Add Crompton Greaves Consumer Electricals Ltd For Target Rs.477 - ICICI Securities
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Annual report update: Focus on driving efficiencies across segments
Crompton Greaves Consumer (Crompton) is focusing on its 5-dimensional growth strategy comprising investment in: (1) brand excellence, (2) portfolio excellence, (3) go-to-market excellence, (4) operational excellence, and (5) organisational excellence. It continued to introduce premium and differentiated products across all its businesses in FY21 and has saved costs to the tune of Rs1.53bn through its cost excellence programme, Unnati.
Net working capital days have decreased from 19 in FY20 to -10 in FY21 leading to strong FCF. ECD segment continued to report higher growth than the lighting business even in FY21. We note the steady growth in ECD is margin-accretive at the company level. We remain structurally positive on Crompton given its strong investments in brand-building, distribution expansion, and steady launch of premium products. Upgrade to ADD with a DCFbased target price of Rs477 (42x FY23E; Earlier TP-Rs413).
* Five-dimensional growth strategy: Crompton continues to do well in keeping with its 5-dimensional growth strategy comprising investment in: (1) brand excellence, (2) portfolio excellence, (3) go-to-market excellence, (4) operational excellence, and (5) organisational excellence.
* Urja and Unnati projects to improve efficiencies: Crompton, in order to achieve operational excellence, and for superior digital transformation, is working on programme Urja. The programme supports the company’s core business through: (1) technology adoption, (2) improvement in stakeholder relationships, and (3) enhancing data security. Crompton achieved Rs1.53bn in cost-savings through its cost excellence programme, Unnati.
* Lower working capital days leading to higher FCF: Net working capital days have decreased from 19 in FY20 to -10 in FY21. This improvement is resulting in strong FCF generation.
* Strong growth in Electric Consumer Durables (ECD) segment: This vertical contributed 78% of revenues and registered strong YoY growth of 10.9% in FY21. It generated an EBIT margin of 19.7% in FY21 vs 12.6% for lighting products. We note the strong growth in ECD is margin-accretive at the company level.
* Upgrade to ADD: We model Crompton to report a PAT CAGR of 7.5% over FY21-FY23E and RoE to be above 30% over FY22E-FY23E. We remain positive on the business model due to its competitive advantages and growth opportunities. We upgrade the stock ADD with a DCF-based target price of Rs477 (implied P/E 42x FY23E).
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