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Value investor- India mid & small caps

Bhaskar Chakraborty

Equity Bottom-Up

<ul><li>India’s fourth largest refrigerator (RF) and washing machine (WM) player. Urban penetration of RF at 75% and of WM at 25% offers a long runway for growth.</li><li>Company’s volume growth has been ahead of industry growth rates despite low A&amp;P spends demonstrating the power of its brand.</li><li>Company’s current distribution network covers only 60% of India’s multi-brand durable retailing network. Its intent to increase retail presence 50% by FY20 provides strong growth outlook.</li><li>Company’s recent announcement to focus more on growth (as opposed to margin defence earlier) by targeting doubling of revenues to $1bn by FY20. Strategy dovetails into the on-going themes of increased rural electrification and pay-outs of 7<sup>th</sup> Pay Commission for government employees.</li><li>Business requires little capex to grow earnings. Impressive cash generation with 90% of EBITDA getting converted to operating cashflow (OCF) and 75% of OCF converting into free cashflow (FCF).</li><li>Attractive return ratios despite large net-cash balance sheet. Very little dividend pay-out is a dampener.</li><li>Consensus expects 24% EPS Cagr over FY17-19. Stock trades at 29.7x FY19 Bloomberg consensus EPS estimate. We recommend accumulating on dips.</li></ul>

India’s fourth largest refrigerator (RF) and washing machine (WM) player. Urban penetration of RF at 75% and of WM at 25% offers a long runway for growth.Company’s volume growth has been ahead of industry growth rates despite low A&amp;P spends demonstrating the power of its brand.Company’s current distribution network covers only 60% of India’s multi-brand durable retailing network. Its intent to increase retail presence 50% by FY20 provides strong growth outlook.Company’s recent announcement to focus more on growth (as opposed to margin defence earlier) by targeting doubling of revenues to $1bn by FY20. Strategy dovetails into the on-going themes of increased rural electrification and pay-outs of 7th Pay Commission for government employees.Business requires little capex to grow earnings. Impressive cash generation with 90% of EBITDA getting converted to operating cashflow (OCF) and 75% of OCF converting into free cashflow (FCF).Attractive return ratios despite large net-cash balance sheet. Very little dividend pay-out is a dampener.Consensus expects 24% EPS Cagr over FY17-19. Stock trades at 29.7x FY19 Bloomberg consensus EPS estimate. We recommend accumulating on dips.

Whirlpool of India

Whirlpool India: Multi Year Opportunity