Productivity For Growth Program And New Products Will Drive Promising Future Gains

Key Takeaways

• Successful cost takeout and productivity programs are improving margins, while product innovation and premiumization drive higher revenue and earnings growth.
  
• Gained market share and demand generation through brand investments and retail execution, bolstering future revenue and profit increases.
  
• Reduced support from Whirlpool Corporation and high costs could pressure net margins, with market conditions and fee changes affecting revenue and profitability.

Catalysts

Manufactures and markets home appliances in India and internationally.

• The company has implemented a successful cost takeout program, dubbed the productivity for growth program, which has already led to a gross margin improvement of 220 basis points. This initiative is likely to further improve margins moving forward.
  
• Whirlpool of India has gained significant market share in key segments like refrigerators and washers, driving triple-digit basis point increases in market share. This broad-based market share growth is expected to contribute to higher revenue growth in the future.
  
• Investments in brand ambassadors and retail execution at the outlet level have directly driven demand generation and market share gains, which should support continued revenue and profit growth.
  
• New product launches, such as the Direct-Cool Glassdoor range and dynamics detergent dispenser in semi-automatic washing machines, demonstrate innovation and a focus on premiumization, which can lead to higher margins and revenue streams.
  
• Effective management of working capital and reduced inventory levels, highlighted by substantial improvements in net working capital positions, should help in generating healthy cash flows and improving overall operational efficiency, thereby positively impacting earnings.

Whirlpool of India Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Whirlpool of India's revenue will grow by 12.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.6% today to 6.5% in 3 years time.
• Analysts expect earnings to reach ₹7.2 billion (and earnings per share of ₹50.2) by about September 2028, up from ₹3.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹10.0 billion in earnings, and the most bearish expecting ₹5.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 40.3x on those 2028 earnings, down from 47.2x today. This future PE is lower than the current PE for the IN Consumer Durables industry at 41.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.93%, as per the Simply Wall St company report.

Whirlpool of India Future Earnings Per Share Growth

Risks

• The anticipated sell-down of Whirlpool of India shares by Whirlpool Corporation may reduce parent company support, which could impact revenue and earnings if strategic alignment and branding suffer.
  
• Increased employee costs, particularly in retail, without a corresponding proportional rise in revenue and margin improvements, can put pressure on net margins and profitability.
  
• Dependency on market conditions such as seasonal demand, commodity prices, and currency fluctuations could adversely affect revenue growth and gross margins.
  
• High staff costs, compared to industry peers, may indicate inefficiency, impacting the overall net margins and earnings if not addressed judiciously.
  
• Changes in royalty or licensing fees from Whirlpool Corporation could impact financials, increasing operational expenses and reducing net profitability.

Valuation

• The analysts have a consensus price target of ₹1507.273 for Whirlpool of India based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹2100.0, and the most bearish reporting a price target of just ₹1100.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹110.4 billion, earnings will come to ₹7.2 billion, and it would be trading on a PE ratio of 40.3x, assuming you use a discount rate of 14.9%.
• Given the current share price of ₹1343.0, the analyst price target of ₹1507.27 is 10.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.