SECURITY ANALYSIS -

WHIRLPOOL OF INDIA LTD.

DATE - 29-06-2022
PREPARED BY: VANSH KHANUJA
CONTACT: vanshkhanuja78@gmail.com
_________________________________________
Disclaimer

I do not have any investments in Whirlpool of India ltd.

(hereinafter referred to as ‘The Company’ and/or ‘Whirlpool’).
This report1 is based upon my reading of the company’s annual
report and other public documents. I have endeavored to
distinguish clearly between facts and opinions and tried my
best to include all necessary information. If, however, I have
made any errors, or if any readers have additional facts that I
have not considered, I would welcome hearing from you. As to
opinions expressed here, others may disagree with some or all
of them. I urge anyone interested in the company to read its
public filings and to consult whatever other sources they deem
appropriate in order to form their own opinions on the topics
covered in this report. This report is not intended as
investment advice to anyone.

1 For more reports , visit my website https://thesecurityanalyst.weebly.com/

 Table of Contents
I) White Goods Industry
II) Comparative study of leading companies
III) Business analysis
IV) Financial Statements analysis
V) Valuation
VI) Conclusion

___________________________________________________
I) White Goods Industry:
The White Goods industry consists of home appliances like
refrigerators, air conditioners, washing machines, dryers, etc.
The industry is expected to grow at 11% CAGR to cross 21 Bn
USD by 2025. There is immense potential in tier-2 and tier-3
cities with growing income as demand for these appliances will
surge in the future. ACs have a penetration of 4% in India
compared to 30% global average (The AC market is expected to
grow at 20.8% to reach 9.88 Bn USD by 2026).
Source: http://investindia.gov.in
All these numbers look exciting but the real question is how
much the investor can profit from these developments and
which company is best positioned to achieve maximum growth.
A study focused on qualitative factors can only answer these
questions which introduces subjectivity in an analysis. To
answer these questions, one must find a company with a strong
balance sheet, consistent cash flows, and a competent group of
managers. I will use accounting transparency and equity growth
as a yardstick to compare managers. This is the best one can do
to eliminate biased judgments.
This report will cover a comparative study of 4 companies viz.
Blue Star ltd., Symphony ltd., Whirlpool (India) ltd., and IFB
Industries ltd.
II) Comparative study of leading companies

Blue Star Symphony IFB Whirlpool

Market price 923.10 870.05 922.70 1562.00
Market cap 8,881 6,086 3,738 19,817

EPS 17.41 17.15 (11.89) 44.64

Price-Earnings 52.96 50.73 - 34.95

1 The data is for trailing twelve months.

2 Market price is as of 29-06-2022

3. The data is sourced from money control website (link in references section)

4. Market Cap is in crore rupees.

It is clear from the table above that the upside potential for all
companies is sufficient for a healthy return. IFB offers a
speculative opportunity as the operations are losing money and
a turnaround will boost the stock price. However, these
speculative companies are beyond the scope of value investing.
The rest three are priced at a huge premium (% earned on price
being 1.8%, 1.9% and 2.8% for blue star, symphony and
whirlpool respectively) with whirlpool offering the best price
relatively. Some more metrics are provided in the table below:
(Note: Quarterly statements for FY22 are omitted)
Blue Star Symphony IFB Whirlpool
Total debt 506.93 218.77 258.04 -
Book Value 887.86 763.92 695.68 2858.31
(FY21)
Debt-equity 0.57 .28 .37 -
Book value 758.35 458.98 467.57 1483.06
(FY17)
5-yr growth 3.2% 10.7% 8.2% 14.0%
Total income 4325.94 931.24 2823.16 5989.49
(FY21)
Total income 4459.29 811.23 1751.87 4433.37
(FY17)
5-yr growth (0.6) % 2.7% 10.0% 6.2%
Net income 100.35 107.38 64.11 351.83
(FY21)
Net income 123.04 165.59 50.97 310.49
(FY17)
5-yr growth (4.0) % (8.2) % 4.6% 2.5%
Net Margin 2.3% 11.5% 2.2% 5.8%
(FY21)
Net Margin 2.7% 20.4% 2.9% 7.0%
(FY17)

1. All data in crore rupees except for growth rates and debt-equity ratio.

2. The data for FY22 is omitted as annual reports of the first three companies are not released yet.

3. Total debt = Borrowings + Lease liabilities

4. Source: Annual reports of the companies

The table illustrates that Whirlpool has maintained strong book
value growth even after the covid recession. No debt and a low
relative P/E ratio strongly suggest the superiority of this stock
over others. Although the numbers are not extraordinary, the
company has the potential to grow at higher rates (strong
balance sheet).
The comparative study also highlights the difference in net
margins with symphony leading the charts. Further
investigation is required to understand how Whirlpool is lacking
behind.
III) Business analysis
Whirlpool has been majorly focused in refrigeration and
laundry products (Major products – Refrigerators, ACs and
washing machines). In FY22, the company acquired majority
stake in Elica PB India to diversify the company and include
cooking products as well. The consolidated total income for
FY22 was INR 6196.6 Cr which was driven by price increases
and not volume growth. The Capex for the year consisted of
investments of 169.8 Cr and R&D expenditure of 40 Cr (The
investment included setting up of a new manufacturing plant in
Puducherry (The company has three plants, one each in
Maharashtra, Puducherry and Haryana)). The debt-equity ratio
of the company is 0.02 (consisting of lease liabilities).
The company is well set to increase volume growth in the
upcoming future. India has one of the lowest appliance
penetration in the world, the only cause of concern is to check
if the growth opportunities are already discounted in the price.
The key highlight of the annual report for FY21-22 is the
acquisition of Elica PB.
“Elica PB India has its manufacturing facility situated at Pune
and distributes kitchen appliances such as kitchen hoods, hobs,
built in ovens, built in microwave ovens, dishwashers, barbeque
fryers etc. across the country. Elica PB India reported a turnover
of INR 374.93 crores and profit before tax of INR 57.57 crores in
2021-22 as compared to INR 309.07 crores and INR 62.07
crores respectively, in the previous year resulting in a revenue
growth of 21.3% this year. The investment is aligned with the
Company's strategy of expanding cooking and built-in
business.”
Source: Annual report
IV) Financial statement analysis
I will be focusing on the consolidated statements as the
acquisition of Elica PB India had a material impact on the
company’s financial position. The only cause of concern is that
Elica PB’s accounts were audited by another auditing firm than
the one auditing Whirlpool (M S K A & Associates).
The only key audit matter (Note 34) in the auditor’s report was
tax disputes (challenged by relevant jurisdictional tax
authorities) which are significant in amount.
• BALANCE SHEET -
There are a lot of positives in the company’s balance sheet. The
cash position at 1600Cr INR is sufficient to meet future
expenditures and the company is debt-free (if we exclude lease
liabilities which are only 0.5% of total assets).
31/03/2018 31/03/2019 31/03/2020 31/03/2021 31/03/2022

Equity 1796.4 2142.6 2546.8 2858.3 3500.7

Net Income 350 409 476 351 567

The equity growth is satisfactory and in line with net income

(the difference is due to dividends).
The majority of PP&E consists of Plant and equipment. Home
appliances is an asset-heavy business and needs considerable
expenditure to maintain manufacturing and also requires
considerable R&D expenditure to avoid obsolete products.
The only cause of concern is the contingent liability recorded
with respect to tax litigations at 1580 Cr INR. The petition filed
by the parent company (Whirlpool, USA) is still pending before
Hon'ble Supreme court of India. Now, the complexity of this
issue does not allow the auditors to pass a clean judgment
(hence this was referred as a key audit matter). To pass my own
judgement on the matter and make predictions as to the future
regarding these disputes would be speculative. To be on the
safe side, it’s best to consider cancel out this figure of 1580 Cr
against the cash balance (I usually deduct the cash in hand from
the market price during valuation, for this company I will simply
ignore the cash balance. This can be considered highly
conservative but a margin of safety is essential in matters
where the sum involved is substantial.)
• P&L and Cash Flow Statement -
The balance sheet data revealed the safety of the enterprise
as a going concern (note that even after eliminating the cash
balance, the balance sheet is still strong as there is no debt).
Now, the goal is to find out future cash flows to estimate the
intrinsic value for the firm. The income statement analysis is
essential to understand the quality of earnings and the cash
flow statement helps connect the reported income to actual
cash flows.
FY22 FY21 FY20
Revenues (total) 6259 5989 6121
Other income 63 90 128
Net income 567 351 476
The revenues have been consistently growing (except for the
period during covid recession) and future growth possibilities
are much higher with the new cooking segment the company
has acquired through Elica PB. Also, the R&D expenditure
(39Cr and 36Cr for FY22 and FY21 respectively) seems a bit
low at 0.6% of total revenues (Blue star ltd incurred
expenditure of 59Cr for FY21 at 1.36% of total revenues).
Other income has not been substantial except for FY20
where it made up almost 25% of the net income. It mostly
consists of interest income on bank deposits so it involves no
expenditure. That means if we exclude the 128 Cr of income
in FY20 then the actual margins are worse than they appear.
The positive thing is that other income as a percentage of net
income has reduced and margins have improved after the
recession.
FY20 FY21 FY22
CFFO 380 524 97
Capex (307) (100) (169)
Depreciation 129 142 147
FCF 73 624 (72)
The capex is sufficient to meet growth targets but the
volatility of FCF is a cause of concern. However, there has
been a loss of 326Cr on conversion of joint venture into
subsidiary which is non-recurrent. Adding back 326cr to FCF
for FY22 gives a figure of 254Cr. Another considerable impact
has been due to decrease in trade payables and other
liabilities totaling 232 Cr. Instead of adding this 232Cr back
(which is definitely a recurring expense), I will deduct 283 Cr
from FY21 (the increase in trade payables and other financial
liabilities for that year).
[Note: The reason I’m deducting increase in trade payables is
to make the figures more consistent]
 The revised FCFs are – FY22: 254 Cr, FY21: 341 Cr
V) Valuation
The company is selling at around INR 20,000 Crore. The FCF
yield is 1.27%. This is equivalent to purchasing a 10% bond
(with 100$ par) at 787$. Clearly, the current price is nothing to
get excited about.
Intrinsic Value:
If the book value grows at 15% (historical average (5yr) at 14%),
then the enterprise clearly deserves a premium over book
value. The company will have obvious investment merit at a
price of 3500Cr and will start including a speculative
component as the price increase above 7000Cr. [The figures are
not arbitrarily taken, 7000Cr means p/bv of 2x and at 15%
growth rate, one would do well over the long run]
DCF:
The DCF for the company is in the next page.
Growth rates: 15% for first 5 years and 10% for later years
Discount rate = 10%
Perpetual growth rate = 2%
Margin of safety = 20%
 Year FCF FCF(PV)
0 254 254
1 292 266
2 336 278
3 386 290
4 444 303
5 511 317
6 562 317
7 618 317
8 680 317
9 748 317
10 823 317
Terminal Year 905 349

Terminal Value 4449

Terminal Value
(PV) 1715
FCF(PV) 3643
IBV 5358
Margin of safety 20%
Intrinsic Value 4287
Thus, the Intrinsic value is around 4000-7000 Cr. Any price paid
above this can turn out to be a successful speculation but
would not qualify as an investment.

Visit my website for more reports.