Whirlpool entered India in the late 1980s. Later in 1996, Kelvinator and TVS acquisitions were merged to create, Whirlpool of India Limited. This expanded the company's portfolio in the Indian subcontinent to washing machines, refrigerator, microwave ovens and air conditioners.
Image: company logo
RISK ANALYSIS
WHIRLPOOL
The variability of EBIT and EPS distinguish between two types of risk – (a) Operating Risk and (b) Financial Risk.
• Degree of operating leverage depends upon variability of sales and variability of expenses. Sales have shown steady growth in last years except in the year 2012 when sales dropped slightly. But degree of operating leverage has been fluctuating very often. Increase in operating leverage from the year 2014 to 2015 indicates higher proportion of fixed expenses like rent, salaries etc. relative to variable expenses. Sales are showing an increasing trend. Hence, high DOL in 2015 has resulted in faster increase of EBIT (As seen in figure 4). Input prices have also changed over the years. There is small amount of business risk in 2015. Negative DOL suggests that positive changes in revenue will have minimal effect on reducing operating losses.
• Change in EPS and change in EBIT is nearly same in 2015 which is reflected by unity DFL value. The firm was debt- free in 2015. The firm has always followed a near debt-free model. A positive DFL reflects the fact that the firm is above its financial breakeven. It also indicates that when operating profits increase, net profits are also increasing; when operating profits decrease, net profits are decreasing. A low value of DFL here means that net profit is relatively large, (relative to operating profit), and that the variability in net profit (i.e., risk) is relatively small. In 2013, interest exceeds operating profit, the firm is showing a net loss and DFL is negative.
• Combined risk, can be measured by its degree of combined leverage (DCL). DCL has remained positive in last five years (i.e. revenue generated > total costs) except in 2013 and 2014. Small negative value of DCL in 2014 could have proved a threat to solvency of the company. But it improved well in march, 2015. Small DCL value in 2015 as compared to previous years indicate relatively low combined risk since fixed costs and interest would be relatively low when compared to revenue.
Year | Net Sales(in crores) | EBDIT(in crores) | Depreciation(in crores) | EBIT(in crores) | EPS | %Change in Sales | % Change in EBIT | %Change in EPS | DFL | DOL | DCL |
March'15 | 3293.79 | 369.32 | 68.13 | 301.19 | 16.59 | 16.2 | 71.49 | 71.21 | 1 | 4.41 | 4.4 |
March'14 | 2834.64 | 239.46 | 63.83 | 175.63 | 9.69 | 2.23 | -3.58 | -3.77 | 1.05 | -1.61 | -1.69 |
March'13 | 2772.73 | 242.48 | 60.32 | 182.16 | 10.07 | 4.32 | -1.9 | 4.46 | -2.35 | -0.44 | 1.03 |
March'12 | 2657.94 | 235.39 | 49.7 | 185.69 | 9.64 | -1.66 | -24.17 | -21.63 | 0.89 | 14.56 | 13.03 |
March'11 | 2702.8 | 289.4 | 44.51 | 244.89 | 12.3 | 6.37 | 11.24 | 114.29 | 10.17 | 1.77 | 17.95 |
March'10 | 2541.04 | 259.83 | 39.68 | 220.15 | 5.74 |
CAPITAL STRUCTURE ANALYSIS
WHIRLPOOL
• Whirlpool is a zero-debt company since last four years which is indicated by zero Total debt-equity and long term debt equity ratio. It had a very small D/E ratio of 0.15 in 2011.
• Being a zero debt company, whirlpool does not get any tax shield. But considering its huge retained earnings and 75% promoter’s funds in overall shareholder’s fund, not leveraging its assets is more profitable option for the company.
• Net sales and assets of the company have increased a lot in recent years.
• Although there no long term debts, but it has taken some loans for operational expenditures which are very very less as compared to the EBIT of the company which is indicated by the huge interest coverage ratio in table 2.
• Financial charges coverage ratio indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It has also strengthened to 573.7 in March, 2015 and it has shown huge increasing trend over the last 5 years (Figure 2).
From Year |
To Year |
Class Of Share |
Authorized Capital (Crores) |
Issued Capital (Crores) |
Paid Up Shares (Nos) |
Paid Up Face Value |
Paid Up Capital (Crores) |
2014 |
2015 |
Equity Share |
150 |
126.87 |
1268,71,830 |
10 |
126.87 |
2013 |
2014 |
Equity Share |
150 |
126.87 |
1268,71,830 |
10 |
126.87 |
2012 |
2013 |
Equity Share |
150 |
126.87 |
1268,71,830 |
10 |
126.87 |
2011 |
2012 |
Equity Share |
150 |
126.87 |
1268,71,830 |
10 |
126.87 |
2010 |
2011 |
Equity Share |
150 |
126.87 |
1268,71,830 |
10 |
126.87 |
|
|
|
|
|
|
|
|
Year |
D/E Ratio |
Long Term D/E Ratio |
Interest Coverage |
Financial Charges coverage Ratio |
Financial Charges coverage Ratio post
tax |
Closing Share Price |
March'15 |
0 |
0 |
467.87 |
573.7 |
433.87 |
735.35 |
March'14 |
0 |
0 |
123.52 |
168.41 |
132.34 |
231.1 |
March'13 |
0 |
0 |
60.7 |
80.79 |
63.66 |
220.25 |
March'12 |
0 |
0 |
42.42 |
53.77 |
40.62 |
198.85 |
March'11 |
0.15 |
0.15 |
43.35 |
51.23 |
38.27 |
265.3 |
Category of Shareholders |
No. of Shareholders |
Total No. of Shares |
Total Shareholding as a % of total no. of shares |
(A)
Shareholding of Promoter and Promoter Group |
|||
Bodies Corporate |
1 |
951,53,872 |
75 |
Total
shareholding of Promoter and Promoter Group |
1 |
951,53,872 |
75 |
(B)
Public Shareholding |
|||
(1)
Institutions |
|
||
Mutual Funds / UTI |
70 |
99,86,704 |
7.87 |
Financial Institutions / Banks |
25 |
13,307 |
0.01 |
Central Government / State Government(s) |
3 |
633 |
- |
Foreign Institutional Investors |
72 |
72,88,926 |
5.75 |
Any
Others (Specify) |
1 |
85 |
- |
Others |
1 |
85 |
- |
Sub
Total |
171 |
172,89,655 |
13.63 |
(2)
Non-Institutions |
|
||
Bodies Corporate |
688 |
26,95,744 |
2.12 |
Individuals |
|
- |
- |
Individual shareholders holding
nominal share capital up to Rs. 1 lakh |
36,477 |
63,14,568 |
4.98 |
Individual shareholders holding
nominal share capital in excess of Rs. 1 lakh |
85 |
37,79,681 |
2.98 |
Any
Others (Specify) |
893 |
16,38,310 |
1.29 |
Trusts |
8 |
3,640 |
- |
Non Resident Indians |
357 |
5,70,074 |
0.45 |
Clearing Members |
77 |
47,582 |
0.04 |
Hindu Undivided Families |
435 |
2,19,250 |
0.17 |
Overseas Corporate Bodies |
16 |
7,97,764 |
0.63 |
Sub
Total |
38,143 |
144,28,303 |
11.37 |
Total
Public shareholding (B) |
38,314 |
317,17,958 |
25 |
Total
(A)+(B) |
38,315 |
1268,71,830 |
100 |
DIVIDEND POLICY ANALYSIS
WHIRLPOOL
Whirlpool of India has not paid dividends to its shareholders for many years. Only 25% of whirlpool’s shares are hold by Public. Remaining shares are hold by promoters. Whirlpool has not paid any dividend in the last decade as it had a lot of good project/investment opportunities in its hands. Their main focus has been on wealth maximization of the shareholders.
Figure 1 shows Adjusted EPS and Adjusted DPS data for last five years. Adjusted EPS has grown by 71.21% in March 2015 as compared to march 2014. In March, 2011, Adjusted EPS was more than average adjusted EPS. It decreased in March, 2012 and remained almost constant till March, 2014. DPS is the blue line which has coincided with X-axis as no dividend is zero in all years. Hence, payout ratio is also zero throughout. Market value has always been many times of the book value. MV/BV has shown a lot of fluctuations over the years. ROE and earning yield have also shown fluctuating behaviour. EY% has reduced in March, 2015 as compared to March, 2014 as Market value increased many fold more as compared to increase in adjusting EPS.
Year |
Adjusted EPS |
Adjusted DPS |
BV |
MV |
MV/BV |
ROE % |
Payout% |
EY% |
DY% |
March'15 |
16.59 |
0 |
71.15 |
735.35 |
10.335 |
23.31 |
0 |
2.256 |
0 |
March'14 |
9.69 |
0 |
57.3 |
231.1 |
4.033 |
16.9 |
0 |
4.193 |
0 |
March'13 |
10.07 |
0 |
47.61 |
220.25 |
4.626 |
20.68 |
0 |
4.572 |
0 |
March'12 |
9.64 |
0 |
37.54 |
198.85 |
5.297 |
25.67 |
0 |
4.848 |
0 |
March'11 |
12.3 |
0 |
27.92 |
265.3 |
9.502 |
44.05 |
0 |
4.636 |
0 |
Average |
11.658 |
0 |
48.3 |
330.17 |
6.759 |
26.122 |
0 |
4.101 |
0 |
WORKING CAPITAL MANAGEMENT ANALYSIS
WHIRLPOOL
For Whirlpool also, inventory accounts for most of the assets proportion causing a significant difference in current and quick ratio. Average collection period of Whirlpool is very low, i.e. 19 days. 85% of current liabilities consist of trades payable which further result in high payment deferral periods of 474 days. Suppliers, thus, trust the company to pay its debts and hence allow purchase on credit for longer durations. Gross operating cycle comes to be 175 days which is really high causing a huge lag between the purchase of material and money collection from market. Furthermore, due to huge payment deferral period, the net operating cycle is -299 days. 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.
WHIRLPOOL |
In Rs Crores |
|||
March, 2015 |
March,2014 |
|||
Current liabilities |
||||
Trade payables |
63,423.99 |
58,086.40 |
||
Other current liabilities |
6,314.82 |
5,750.49 |
||
Short-term provisions |
4,180.25 |
3,992.45 |
||
Total |
73,919.06 |
67,829.34 |
||
Current assets |
||||
Inventories |
57,666.50 |
52,228.03 |
||
Trade receivables |
16,987.47 |
17,090.97 |
||
Cash and bank balances |
29,183.02 |
15,503.35 |
||
Short-term loans and advances |
4,371.91 |
4,781.22 |
||
Other current assets |
211.51 |
73.78 |
||
Total |
1,08,420.41 |
89,677.35 |
||
Income |
||||
Revenue from operations (Gross) |
3,10,596.04 |
3,03,649.87 |
||
Expenses |
||||
Cost of raw materials and components consumed |
1,35,262.28 |
1,42,836.39 |
||
Purchase of traded goods |
48,746.11 |
38,309.41 |
March, 2015 |
March,2014 |
|
Current Ratio |
1.466744978 |
1.32210265 |
Quick Ratio |
0.683753284 |
0.5510232 |
Average Collection Period |
19.96299293 |
20.5440696 |
Inventory Conversion Period |
155.6108066 |
133.462005 |
Payment Deferral Period |
474.9046919 |
553.428936 |
Gross Operating Cycle |
175.5737996 |
154.006074 |
Net Operating Cycle |
-299.3308923 |
-399.42286 |
This article has been authored by Suvayan Roy from IMI New Delhi
REFERENCES
1) www.moneycontrol.com
2) www.ibef.org
Year |
Net Sales(in crores) |
EBDIT(in crores) |
Depriciation(in
crores) |
EBIT(in crores) |
EPS |
%Change in Sales |
% Change in EBIT |
%Change in EPS |
DFL |
DOL |
DCL |
March'15 |
3293.79 |
369.32 |
68.13 |
301.19 |
16.59 |
16.20 |
71.49 |
71.21 |
1.00 |
4.41 |
4.40 |
March'14 |
2834.64 |
239.46 |
63.83 |
175.63 |
9.69 |
2.23 |
-3.58 |
-3.77 |
1.05 |
-1.61 |
-1.69 |
March'13 |
2772.73 |
242.48 |
60.32 |
182.16 |
10.07 |
4.32 |
-1.90 |
4.46 |
-2.35 |
-0.44 |
1.03 |
March'12 |
2657.94 |
235.39 |
49.7 |
185.69 |
9.64 |
-1.66 |
-24.17 |
-21.63 |
0.89 |
14.56 |
13.03 |
March'11 |
2702.8 |
289.4 |
44.51 |
244.89 |
12.3 |
6.37 |
11.24 |
114.29 |
10.17 |
1.77 |
17.95 |
March'10 |
2541.04 |
259.83 |
39.68 |
220.15 |
5.74 |
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