The firm is well placed to benefit from growth in the consumer durables segment, but needs to keep a watch on margins.
The consumer durables market has been a growing business in India, with rising income levels and affluence. Here, Whirlpool has a significant presence with its refrigerators, washing machines and other appliances. The entire gamut of the sector looks attractive with the country’s economy growing more than eight per cent and the number of households expected to rise from 231 million in 2010 to about 254 million in 2015.
This is expected to help Indian home appliances industry expand from Rs 22,900 crore in 2010 to Rs 39,700 crore by 2014, say analysts. The company is expected to reap benefits from this growth in the coming years. Refrigerators, washing machines, air-conditioners and microwave contribute around 93 per cent to total revenues. In FY09, the addressable market for refrigerators in urban India stood at 37 million households, but with 75 per cent penetration, nine million households were still untapped. So, there is still scope for tapping the existing markets. Moreover, the size of the addressable market is expected to grow to 53 million households by 2014, say analysts.
The washing machine and air conditioners segment are expected to grow 14 per cent and 18 per cent, respectively, in the next two years. The refrigerator segment may see a 25 per cent growth, while a staggering 57 per cent figure is slated for the microwave segment. With such numbers, the market looks really attractive. However, managing profitability in a competitive segment will be a key challenge for the company. Operating profit margins at around seven per cent of sales is just about what the competition manages.
Through volume growth, the company has managed to beat its peers on the profitability front, with a return-on-equity ratio of around of 44 per cent and a return on capital employed of around 49 per cent. This makes it one of the most valuable consumer durables company. Therefore, it trades at such a premium (in the Indian market) that even its parent does not get.