Consumer Goods Stock Slips 57% From 52-Week High, Buy To Gain 36% Likely Return

Top brokerage firm ICICI Direct has given a buy rating to the stock of Whirlpool Of India Ltd. It is a mid cap stock with a market capitalization of around Rs. 19,287 crore. The stock in the first trading week of November, 2022 has fallen by around 57% from its 52-week high price on NSE.

Stock To Buy: Target Price

The Current Market Price (CMP) of Whirlpool Of India Ltd. is around Rs. 1,520. ICICI Direct has estimated a Target Price for the stock at Rs. 2000. This stock has the potential to give a 36.74% return, in the upcoming 1 year.

Stock Outlook
Current Market Price (CMP)	Rs. 1,520
Target Price	Rs. 2000
Potential Upside	31.57%
52-week high share price	Rs. 2,387
52-week low share price	Rs. 1,365.10

Q2 Earnings

Revenues were flat YoY for the company. EBITDA and adjusted-PAT fell 31.3% and 44.7%, YoY. Three-year revenue and PAT CAGRs were 5% and -28% respectively. While gross margin contracted 246bps YoY, EBITDA margin was down 253bps YoY. PAT margin fell 254bps YoY to 3% in Q2FY23. Additionally, Whirlpool reported Rs. 1,226mn and Rs. 167mn revenue and EBITDA respectively, from Elica (consolidated-standalone) in Q2FY23.

Stock Upside

Giving a buy rating, ICICI Direct stated, "We model Whirlpool to report revenue and PAT CAGRs of 19.6% and 39.2% over FY22-FY24E respectively, and RoCE to move to 12.8% in FY24. We remain positive on the company's business model due to its established competitive advantages and growth opportunities. Maintain Buy with a revised DCF-based target price of Rs. 2,000."

Stock Downside

However, sharp increase in input prices and competitive pressures is a risk. Major increase in input prices and/or increase in competitive pressures will likely result in downside to our estimates. Delays in launch of new plants/products is another downside. Any delay in launch of new products and/or plants may result in lower earnings than estimated, the brokerage firm said.

Why did the gross margin fall?

While input inflation has cooled off in the past 3-4 months, the company (similar to peers) reported 246bps lower gross margin YoY; we believe liquidation of high-cost inventory was the chief reason. We believe this issue is transitory in nature and should get resolved in H2FY23. We also note that the large opportunity in white goods offers healthy long-term growth potential. We cut our estimates to factor-in the weak Q2FY23. We believe the company is likely to protect its market shares (even at the cost of margins) in the medium term, which is DCF-accretive.

Disclaimer

The above stock was picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.