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