Down 40% in 1 year, still a 'Sell': Why this white goods stock may fall further

White goods maker Whirlpool of India has seen its shares tumbling 40 per cent this past year. But a couple of factors are against any potential recovery on the counter. ICICI Securities has retained its 'Sell' rating on the stock, citing that valuations remain rich based on core-level earnings. The brokerage noted that the parent company intends to divest 31 per cent of its stake in the firm, reducing its holding to 20 per cent.

While it acknowledged a revival in business earnings, it highlighted that other income as a percentage of profit before tax remained as high as 40 per cent in FY25, alongside an uptrend in advertising spends and R&D expenditure.

It maintained its 'Sell' called and suggested DCF-based target price of Rs 1,100, implying target P/E of 29 times FY27 earnings. On Thursday, the scrip was trading 21.7 per cent lower at Rs 1,261.85.

The brokerage is pencilling in a growth of 12 per cent in revenue and 16.6 per cent in profit after tax, respectively, annually over FY25-27. 

"RoE and RoCE showed signs of improvement, even in FY25 (continuing from FY23). We believe that this is primarily driven by cost-saving initiatives, increased focus on premiumisation and right pricing strategy. We believe that these ratios should continue to expand further by FY25–27E. RoE and RoCE are still lower than the cost of capital. However, the cash adjusted return ratios remain strong," ICICI Securities said.

The return ratios for Whirlpool have been falling, with RoE plummeting from 25.1 per cent in FY15 to 9.3 per cent in FY25. This is mainly due to pressure on margins and lower operating leverage. The ratios though expanded from FY23, ICICI Securities said they may marginally improve over FY25–27E with higher focus on premium products and cost optimisation initiatives.

Meanwhile, Whirlpool of India accumulated healthy net cash balance of Rs 1,960 crore at the end of FY25. 

If one excludes other income (post tax) and cash, the P/E multiple attributable to the core business earnings is upwards of 70 times on FY25 earnings.

"The company’s ad-spends increased by 47.8 per cent YoY in FY25. We note that adspend, as a percentage of sales, grew from 0.8 per cent in FY24 to 1.1 per cent in FY25. This should enable it to enhance its brand visibility and support volume growth across key categories. We model it to grow further between FY25–27E," ICICI Securities said.

Large product portfolio and strong offerings in premium segments are seen allowing for market share gains.