Whirlpool of India

Stock Opportunities
22

@Uservijay Thanks for your opinion. :slight_smile:

I completely agree that it is minority shareholder unfriendly. So, no second thoughts on that.

It seems that Whirlpool parent indeed makes decent contributions to nurture Indian subsidiaries success. To put this point I would’ve to quote some analyst reports [Please view the following attachment. PM me or Google if you need any of these articles].

Endorsement of Parent by Research Houses.pdf (344.2 KB)

P.S. Whirlpool India compensates the parent in two ways: Royalty fee + Technical know-how fee, and this contribution has been around 1.3% over the last 5 years.
1.29% [FY 2014-15]
1.27% [FY 2015-16]
1.2% [FY 2016-17]
1.32% [FY 2017-18]
1.37% [FY 2018-19].

Sorry, but I have reservations against this analogy of stealing.

Whirlpool India hasn’t been siphoning out money. It is stated clearly in latest AR that they’ve done it and any attentive investor is capable of noticing it.

But, I can understand where from that is coming. :slight_smile:

We the investor community in India have seen enough frauds by publicly listed companies that the general impression has become more skeptic and bitter.

Let’s use a different analogy, one in which the parent and the subsidiaries can be thought of as a family.

Much of Whirlpool India’s strategic acumen, brand visibility and product portfolio can be attributed to its parent, just like a parent in a human family nurtures its offspring.

Now suppose the parent and some siblings are in crisis, can’t the family expect the financially stable adolescent offer some help!

We, the shareholders / analysts of Whirlpool India are right to point the act of Whirlpool India minority shareholder unfriendly, just like the kids of that financially stable offspring should’ve felt.

But, we have to think if the case of lower compensation from the Indian subsidiary, like the nurturing of kids by parent, should be called minority shareholder unfriendly too from the angle of Whirlpool Parent, since it is also publicly traded.

Moving out of the parable, the point I am trying to make is that there are enough positives of Whirlpool India:

  • growth visibility.
  • Under-penetration of existing and upcoming product portfolio.
  • Superior brand image.
  • Zero debt
  • Decent ROE - ROCE - OPM.
  • Technical and strategic competence owing to parent’s vast experience and capability.
    etc.

And there has been just one glitch to that image.

We should certainly be thoroughly mindful of this parameter in the coming days but probably shouldn’t be dismissive of the story just because one lapse has happened.

I am grateful to this community, however, to point out this transgression, as I am unmindful enough to ignore such minute details.

Disc: I have recently entered this story after a bit of deliberation since this point was put to light thankfully by @kanvgarg123. Whirlpool India is still a small part of my overall portfolio. So, consider me somewhat biased towards it.

P.S. Being an entrepreneur can’t help viewing companies and subsidiaries from the perspective of a family.

Fell free to opine against my argument. We are having a healthy discussion here. :slight_smile:

3 Likes
23

Stealing may be a strong word but think about the action again. When asked about the deposit, management said they wanted it for expansion. Did they buy a brand which needed forex? I have not seen any m&a yet. Did I miss any? I think these notes had a lock in too if I remember it right. If so, how can it be used for expansion?

3 Likes
24

If one check the history of this company,it was known as Kelvinator of India Ltd & was in very bad shape, present management had infused interest free loan & gradually revival happened. So i feel one should look at the situation in toto.

25

Latest credit rating report from Crisil is very interesting:

https://www.crisil.com/mnt/winshare/Ratings/RatingList/RatingDocs/Whirlpool_of_India_Limited_October_25_2019_RR.html

Some of the key points to dig further would be:

  • Overall volume has grown by 13.4% in fiscal 2019, (28.2% and 15.6% in fiscals 2018 and 2017, respectively), despite intense competition, thereby surpassing industry growth of 6.2%

It seems Whirlpool has now hired aggressive marketing staff and has accelerated penetration efforts in Tier 2 and Tier 3 cities which is helping it beat industry growth rates and gain market share in very intensely competitive space.

Another interesting point is on operating margins - it has been able to have almost consistent margins around 11-12% despite fluctuations in raw material prices implying its ability to pass these to consumers, further implying good pricing power.

Technically also its looking strong and hovering around new 52-week highs showing divergence against broader midcap indices.

Disclosure: Tracking position

6 Likes
26

This is something I was not aware of. Can you pls elaborate on this thought on how you see it affecting present set of things. Is the management same as then?Thanks

27

yes the management is same ,parent had then infused interest free loan,to allow this company to stand on its feet,hence i felt one should not see facts in isolation.

1 Like
28

I am tracking this company from last 3 years. In the last 5 years the sales has doubled and the net profits has quadrupled. The stock price also followed the fundamentals and rose from 200 odd levels in 2014 to more than 2000 today. Despite good fundamentals and tremendous growth opportunities, this valuepickr thread on this company is not very active. I was waiting for a correction in the stock price to post my views because i found the valuations little bit stretched, but stock price kept running from last 8 to 10 months. I will bring out my research and investment rationale in next few paragraphs, however I request senior members to have a look and provide their valuable insight.

  1. I am not touching upon growth opportunities in consumer durable segment as it has already been discussed in depth on many other threads. However the most important thing is that it is the 3rd biggest player in the indian consumer durables after Samsung and LG. The other two are not listed in india. And in the last few years it has gained market share and strengthened its position from no.4 to no. 3. The volume growth in last few years is also well above industry average.

  2. I am also not posting financial performances as it is available on all the major websites. However the numbers are great. The book value has grown north of 20% every year consistently since 2012.

  3. The issue of investment in the parent company was discussed in this thread earlier, which hinted towards not so great quality of management and shareholders friendliness, however after a detailed research regarding this issue and going through their annual report, its clear that the issue was blown out of proportion. The company purchased 04 senior notes of US dollar 5 million each on 30 Nov 16 from whirlpool corp and 10 notes of similar value on 14 Sep 17 from whirlpool S A. The lock in period on these investments is 01 year while the maturity period is 03 years. The rate of interest is 3.8%. Some valuepickr members found it lower than the indian FD returns of 7 % and compared the issue to the level of siphoning money to the parent. What we need to understand here is that we should not compare indian FD interest rates of 7% in a 4% inflation environment to the US bond rates. Due to inflation and other factors the Rupee keep on depreciating so we cant compare the two asset classes here. The long term US treasury notes (upto 10 years) yield has been below 3 % throughout this period of investment. The dollar was at 68 rs on 30 Nov 16 and at 64 rs on 14 Sep 14 (dates of investment). Today the dollar is above 71. So if we include the appreciation of dollar the equivalent interest on investment is calculated to be more than 7%. This calculation can be derived with their AR where the investment of 320 crores in Sep 17 is shown as 325 crores in 2018 balance sheet and 345 crores in 2019 balance sheet which correlates with the dollar rupee conversion rate at those dates. One of the two above mentioned investments already got matured in 2019 and the other will get matured by Sep 2020. The total maturity amount will be around 500 crores which correlates with management’s cap expansion guidance of 590 crores in the next few years without raising any debt. Other than this investment the company has cash surplus of about 1000 crores. We need to monitor closely what do they do with this money. Will they start distributing more dividend or some new acquisitions.

  4. The quality of management is top notch. The expenditure on remunerations is normal. What stands out is the fact that performance bonuses etc were given in cash. The Equity stock options were given from the parent whirlpool corp hence nil dilution in whirlpool india. Max total salary of MD is 6 cr which is about 1.5% of net profit. The total salary of all the directors and key managerial employees is 3% of net profit. These figures are well within limit of 5% of net profit for a single director and 10% for the total as per the act. They won award for best places to work in country in 2018 and they were among best 25 companies to work for in manufacturing sector for 2019. There was not even a single observation or penalty imposed regarding any kind of compliance by any authority like SEBI, labour organisations, environment control organisations etc during last 3 financial years.

  5. Management has kept the cap expansion guidance of 590 cr rupees over a period of next 5 years. The amount will be utilised to increase the capacity of their Faridabad and Pondicherry plants and Modernisation of double door frost free line at pune plant. These expansions will propel the company for next stage of growth.

  6. They have acquired 49% stakes in premium kitchen equipment brand Elica PB India whose sales are growing at 30% yearly. They are into chimneys, hobs, dish washers etc. They are market leader in chimneys and their products covers the entire spectrum from budget to high end chimneys. Penetration of chimnies is currently only 1 % in india so the opportunity size is very huge. The company estimated revenue for 2020 is 500 crores. Whirlpool has paid 163 crores for a 49% stake which seems to be a very good price valuations wise.

  7. The parent is investing in innovation and new design and technology which is resulting into more advanced products. Their washing machine bloomwash pro and aceXL won International IF design award. The highly advanced W series global range and ice magic pro series refrigerators have been launched in india and becoming popular. They have launched smart air conditioners in 3D cool range with voice command and wifi. However we will have to track their AC business going forward as they have only 3% market share presently and the sector has stiff competition. The all new range of purasense RO water purifiers and Jet C range of convection microwaves are also gaining traction.

  8. They have launched a service promise program which gives customers call back within 2 hours and visit within 24/48 hours in 3500 cities/towns. So they are working on winning customer satisfaction.

  9. At current price the valuations are quite stretched at about 60 times 2020 estimates and 48 times 2021 estimates. But the higher valuations are kind of justified because the other companies in consumer durable sector are also quite expensive despite showing muted results in last 3-4 quarters. On the other hand whirlpool is giving extraordinary performance quarter after quarter even in this slowdown kind of environment. The company seems to be on path for next stage of growth with their expansion and acquisition plans coupled with revival in indian consumption demand goin ahead.

Disclosure: One of my largest holding. Invested from 1200 odd levels and planning to add more on corrections.

Blockquote

26 Likes
30

Just a thought, Whirlpool global is valued at about 9 billion USD and 9 PE and Whirlpool India is already valued at 4 billion and 60+ PE. Does Whirlpool India valuation make any sense.

1 Like
31

India s population growth will be much higher that USA and most of the Indians still don’t own the appliances while in USA almost everyone has basic appliances
Market size is too high here
But how much pe to give …no answer
There are two groups
One favouring such high pe
And other cautious and sitting on sideline

32

Just to give a perspective, Whirlpool China trades at about 0.4 B USD. So Whirlpool China has a valuation of 1/10th of Whirlpool India.

China is a larger market.

And Whirlpool global owns 75% of Indian entity. That implies 3B USD of Whirlpool parent out of 9 attributed only to India and only 6B USD for rest of world.

Atleast, I am not able to make any sense out of Indian entity valuation.

33

IMHO, it’s an improper way to judge the valuation by looking at the parent and sister group of companies.

We should look at how Whirlpool India is positioned in terms of growth and financial ratios in the consumer durable industry of India.

  • It it the only company among large consumer durable cos which has been able to grow earnings ~20% CAGR & revenues ~15% in each of 5 yrs, 3yrs & TTM periods.
  • Average 5 year ROCE ~35%, 5 year ROE ~22% which are the best in the industry.
  • Its 5 year OPM is second best at ~11.5%.
  • It is debt free.

Top these up with the facts that Whirlpool India has a strong nationwide brand, good customer care service, and that large consumer durables have lesser penetration among all kinds of consumer durables. Also, Whirlpool India is a complete consumer focused company whereas most of its counterparts have some B2B products.

So, in these respects Whirlpool India indeed deserves best PE among its Indian counterparts. But, honestly, it doesn’t seem to deserve any greater PE than now.

6 Likes
34

Latest results:

4 Likes
35

I agree one cannot overlook the risk in the base currency price & obviously only noobs would compare risk free returns in different currency
To get a perspective go through this by Aswath Damodaran

NB: I know this post would be flagged and removed by admin, but this risk free rate video is more than valuable for valuepickr junta, so after removing atleast repost this video!

1 Like
36

Q2-21 results are very positive. Q3 looks like it will be super. lets see how the valuations trend and if it can get back to 2500 levels of 2019

2 Likes
37

Just some information from a consumer of the product.

I purchased Whirlpool washing machine and was delivered via amazon within a week.

I really liked their three button system which has made the use of machine very simple.

Plus, I must say that the technician which came for installation did an amazing job. His presentation style was top notch and explained everything for different scenarios.

My last washing machine was of IFB where I did not have the same experience.

(Also, the technician today was wearing Whirlpool uniform whereas when we called for IFB technician someone else came and recommended us to not buy IFB :joy:)

Disclosure: Not invested. Not interested (Neither in Whirlpool nor IFB). Just sharing my experience.

10 Likes
38

Was trying to understand the reason for the steep fall today versus a strong market, and came across this piece of news about the global company

Implication does not seem too large with the amount and the US share was not impacted. A bit strange to see the price action here today.

I don’t even see this as any kind of a Corp governance issue, huge global tech behemoths often use international tax loopholes to their advantage.

Discl : Invested, transactions in last 30 days. This is not investment advice.

1 Like
39

I think today’s fall is w.r.t to some bulk deal not sure who bought and who sold but volume in the counter is more today

40

Good to see you are invested. Can you mention your rationale of choosing Whirlpool over say a Voltas, Hitachi AC, TTK Prestige, Havells etc. among consumer durables?
I was seing even a Bajaj Electricals is doing very well, somehow Whirlpool and Hitachi AC (The two MNCs) have been lagging in India for last few years…

There is concern on their capability to increase revenues. For Whirlpool, the Refrigerators market share have been kind of stagnant but they lost in Washing machines. AC - I don’t see many using it. Same for water purifiers, dishwashers etc.

Why are they lagging behind so much and why do Indians do not opt for a Whirlpool? My wife was surprised when I opted for a Whirlpool AC (reason being that it built its own compressor back then) and also its American legacy and quality one can vouch for…but guess not many takers in India so far…Why? Is it the distribution issue or marketing or pricing or the SKUs or all of it or something else? After sales service?

Disc: Invested in Whirlpool (transactions recently) and some above names in consumer durables, hence critical. Views only for academic purposes and not a buy/sell decision.

2 Likes
41

It’s more of a portfolio based decision for me. I was always and continue to remain interested in consumer durables as a sector as I believe the growth runway in the country for the sector is still long, and have a reasonable portfolio allocation to it. I wanted to be invested in the contract manufacturing side (was invested in Dixon earlier, still invested in Amber) and Whirlpool was a decent play on the brand/OEM side. I probably would’ve preferred Samsung/LG if listed, but obviously not available.

Out of the companies you mentioned, Johnson Hitachi was kind of eliminated because of the interest in the other contract manufacturers, whilst I don’t track much of the others as I preferred a company with multiple product lines and strong R&D support which I think the MNCs like Whirlpool in the space have an edge on, even if they forego some royalty for the same.

Being invested for over 5 years now has been a good experience, but obviously currently is a time of slight turmoil (today’s fall was especially strange). I remain positive though on the prospects - the global company is a tightly run ship with a good product line (which is so critical in this industry) and in my opinion they will do justice to the Indian business simply for their benefit. I had also recently come across India becoming more important from a manufacturing standpoint for them. Not many markets offer the growth potential in India and their brand strength is reasonably good - so maybe they will take time but I think potential profits will eventually get them interested. More qualitative aspects - other members above have already pointed out the good return ratios.

I’ve also had a good experience using their products but that might be personal bias as an investor in the company. Also have someone in the extended family who does business with them, and has good things to say about the company.

Valuations remain a concern for me too, but I think looking at it in terms of what percentage it contributes to global valuation is not ideal. The Indian markets price various companies at much higher PEs due to the scarcity premium.

4 Likes
42

Hitachi is OEM. Their ACs are supposed to be one of finest quality and premium positioning. Same for their refrigerators also. Are they into contract manufacturing also?

Voltas, now even Havells (with Llyod in their bucket) tick mark the above two boxes as well (without any royalty)

I agree Whirlpool has access to their global R&D and legacy - but majority Indian consumer do not seem to be enthused by that, at least so far…

I wanted to buy a water purifier replacing old one and called their direct selling ecommerce few months back as I saw they had exactly what I needed and forward looking - the ability of consumers to replace the catridges by themselves! However, I never got a call back on a simple question on installation. Moreover, I checked all ecommerce websites (Amazon, Flipkart, Reliance Digital etc.) for reviews, ratings, product availability etc. and Whirlpool came at the last at these websites…so ultimately had to stick to old good Eureka Forbes…

I think, in India they still dont have the infra and capability to get into heavy servicing consumer durables segment - therefore Refrigerators and Washing machine maybe fine but you can only reach so far in them, specially if you are losing market share as well…

Their integrated product line also looks good but cater to very few percentage and in this sub segment also you have all big bosses like Bosch, Siemens etc.

So, I feel for the next leg - some significant thrust is needed. I am invested (and even added some in recent fall) in that hope. Just evaluating if I should continue with this hope investing or not…

Disc: Same as above

2 Likes