Financial Management 2

Individual Assignment

Submitted By,
Name: Uddhav Dilip Kulkarni
Roll No. 2019118
Section B
Company Chosen: Whirlpool of India Ltd.

1|Page Whirlpool of India Ltd.

 1. Company Info
Whirlpool entered India in the late 1980s as part of its global expansion strategy. It forayed into the
market under a joint venture with TVS group and established the first Whirlpool manufacturing facility
in Pondicherry for washing machine category. Whirlpool of India Limited headquartered in Gurugram,
is now one of the leading manufacturers and marketers of major home appliances in the country.

2. Financials
The sector is consumer appliances (FMCD). Whirlpool was listed on BSE on 08 Jan 2010. The current
market share price is 2529. Whirlpool has a market cap of 31844 Cr. Face value of Rs 10. Dividend yield
of 20%. Price/Earnings ratio of 65.77. Payout ratio of 12.98%. YoY dividend growth rate of 25%. The
company has zero debt. Total equity is 214.53 Cr. Major competitors are Crompton Greaves, TTK
prestige, IFB Industries. Revenue for March 2019 is 53.976 billion. Net Income is 4 billion.

3. Capital Structure of the firm

Beta(β) 0.763196225
Risk free rate (Rf) 6.40% 91-day treasury yield RBI website
Market Premium (Rm-Rf) 7.08% Aswath Damodaran website
Cost of Equity (Ke) 11.80%
Total Debt (D) NA Debt free company
Interest Payment (I) NA Debt free company
Cost of debt (Kd) NA Debt free company
Total Equity (Lakh INR) 21453.8
WACC(Ko) 11.80% Equal to cost of equity

Peer Company Debt/Equity

CG Consumer 0.3762
TTk Prestige 0
Bajaj Electric 0.3672
IFB Industries 0

Whirlpool of India Ltd. is a debt free company. Similarly, for TTk Prestige and IFB Industries the D/E
ratio is Zero. But for companies like CG consumer and Bajaj Electric the D/E ratio is almost same around
0.37

2|Page Whirlpool of India Ltd.

 4. Leverages
Vales are in million INR
Mar 31, 2019 Mar 31, 2018 Mar 31, 2017 Mar 31, 2016
Total Revenue 53,976.50 49,858.30 43,603.80 38,076.40
Gross Profit 19,246.20 17,494.10 15,599.30 13,387.90
Operating Income 5,375.70 4,598.20 4,075.40 3,176
Net Income 4,097.40 3,506.70 3,104.90 2,400.20

% change in Sales 8.26%

% change in EBIT 16.91%
% change in EBT 16.84%

DOL = % change in
EBIT / % change in 2.047
Sales

DFL = % change in
EBT / % change in 1.00
EBIT
DCL = DOL x DFL 2.039

As we can see, the Degree of Operating Leverage (DOL) is 2.047, that means 1% change in sales will
cause 2.047% change in EBIT. The firm is unlevered firm. So DFL is 1.00 that means, 1% change in EBIT
will cause 1% change in EBT.

Whirlpool India Ltd is a debt free company hence there will be no conflicts of interest between
creditors and management. But there can be conflicts of interest between shareholders and
management as shareholders are more interested in maximizing the share value and increasing their
profits but management is after security and long-term growth, but even this problem may not be
that big in Whirlpool India Ltd as majority shareholders is the promoter company Whirlpool Corp and
Board of Directors comprises of 3 executive directors.

3|Page Whirlpool of India Ltd.

 5. Dividend Policy
The Dividend Distribution Policy describes Company’s philosophy of maximization of shareholders’
wealth from long term perspective. Thus, the Company would first utilize its profits for its business
requirements, capital expenditure for expansion and / or diversification, earmarking cash for potential
inorganic growth opportunities and thereafter distributing the surplus profits in the form of dividends
to the shareholders.

It has laid down the Regulatory framework for distribution of dividend, dividend declaration process
and parameters for declaring dividend which includes:

• External Parameters – General Economic and Capital market conditions, statutory restrictions
and the industry trends.
• Internal Parameter – Future fund requirement, provisions, retention of minimum cash for
contingencies and business seasonality / volatility.

It also lays down that the Company may follow any of the residual, stability, or a hybrid method while
deciding on recommendation and payment of dividends.

Vales are in million INR

Year 2015 2016 2017 2018 2019
Net Earnings 2,105.10 2,400.20 3,104.90 3,506.70 4,097.40
YoY Earnings increase 14.02% 29.36% 12.94% 16.84%
Outstanding shares 126.87 126.87 126.87 126.87 126.87
Dividend per share 0 0 3 4 5
YoY Dividends increase 0.00% 0.00% 0.00% 33.33% 25.00%
Pay-out ratio 0.00% 0.00% 12.26% 14.47% 15.48%
Ex-Dividend Date NA NA 08-09-17 06-09-18 05-08-19
Payment Date NA NA 17-10-17 16-10-18 11-09-19

The firm had a policy of not giving dividends until 2017. For the past 3 years it has distributed
dividends. In 2017 Rs 3 per share, 4 per share in 2018,5 per share in 2019. The firm has not issued any
bonus issues or stock splits

Since the company has started giving its share price has risen from 1281 to 2180 in 3 years. Investors
have started to expect the dividends so they cannot reduce the dividends now, a decrease in dividend
will signal the investors that the company is not doing well. Sales have been increasing by more than
14% every year. Company has been increasing the dividend by 1 rupee for last 3 years.

Whirlpools immediate peers are CG Consumer, IFB Industries, Bajaj Electric, TTK Prestige. Following
were the dividends declared by them in 2019 CG-Rs 2 per share, Bajaj Electric-Rs 3.5 per share, TTK
Prestige-Rs 30 per share. All its peers give regular dividend. Bajaj Electric has the highest dividend yield
of 0.82%

There are no updates about changes in dividend policy post Indian Budget 2020. The company is
maintaining the same dividend policy.

4|Page Whirlpool of India Ltd.

 6. Working Capital Management
The table below shows the working capital calculations for Whirlpool of India Ltd.

Vales are in million INR

Mar 31, Mar 31, Mar 31, Mar 31, Mar 31,
Year 2019 2018 2017 2016 2015
Sales 53,976.50 49,858.30 43,603.80 38,076.40 32,937.83
YoY increase in sales 8.26% 14.34% 14.52% 15.60%
Cost of Revenue 34,730.30 32,364.20 28,004.50 24,688.50 20,708.69

Cash and Short-Term Investments 12,125.20 9,955 10,637.90 8,669.90 5,399.20

Accounts Receivables - Trade, Net 2,556.20 2,403.10 2,048.60 1,926.30 1,550.70
Total Inventory 8,886 8,101.20 8,887.60 6,835.20 6,590.10
Other Current Assets 1,043.40 1,004.10 724.1 513.7 432.2
Total Current Assets 24,610.80 21,463.40 22,298.20 17,945.10 13,972.20

Accounts Payable 12,362.20 11,529.80 11,208 8,708.30 7,194.30

Other Current liabilities 1,312.50 1,128.40 1,331.10 1,192.70 1,238.40
Total Current Liabilities 13,674.70 12,658.20 12,539.10 9,901.00 8,432.70

Gross working capital 24,610.80 21,463.40 22,298.20 17,945.10 13,972.20

YoY increase in Gross Working
Capital 14.66% -3.74% 24.26% 28.43%
Net Working Capital 10,936.10 8,805.20 9,759.10 8,044.10 5,539.50
YoY increase in Net Working
Capital 24.20% -9.77% 21.32% 45.21%

Days sales outstanding

(Receivables) 17 16 17 17
Days in inventory 89 96 102 99
Days payable outstanding 126 128 130 118
Cash conversion cycle -20 -16 -11 -2

Current Ratio 1.80 1.70 1.78 1.81 1.66

Quick Ratio 1.07 0.98 1.01 1.07 0.82
Cash ratio 0.89 0.79 0.85 0.88 0.64

The firm has high efficiency in the operating cycle. This firm has negative Cash Conversion Cycle (CCC).
If a company has a negative cash conversion cycle, it means that the company needs less time to sell
its inventory (or produce it from raw materials) and receive cash from its customers compared to time
in which it has to pay its suppliers of the inventory (or raw materials). This is a positive point for the
firm. This means that the company virtually requires no working capital for its day-to-day operations.
Due to such conditions, company can go for investment opportunities through which it can use funds
in a more appropriate way. Also, the company is maintaining the current ratio, quick ratio and cash
ratio over the years. The Cash ratio is closer to 1.00 means the company has cash and equivalents
nearly equal to the current liabilities. This shows the good health of the company.

5|Page Whirlpool of India Ltd.