro Growing Urbanisation Monthly Per Capita Expenditure on Durable goods (INR) Share of Discretionary spending increasing (%) 2020 2015 2010 2005 2001 425 388 351 314 286 200 180 160 140 120 100 80 60 40 20 0 56 47 59 62 21 22 26 28 93 39 36 81 100 50 139 65 165 76 187 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 90 36.4 41.1 45.8 63.5 59.2 54.2 59.7 40.3 72 72 28 FY 81 FY 92 FY00 FY 10 FY 20 E Rural Urban Basic Discretionary 50% of the total population falls in the working age group of 15 54 years Census 2011 Source: Euromonitor, Team Research
2 Is WIL Prepared to tap on the opportunities of an underpenetrated market?
2 Industry Scenario Market Penetration India vs Global Average 100.0% 80.0% 60.0% 85.0% 70.0% 60.0% 40.0% 20.0% 26.0% 12.0% 8.0% 0.0% Refrigerators Washing Machine Air Conditioner India Global Average 140% 120% 100% 80% 60% 40% 20% 0% Refrigerator penetration in India Penetration across countries, CY 2014 (% of households) 26% 48% 72% 75% 89% Source: Euromonitor, Team Research 98% 98% 113% 115% 140% 120% 100% 80% 60% 40% 20% 0% Washing Machine penetration in India Penetration across countries, CY 2014 (% of households) 12% 29% 61% 76% 84% 95% 103% 104% 124% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Air Conditioner penetration in India Penetration across countries, CY 2014 (% of households) 8% 8% 50% 53% 72% 89% India Indonesia Korea China Singapore Taiwan
2 Variants provided by different brands Whirlpool Hitachi LG Samsung IFB Videocon Refrigerators 37 28 154 74 12 49 Washing Machines 25 4 79 49 26 83 Air Conditioners 20 14 83 74 21 65 Microwaves 18 NA 22 28 17 NA Water Purifiers 5 NA 7 NA 1 NA Built in Appliances 75 NA NA NA 42 NA Source: Team Research
2 Paradigm shift in preferences (PREMIUMIZATION) Industry Scenario 2000 Washing Machines 2014 17% 32% 83% 68% Automatic Semi Auto Automatic 2000 Air Conditioners Semi Auto 2014 26% 19% 74% 81% Split AC Window AC Split AC Window AC Source: Euromonitor, Team Research
2 PRIMARY RESEARCH Rank 7 6 5 4 3 2 1 0 Price Brand Comparison Variants Technology Brand Recall In Store Presence Whirlpool Hitachi IFB LG Samsung Videocon Source: Team Research Rankings Premium Segment Refrigerator Hitachi 1 Whirlpool 2 Samsung 3 Videocon 4 IFB Only targeting Mid Income segment Rankings Premium Segment Washing Machines Hitachi 1 Whirlpool 2 IFB 3 Samsung 4 LG 5 Videocon 6
2 Corporate Governance & CSR Arvind Uppal Chairman & Executive Director Experience: Over 25 years Area: Business Development, International Marketing and General Management CSR Well Defined Skill Development Community Development Volunteering Financial Aids Chairman & MD Anil Berera Executive Director & CFO Experience: Over 30 years 1 1 Area: Finance, accounts, treasury, taxation and general management Executive Director & CFO 1 Whole Time Mr. Sunil A. D Souza Managing Director Experience: Over 25 years Area: General Management, Strategy, Sales, Marketing and Innovation in consumer driven industries Beneish M Score Good WIL Questionable 6 5 4 3 2 1 0 4 Non Ex Independent Committees Audit Committee Nomination & Remuneration Committee Stakeholders Relationship Committee CSR Committee Whistle Blower Policy Insider Trading Prevention Policy Remuneration Policy Sexual and Workplace Harassment Policy Source: Annual Reports, Team Research
2 Globally Strong Parent Brazil UK US Whirlpool #2 #3 #4 China Whirlpool #2 #3 #4 Italy Whirlpool #2 #3 #4 India #1 #2 #3 Whirlpool Whirlpool #2 #3 #4 #1 #2 Whirlpool #4 Source: Team Research Industry Outlook
2 Globally Strong Parent Whirlpool Corp. Revenue breakup 120.0% 100.0% 4.1% 4.0% 15.1% 19.5% 80.0% 15 10 5 0 North America 13 12 11 10 Net Sales ($ Bn) Net Operating Margin (%) 12 10 8 6 4 2 0 Latin America 11 10 6 5 Net Sales ($ Bn) Net Operating Margin (%) 60.0% 24.6% 23.4% 2014 2018 F 2014 2018 F 40.0% 20.0% 50.8% 53.1% 0.0% 2013 2014 North America Latin America EMEA Asia 8 6 4 2 0 EMEA 7 7 4 1 Net Sales ($ Bn) Net Operating Margin (%) 10 8 6 4 2 0 Asia 8 2.5 1 2 Net Sales ($ Bn) Net Operating Margin (%) 2014 2018 F 2014 2018 F Industry Outlook
3 Is WIL financially sound?
3 Financial Analysis Operations Discipline Efficiency EBIT Margin PAT Margin Working Capital Days Receivable Days 100 50 0 Working Capital Days 10 5 0 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Whirlpool Median Current Ratio 100% PAT Margin FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Whirlpool Median Exhibit33: RoE Trend Financial Analysis Inventory Days Current Ratio 2.00 1.00 0.00 FY 2011FY 2012FY 2013FY 2014FY 2015 Whirlpool Median 50% 0% FY 2011FY 2012FY 2013FY 2014FY 2015 Median Whirlpool Liquidity Returns Generation Source: Bloomberg, Annual Reports, Team Estimates Quick Ratio ROE ROA 6 5 4 3 2 1 0 1 2 3 4 5 1 2 3 4 5
Valuation WIL Valuation Discounted Cash Flow Relative Value Multiples
DCF Valuation Revenue Projections 10.00 9.50 9.00 8.50 8.00 7.50 7.00 Per Capita vs Consumer Durable Industry Per Capita Income Multiplier 2.3X Market Share 12% 70% 60% 50% 40% 30% 20% 10% Segment Wise Revenue Breakup 66% 63% 61% 22% 21% 20% 8% 9% 11% 4% 6% 8% Ln PerCapita Ln Industry 0% Refrigerators Washing Machines AC Other appliances FY 10 FY 15 FY 23E WACC 15% Terminal Growth Rate 5% INR 803
Comparables Valuation EV/EBITDA 25.0x 28.4x 24.7x 23.0x 23.0x EV/Sales 3.5x 2.8x 1.6x 2.9x 2.4x P/E 43x 52x 28x 51.2x 32.1x Source: Bloomberg, Annual Reports, Team Estimates
Comparables Valuation Median Price Weight EV/EBITDA 24.7x 865.8 33% EV/Sales 2.8x 712.4 33% INR 761.8 P/E 43.0x 730.2 33% Source: Bloomberg, Annual Reports, Team Estimates
Valuation FCFE Valuation 60% Related Value Multiples 40% Source: Bloomberg, Annual Reports, Team Estimates
Investment Risks Economic E1. Commodity Price Increase E2. Currency Depreciation I1 Key Risks Industry I1. Competition Impact M1 M2 M3 E1 M1. Multiplier E2 Model M2. WACC Probability M3. Terminal Growth Source: Team Research
Economic Risk Commodity price Increase Currency Depreciation Steel as a % of total Cost Imports as a % of Total costs 12.0% 11.5% 11.0% 10.5% 10.0% 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 11.3% 11.4% 10.7% 10.7% 10.2% 9.7% 9.4% 7.8% FY 2008 FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 35% 33% 27% 26% 2011 2012 2013 2014 40% 35% 30% 25% 20% 15% 10% 5% 0% Total Input costs Imported Source: Team Research
Industry Risks Porter s 5 Forces Existing Rivalry among Competitors Threat of Substitutes Threat of New Entrants 5 4 3 2 1 0 Bargaining power of Suppliers Bargaining power of Buyers 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 Average Score 2.8 Technological Strength More number of offerings More FTAs on the anvil Loyal Dealership network Source: Team Research
Model Risk Sales Growth (GDP Per Capita Multiplier) GDP Per Capita Multiplier 0.05 WIL Target Price 500 0.9 1.4 2.3 0.04 400 SELL HOLD BUY 0.03 300 561 718 803 0.02 200 Certainty = 90.00% WACC 0.01 100 Terminal Growth 803.0 14.3% 14.5% 15.0% 15.3% 15.5% 3.0% 788.6 772.0 741.9 726.4 712.4 4.0% 834.4 815.2 780.8 763.0 747.2 4.5% 860.8 840.1 803.0 783.9 766.9 5.0% 890.0 867.6 827.4 806.8 788.5 5.5% 922.6 898.1 854.4 832.1 812.3 0 530 600 670 740 810 880 950 Fit: Weibull Forecast Values Price Confidence Interval: (INR 620 ; INR 860) 0 Source: Team Research
1. Improving 2. Strong brand operating in a favourable industry 3. Strong Financial Performance