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Robust revenue growth; Margins to recover in Q4
Whirlpool of India (WIL) reported mixed set of numbers in Q3FY19 which were largely in-line with our estimates. While revenue growth was robust at 26.5% YoY, led by higher festive season demand. However, the operating margin contracted by 125bps YoY to 8.1% in Q3FY19 mainly due to adverse commodity prices and depreciating rupee. Nonetheless, the net profit growth was healthy at 14.1% YoY led by higher other income and lower tax rate during the quarter. We expect margins to recover in Q4 given the price hikes taken by the company and stability in commodity and currency prices. Further, we expect WIL’s business growth to continue given low penetration levels, and the company’s constant focus on increasing market share through network expansion. Maintain Buy.
Q3FY19 Result Update:
* WIL’s net revenue grew by 26.5% YoY to Rs. 1,212 cr in Q3FY19 led by higher festive season sales. Further, the shift in festive season from Q2 last year to Q3 also aided revenue growth in Q3FY19. Going forward, with positive industry growth prospects given low penetration levels and higher disposable income, we expect WIL to grow at 14.3% CAGR over FY18-21E led by company’s constant focus on increasing market share, increase in branding efforts and new product launches.
* Operating profit for Q3FY19 grew at meagre 9.5% YoY to Rs. 97.6 cr, while margins contracted 125bps to 8.1%. The contraction was mainly on account of adverse commodity and currency rates during the quarter. Nonetheless, we expect margins to recover in Q4 given price hikes taken by the company and stability in commodity and currency prices.
* Net profit grew by 14.1% YoY to Rs. 60.6 cr in Q3FY19 as against Rs. 53.1 cr in the same quarter last year. The growth was aided by robust revenue growth, higher other income (+26.4% YoY) and lower tax rate during the quarter. The tax rate for Q3FY19 stood at 35.5% as against 36.3%. Further, despite muted operational performance in Q3FY19, WIL has delivered decent performance in 9MFY19 with revenue and PAT growth of 12.9% and 16.8%.
Outlook & Valuation:
WIL remains optimistic on delivering a double digit growth over the next few years given low penetration levels, rising disposable income and higher GDP growth. Further, WIL’s constant efforts like expanding its distribution reach (both rural and urban), enhancing its product portfolio and increase in branding efforts has led to market share gain in the last two years. We expect the same trend to continue going forward despite rising competition. The company also aims to grow its export revenue (3.4% of FY18 revenues) faster than the domestic market. We believe with positive industry growth trends and recent GST rate cut coupled with WIL’s expanding distribution network, new product launches, in-house manufacturing facilities, healthy return ratios and negative working capital makes it one of our preferred pick in the sector. We marginally tweak our estimates and expect WIL’s Revenue/EBITDA/PAT to grow at CAGR of 14.3%/15.2%/18.0% over FY18-21E. We maintain a Buy on the stock with a target price of Rs. 1,590.
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