Financial year 2021 would not be smooth given the ensuing intermittent lockdowns across regions in varying degrees
Going ahead, investors would do well to follow how the festival season pans out
Shares of Whirpool of India Ltd have lost about 17% in value from its pre-covid high in February on NSE. But this doesn’t mean valuations are cheap. In fact, the stock trades at almost 43 times estimated earnings for financial year 2022, based on Bloomberg data. High valuations make it difficult for analysts to be gung-ho on the stock.
Analysts from Kotak Institutional Equities have revised their FY2021-23 earnings per share (EPS) estimates upwards by 5-15%, primarily to incorporate June quarter results announced last week. The brokerage firm also wanted to bake in healthy demand for Whirlpool’s products such as refrigerators and washing machines. Having said that, financial year 2021 would not be smooth given the ensuing intermittent lockdowns across regions in varying degrees. “While Whirlpool remains well-positioned to weather the situation on account of its strong balance sheet, we believe valuations adequately capture the same," added Kotak’s analysts in a report on 6 August.
As far as June quarter results go, covid-19 led disruptions reflect in the numbers. April and May are peak months for the company. Even so, pent up demand drove a healthy recovery in the month of June.
Notwithstanding that, revenues for the June quarter declined as much as 48% year-on-year to ₹1027 crore. The sharp decline in revenues adversely impacted operating leverage, sharply hurting profitability. While other expenses declined by 40%, employee costs were firm, increasing by 1.7%. As such, Earnings before interest, tax, depreciation and amortisation (Ebitda) margins contracted by 1078 basis points to 4.5%. One basis point is one-hundredth of a percentage point. “Operating margin was at about 30 quarter low, below Jefferies’ estimates as well as consensus," wrote Jefferies India Pvt. Ltd’s analysts in a report on 6 August.
The upshot: Whirlpool’s June quarter Ebitda declined by a whopping 85% over the same period last year.
Going ahead, investors would do well to follow how the festiva season pans out. “The recovery seen in June sustained in July as well, while we remain watchful of intermittent lockdowns in various states and demand momentum during upcoming festive season. The company’s product revamp has also been accepted by the channels well," points out a report from Emkay Global Financial Services Ltd on 6 August. In general, the potential rise in competitive intensity poses a threat to Whirlpool.