Whirlpool Corporation, a prominent American consumer durables manufacturer, recently divested a 24% stake in its Indian subsidiary, Whirlpool of India, via an open market sale, yielding around $468 million. This strategic move aimed primarily at alleviating Whirlpool Corporation’s debt burden, sparking speculations regarding its future endeavours in India. However, CEO Marc Bitzer emphasised that the stake sale stemmed from the stark valuation contrast between Whirlpool of India and its parent company, with no intention of exiting the Indian market, underscoring Whirlpool Corporation’s enduring commitment to India’s growth prospects.
The stake sale involved the disposal of 30.4 million shares by Whirlpool Mauritius, a wholly-owned subsidiary of Whirlpool Corporation. Bitzer elucidated that the sale was prompted by the substantial valuation gap between Whirlpool of India and the parent company, which presented an arbitrage opportunity due to the former’s high earnings multiple compared to the latter. Additionally, the proceeds from the sale are earmarked for reducing Whirlpool Corporation’s debt load, with a target of slashing over $1 billion in debt by 2024, signalling the company’s proactive approach towards financial optimization.
Despite the market’s initial apprehension reflected in Whirlpool of India’s stock price downturn to a 52-week low following the stake sale, Whirlpool Corporation maintains its unwavering commitment to India’s growth trajectory. Nonetheless, analysts, including those at Jefferies, downgraded Whirlpool of India’s rating to “underperform” and adjusted its target price downwards, citing concerns over declining operational margins and heightened market competition. This underscores the necessity for Whirlpool Corporation to navigate evolving market dynamics adeptly while sustaining its foothold and fostering growth in the Indian consumer durables sector.
RTM Watch’s Take
Whirlpool Corporation’s stake sale in its Indian unit, Whirlpool of India, has raised questions about the company’s future plans in India. However, CEO Marc Bitzer’s clarification that the stake sale was driven by high valuations and a disparity with the parent company provides reassurance about Whirlpool Corporation’s long-term commitment to the Indian market. The company’s intention to use the proceeds to reduce debt further demonstrates its strategic financial planning. While the stock price has experienced a decline and analysts have expressed concerns, it is important to consider Whirlpool Corporation’s overall growth strategy and its belief in India as a significant marketplace. As the company continues to navigate the competitive landscape and leverage growth opportunities, it will be interesting to observe how Whirlpool of India performs in the coming months.
