Rating Rationale
October 11, 2018 | Mumbai
Whirlpool of India Limited
Long-term rating upgraded to 'CRISIL AA+/Stable' ; STD reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.300 Crore
Long Term Rating CRISIL AA+/Stable (Upgraded from 'CRISIL AA/Stable')
 
Rs.25 Crore Short Term Debt CRISIL A1+ (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has upgraded its rating on the long-term bank facility of Whirlpool of India Limited (Whirlpool) to 'CRISIL AA+/Stable' from 'CRISIL AA/Stable' and reaffirmed its 'CRISIL A1+' rating on the company's short-term debt.

The upgrade reflects CRISIL's belief that Whirlpool will sustain its healthy operating performance over the medium term. Whirlpool's revenues have grown at a healthy compounded annual growth rate of 22% over the past 3 years. Higher than industry growth has led to increase in Whirlpool's market share in key segments such as refrigerators, washing machines, and air conditioners. The company is likely to sustain its market position backed by increasing dealership network and technological links with its US-based parent, Whirlpool Corporation (Whirlpool Corp; rated 'BBB/Stable' by S&P Global Ratings).

Furthermore, Whirlpool is likely to benefit from its strong operating efficiency. Operating margin (11.6% in fiscal 2018) has been healthy and return on capital employed (33%) strong. Financial risk profile is expected to remain healthy because of nil debt, strong cash generation, healthy liquidity, and moderate capital expenditure (capex).

The ratings continue to reflect the company's established market position in the consumer durables segment, strong financial risk profile, and technical support from the US-based parent, Whirlpool Corp. These strengths are partially offset by susceptibility to volatility in input prices and to intense competition across product categories.

Key Rating Drivers & Detailed Description
Strengths
* Established market position: Whirlpool has an established market position in the refrigerator and washing machine segments. Volume growth was strong at 28.2% in fiscal 2018 and 15.6% in fiscal 2017 despite intense competition, and surpassed the industry growth. As a result, the company's market share has improved across key segments, and should remain healthy backed by strong brand, improving distribution network, new product launches, technological support from the parent, and untapped demand in tier-II and tier-III cities.

* Strong financial risk profile: The financial risk profile is driven by a debt-free capital structure and healthy cash accrual. Liquidity is ample, supported by cash and bank balance of Rs 987 crore and financial investments of USD 70 million (around Rs 450 crore) in foreign bonds. The financial risk profile should remain strong over the medium term supported by healthy cash accrual, efficient working capital management, and no debt-funded capital expenditure (capex) or exceptional dividend payout.

* Support from the parent: Whirlpool Corp is one of the largest manufacturers of home appliances in the world. Whirlpool benefits from the parent's strong international brand and robust technical capability. It also enjoys healthy credit for procurement of raw materials and traded goods given its established brand and longstanding relationships with suppliers. Considering India's large market, low penetration, increasing domestic demand, and rising disposable income, the company is likely to remain strategically important to its parent over the medium term.

Weaknesses:
* Exposure to intense competition: There is intense competition from large, organised players such as L G Electronics India Pvt Ltd ('CRISIL AAA/Stable/CRISIL A1+'), Samsung India Electronics Ltd, and Godrej and Boyce Manufacturing Company Ltd ('CRISIL AA/FAA+/Stable/CRISIL A1+'). Whirlpool has improved its market share across key segments, despite intense competition.

* Susceptibility to volatility in raw material prices: Raw material cost and purchases of traded goods form around 70% of the cost of sales. Over the past few years, the prices of primary raw materials (including aluminium, copper, plastic, and steel) used in the consumer durables industry have been volatile. The prices were on an upward trend till fiscal 2014, after which they declined till fiscal 2017. The prices increased during fiscal 2018. While operating profitability is expected to moderate, it will remain healthy over the medium term driven by a considerable increase in volume. Management of raw material price volatility remains efficient, as is evident from the healthy operating profitability of 11.6% maintained in fiscal 2018, despite increase in material prices. However, the margin remains susceptible to volatility in prices of key raw materials and cyclical downturns in the consumer durables industry.
Outlook: Stable

CRISIL believes Whirlpool will continue to benefit from its healthy market share and established brand. The financial risk profile is expected to remain strong in the absence of any debt-funded capex.

Upside scenario
*
More-than-expected growth in operating income and profitability
* Significant improvement in product diversity
* Significant increase in market share, along with sustenance of robust financial risk profile

Downside scenario
* Considerable decline in operating income and profitability
*Weakening of the capital structure and debt protection metrics because of sizeable, debt-funded capex or acquisition, or cash outflow to the parent.

About the Company

Whirlpool was incorporated as Kelvinator of India Ltd (KIL) in 1960, and got its present name in 1994, when it entered into a strategic alliance with Whirlpool Corp. In 1995, the company launched refrigerators under the Whirlpool brand. It has capacity to manufacture refrigerators, washing machines, air-conditioners, deep freezers, coffee grinders, and bag driers. In fiscal 2008, it started manufacturing water purifiers, and in fiscal 2010, split and window air-conditioners (under the Mastermind brand), microwave ovens, and a premium range of frost-free refrigerators.

For the first three months of fiscal 2019, profit after tax (PAT) was Rs 164 crore and net sales stood at Rs 1651 crore, against a PAT of Rs 133 crore and net sales of Rs 1464 crore for the corresponding period of the previous fiscal.

Key Financial Indicators (Consolidated)
As on/for the period ended March 31  Unit 2018 2017
Revenue Rs crore 4,923 4,012
Profit After Tax (PAT) Rs crore 350 310
PAT Margin % 7.1 7.7
Adjusted debt/Adjusted networth Times NA NA
Interest coverage Times 146.7 95.1

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size (Rs Crore) Rating Assigned with Outlook
NA Cash Credit NA NA NA 300 CRISIL AA+/Stable
NA Short Term Debt NA NA 7 to 365 Days 25 CRISIL A1+
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Short Term Debt  ST  25.00  CRISIL A1+  27-02-18  CRISIL A1+  17-02-17  CRISIL A1+  01-03-16  CRISIL A1+  19-05-15  CRISIL A1+  CRISIL A1+ 
Fund-based Bank Facilities  LT/ST  300.00  CRISIL AA+/Stable  27-02-18  CRISIL AA/Stable  17-02-17  CRISIL AA/Stable  01-03-16  CRISIL AA/Stable  19-05-15  CRISIL AA-/Positive  CRISIL AA-/Stable 
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Cash Credit 300 CRISIL AA+/Stable Cash Credit 300 CRISIL AA/Stable
Total 300 -- Total 300 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
Rating Criteria for Consumer Durable Industry
CRISILs Criteria for rating short term debt
Mapping global scale ratings onto CRISIL scale

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