WhirlPool

WhirlPool

Whirlpool

Whirlpool

Annual Report - Whirlpool - 2009-2010

WHIRLPOOL OF INDIA LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

The Directors' are pleased to present their 49th Annual Report and Audited
Accounts for the year ended 31st March 2010.

Whirlpool of India

Investors with a medium-term horizon can consider buying the Whirlpool of India stock. Though the stock trades at 23 times its trailing earnings, which appears expensive, the potential for improvement in earnings is significant on account of the company's product launches, expanding dealer network and better pricing power.

The company's sales for FY-10, at Rs 2,137 crore, recorded a 30 per cent growth against 9 per cent in FY-09. Whirlpool's efforts to expand distribution reach through road shows and dealer-contact programmes in the Tier-II and Tier-III cities have evoked good response (added around 2,000 dealers in the network last year); in a year's time, this geographical expansion too may buoy-up sales.

With strong demand translating into good pricing power, the company has passed on part of the increase in raw material cost to buyers by way of price increases (of around 4 per cent in two rounds between December and now).

If commodity prices rise further, Whirlpool plans to pass it on to the consumers again, shielding its margins from erosion.

Whirlpool's net profit margins too are set to improve in FY-11, as it has repaid its entire debt recently.

The stock is up 115 per cent from our initial buy in November 2009. At the current market price of Rs 258, the stock still promises upside.

Sales strength

Whirlpool reports a five-year compounded growth of 19 per cent in sales.

This average is skewed by the muted 7 per cent growth in 2008-09 when Whirlpool saw a blip in demand following the sudden withdrawal of consumer credit for durable-goods purchases by finance institutions. With revival in the economy many NBFCs however kick started financing consumer goods purchases during diwali last year.

Whirlpool's already strong market position in refrigerators has been fortified through product innovations over the years.

In 2007 summer, the company launched Delight (frost-free) and Fusion (direct cool) range of refrigerators and in 2008 the ‘Mastermind' series (fully automated refrigerator).

In 2009, features such as e-light, stabiliser-free option, and l-shaped handles were added.

In 2010, the company unveiled the ‘Protton' model with freshness booster system .

For the current year, the company is working on the plan of launching UPS systems for home and office applications. The product has been tested in UP and Bihar and will be launched across markets soon.

The product upgrades clubbed with its marketing initiatives and a good after-sale service have helped Whirlpool grow sales.

Washing machines sales (in volume terms) have grown at a CAGR of 15 per cent in the years between 2005 and 2009; growth in FY10 picked up to 39 per cent. Refrigerator volumes have risen by close to 10 per cent annually between 2005 and 2009; in 2009-10, the volumes rose by 28 per cent.

The company is now set to venture into the non-metro cities and has conducted road shows in West Bengal (Asansol and Durgapur), Bihar, Uttar Pradesh, Maharashtra and all the four States in the South.

Over the long term, these new markets will help the company expand sales and gain a larger share of the market.

The company's marketing budget will be funded without much trouble as the company has cut down its debt burden, freeing up operating cash flows for promotional and distribution spends.

Healthy cash flows

At the end of FY10, after repaying almost Rs 110 crore of debt, the company had Rs 62 crore of cash balance (cash generated from operations was Rs 258 crore against Rs 184 crore in the previous year).

Cash generation was helped by a doubling of profits (to Rs 145 crore). Whirlpool turned profitable at the net level only in 2007-08. And in the last three years the company's earnings (net) have grown at over 100 per cent annually.

The company looks quite comfortable to handle future cash requirements internally. With all borrowed funds paid back now, net margins too will improve.

Margins expand

Conscious efforts to cut cost (raw material expense as a percentage of sales was down to 50 per cent in FY-10 from 52 per cent in the previous year), a profitable product mix and better realisations saw margins expand both at the operating and net levels in the March quarter and in full year FY-10.

For FY-10, the OPM was up three percentage points (to about 10 per cent) and net profit margin stood two percentage points higher at six per cent.

via BL

Whirlpool India

Investors with a two-year perspective can consider investing in the stock of the home appliances major — Whirlpool of India.

Continuing the trend of strong growth through the downturn, the company saw its September 2009 quarter sales (volume) expand by an impressive 37 per cent. The visible uptrend in consumer durable sales in recent months, the company’s entrenched position in the key durable segments and its improving profitability suggest that the stock is a good addition to the defensive investor’s portfolio.

At Rs 119, the stock is trading at 15 times its trailing 12-month earnings.

The company plans to enter small towns with an investment of Rs 100 crore a year over the next few years. Expansion into the Tier 2 and Tier 3 markets at a time when consumer spending is rising may help the company sustain robust top-line growth.

Whirlpool of India turned profitable at the net level only in 2007-08. Growth in profits has continued at an impressive pace since then. In FY09, profits after tax doubled to Rs 70 crore. Strong sales volumes, rising revenues from after-sales services and a tight rein on costs have helped Whirlpool’s profit growth in recent years.

Rigorous brand-building activities have enabled the company to sustain a robust 17 per cent compounded annual sales growth over the last five years. Microwave ovens have been the fastest growing segment with volumes growing almost 50 per cent on an annualised basis between 2005 and 2009.

Other segments in the order of growth are air conditioners, washing machines and refrigerators.

FY09 was a challenging year for the company with sales growing at a slower space, due to the cutback in consumer spending and higher commodity prices which impacted input costs. However, the situation has improved over the last two quarters.

While profit margins have expanded on falling raw material costs, the April-June quarter saw a 13 per cent sales growth and the July-September period saw a strong 32 per cent growth, signalling a clear revival in consumer spending.

Whirlpool of India is all set to tap the rising demand for more affordable white goods, from the urban centres as well as the tier-II centres. The company plans to raise marketing spends on product development and advertising and promotions, while enhancing penetration in the smaller urban markets.

Better cash flows, with improved margins and the falling debt burden (0.6:1) have freed up funds for brand building activities. The company’s operating costs have declined by 3 percentage points in FY09 on cost reduction initiatives.

via BL

Whirlpool of India

We recommend a buy in Whirlpool of India at current market price. It is clearly evident in the weekly chart of Whirlpool of India that it has been on a long-term uptrend since March 2007 trough of Rs 22. However, the stock met with a resistance at Rs 55 in mid-November and began to consolidate sideways. This sideways consolidation appears to be an ascending triangle pattern with the upper boundary at Rs 55 level. Generally, ascending triangle patterns are a bullish continuation pattern. The stock is trading well above the 21-day moving average line. The weekly momentum indicator is featuring in the bullish region and the daily momentum indicator is likely to enter the bullish region. The weekly moving average convergence divergence is gradually rising in the positive region. The immediate support for Whirlpool of India is at Rs 45 level and the next support is at Rs 37 level. We expect the stock to break out of the ascending triangle pattern and move up to Rs 60 in the short-term. Short-term investors can buy the stock with stop-loss at Rs 45.

Via BL