Investment Focus: Whirlpool of India: Buy

The Whirlpool of India stock is a relatively safe bet for investors seeking to use the market fall to add to their portfolio.

The company's focus on the fast growing segments of white goods – air-conditioners, washing machines and refrigerators – its market leadership that allows for price increases and a debt-free balance sheet, make it a preferred option among consumer stocks.

After the recent fall, the stock also trades at a very reasonable valuation. At the current price of Rs 219 (down over 30 per cent from its recent high), the stock discounts its trailing 12-month earnings by 16 times.

Whirlpool of India has been witnessing strong sales growth, driven by volumes every quarter this fiscal on burgeoning demand for consumer home appliances and the company's expanding distribution network.

Sales growth for nine months ended December 31, 2010, was 28 per cent; net profits registered a 36 per cent jump. Volume growth in the last two quarters has been around 13-16 per cent year-on-year.

Rising inflation, which poses risk of consumers cutting back expenditure, may not be a major concern for Whirlpool.

White goods sales have remained quite buoyant in recent years helped by attractive financing schemes, stable product prices and the trend of consumers in Tier II and Tier II centres upgrading to these products.

Whirlpool's presence in the premium segment across product categories and a good pipeline of innovative products aid volume growth.

New launches

Whirlpool of India has been constantly expanding its product line adding more features. All the products launched over the last two years – White Magic 1-2-3 and Ace in washing machines, the Protton model in frost free refrigerators and the Mastermind series in air-conditioners – have received good market response. The company is set to launch more variants of air-conditioners and washers in the coming month. Whirlpool is also working on expanding its offerings in the cooking appliances segment which currently features only microwaves.

The company is also rapidly expanding its reach in the market by adding both distributors and exclusive show rooms. From the current 65 outlets that are mainly located in north India, the company intends to grow its exclusive showrooms to 200 by end next fiscal year and have a pan-India presence.

Despite a recent round of price increases, the impact of rising raw material prices may not be fully absorbed. Though the company's December quarter operating margins were a good 100 basis points higher than last year's 7 per cent, they did fall sequentially by 200 basis points. The company has taken price increases again in January, which will reflect in the March quarter numbers.

With rising inflation, the company intends to focus more on premium products, aiding product mix and thus margins for the company. Also, the company has repaid all its outstanding debt with internally generated cash, neutralising any impact from interest rate increases.

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