Refrigerator import ban, volume recovery can help Whirlpool stay cool

Given raw material pressure, margin trend is another factor

Consumer durables major Whirlpool of India could be a key beneficiary of a move by the central government to restrict the import of refrigerators. While most refrigerators are made in the country, about 10 per cent of the overall volumes catering to the premium segment are still imported.

Analysts, led by Aniruddha Joshi, of ICICI Securities believe that Whirlpool will be the net beneficiary since it has domestic manufacturing units in India. Impact on the supply chain of competitors in premium refrigerators will provide an opportunity to Whirlpool to introduce its own products and gain market share, they add.  

While import restrictions will be positive, the Street will track the market-share trajectory of the company.

The company has lost 75-basis points (bps) share in the refrigerator category in 2021-22 (FY22). However, the company’s share over the past few quarters has been steady.

In the washing machine category, the company shed 90-bps market share in FY22.

The company has been ceding ground over the past few months, with its share in this category hitting its lowest level in seven months.

Says Naval Seth of Emkay Global, “Continuity in market-share gains, with gradual improvement, along with industry volume recovery, will be critical in reversing Whirlpool’s earnings downcycle.”

Lower volumes in the January-March quarter had led to 4 per cent fall in the company’s revenues and were below Street expectations. The other concern weighing down the company, given its weak operating leverage, is margin trajectory.

Higher commodity costs led to a 330-bps year-on-year increase in gross margins to 32.3 per cent. Cost control measures helped contain the margin fall at the operating level to 210 bps to 8.6 per cent.

Centrum Research expects growth momentum to return in the current year, given the intense summer season.

“As business normalcy returns, the company’s key strengths like high in-house manufacturing, favourable product mix, higher reach in tier 2/3 cities, strong brand pull, and technological support of global parentage will come to the fore. Over FY22 through 2023-24, we expect it to report annual revenue growth of 14.8 per cent,” says the brokerage.

While Centrum Research has set a target price of Rs 1,760, ICICI Securities has a target of Rs 2,000, which translates into a 16 per cent to 31 per cent upside, respectively, from the current market price.

Investors should await progress on volumes and more importantly margin trend, before considering the stock.