Rating Rationale
October 25, 2019 | Mumbai
Whirlpool of India Limited
Ratings Reaffirmed
 
Rating Action
Total Bank Loan Facilities Rated Rs.300 Crore
Long Term Rating CRISIL AA+/Stable (Reaffirmed)
 
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 reaffirmed its 'CRISIL AA+/Stable/CRISIL A1+' ratings on the long-term bank facility and short-term debt of Whirlpool of India Limited (Whirlpool).
 
The ratings continue to reflect the company's established market position in the consumer durables segment, its strong financial risk profile and technical support from the US-based parent, Whirlpool Corp (rated 'BBB/Stable' by S&P Global). These rating strengths are partially offset by susceptibility to volatility in input prices and intense competition across product categories.

Analytical Approach

To arrive at its ratings, CRISIL has combined the business and financial risk profile of Whirlpool and Elica PB India Pvt. Ltd. Both these entities are herein referred to as Whirlpool.

Please refer Annexure - Details of Consolidation, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description
Strengths
* Established market position: Whirlpool has an established market position in the refrigerator and washing machine segments. Both these segments together constitute more than 80% of the revenues of the company. These segment has continued their growth trajectory during FY2019 as depicted by strong volume growth of 15% in the refrigerator segment (against 28% growth in FY2018), and 21% volume growth in the washing machine segment (against 29% growth in FY2018).
 
Overall volume has grown by 13.4% in fiscal 2019, (28.2% and 15.6% in fiscals 2018 and 2017, respectively), despite intense competition, thereby surpassing industry growth of 6.2%. This also reflects the company's gain in market share, in major segments. Going forward, Whirlpool is likely to maintain its market position, backed by a strong brand, better distribution network, new product launches and potential demand in tier-II and tier-III cities.
 
* Strong financial risk profile: Financial risk profile remains strong, driven by a debt-free capital structure, healthy cash accrual, efficient working capital management, and no debt-funded capital expenditure (capex) or exceptional dividend pay-out. Liquidity is ample, supported by cash and liquid investments of Rs 1,065 crore.
 
* Support from the parent: Whirlpool Corp is one of the world's largest manufacturers of home appliances. Whirlpool benefits from the parent's strong international brand image and robust technical capability. It enjoys a healthy credit period for procurement of raw materials and traded goods, given its established brand name and longstanding relationship with suppliers. Considering India's large market size, low penetration, increasing domestic demand, and rising disposable income, the company should remain strategically important to its parent over the medium term.
 
Weaknesses
* Exposure to intense competition: Whirlpool faces stiff competition from large, organized players such as LG Electronics India Pvt. Ltd ('CRISIL AAA/Stable/CRISIL A1+'), Samsung India Electronics Ltd and Godrej and Boyce Manufacturing Company Ltd ('CRISIL AA/CRISIL FAA+/Stable/CRISIL A1+'), yet has managed to gain market share in the refrigerator and washing machine segments, due to its strong distribution network and brand name. The refrigerator volumes and washing machine segment grew at 3 year compound annual growth rate of 18% and 24%. Respectively, till fiscal 2019, as against the CAGR of 8% and 9%, recorded by the industry, respectively, for the same period.
 
* 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, prices of primary raw materials (including aluminum, copper, plastic, and steel) used in the consumer durables industry, have remained volatile. Prices were on an upward trend till fiscal 2014, thereafter declined till fiscal 2017, and rose again during fiscals 2018 and 2019.
 
Operating margin has been stable at 11-12% over the four years through March 2019, aided by healthy growth in volume sales and rate cuts (following implementation of the Goods and Service Tax), providing headroom to pass on the increased raw material price to customers. However, CRISIL believes profitability will remain exposed to any adverse movement in raw material prices, and hence, the company's ability to pass on such cost fluctuations, will be a key monitorable.
Liquidity Superior

Whirlpool has superior liquidity, driven by strong expected net cash accrual of around Rs 600 crore each in fiscals 2020 and 2021, respectively, and cash and cash equivalents of Rs 1,065 crore, as on March 31, 2019. The company paid moderate dividend of Rs 46 crores and Rs 61 crores respectively during fiscal 2019 from its internal accruals. Any major dividend outflow in the coming years will be easily met by internal accruals. Absence of any maturing term debt or major capex plans, also aids liquidity.

Outlook: Stable

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

Rating Sensitivity factors
Upward scenario:
* Better segmental diversification, with 25-30% of revenue derived from segments, other than refrigerators and washing machines
* Significant increase in market share, and sustenance of robust financial risk profile
 
Downward scenario:
* Decline in revenue and operating margin (below 10%)
* Weakening of capital structure and debt protection metrics, due to sizeable, debt-funded capex or acquisition, or cash outflow to the parent.

About the Company

WOIL was incorporated as Kelvinator of India Ltd (KIL) in 1960. In 1994, KIL entered into a strategic alliance with Whirlpool Corp, and was given its current name. In 1995, the company launched refrigerators under the Whirlpool brand. It also manufactures 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, microwave ovens, and a premium range of frost-free refrigerators.
 
For the first three months of fiscal 2020, profit after tax (PAT) was Rs 191 crore on net sales of Rs 1,974 crore, against Rs 164 crore and Rs 1,651 crore, reported for corresponding period of the previous fiscal.

Key Financial Indicators
As on / for the period ended March 31   2019 2018
Operating Income Rs crore 5,482 4,923
PAT Rs crore 406 350
PAT margin % 7.14 7.1
Adjusted debt/Adjusted networth Times NA NA
Interest coverage Times 82.7 146.7

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 No. 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 7-365 Days 25 CRISIL A1+
 
Annexure - List of entities consolidated
Name of entities consolidated Extent of consolidation Rationale for consolidation
Elica PB India Pvt. Ltd. Equity method Strong business and financial linkages
Annexure - Rating History for last 3 Years
  Current 2019 (History) 2018  2017  2016  Start of 2016
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Short Term Debt  ST  25.00  CRISIL A1+      11-10-18  CRISIL A1+  17-02-17  CRISIL A1+  01-03-16  CRISIL A1+  CRISIL A1+ 
            27-02-18  CRISIL A1+           
Fund-based Bank Facilities  LT/ST  300.00  CRISIL AA+/Stable      11-10-18  CRISIL AA+/Stable  17-02-17  CRISIL AA/Stable  01-03-16  CRISIL AA/Stable  CRISIL AA-/Positive 
            27-02-18  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 Consolidation
CRISILs Criteria for rating short term debt
Mapping global scale ratings onto CRISIL scale

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