Published on 27/01/2021 11:54:16 AM | Source: Yes Securities Ltd

Update On Crompton Greaves Consumer Electricals Ltd By Yes Securities

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3Q investor call takeaways

Demand outlook remains positive; commodity price inflation is expected to impact margin in near term

* Our View – The stock should continue to outperform the industry, Crompton is best placed to counter commodity price inflation as it has cost leadership which coupled with price increase and cost reduction can bring back industry leading growth without any meaningful margin contraction. We expect Crompton to sail though this challenging period and gain further market share. We continue to remain positive on the stock given it is trading at discount to peers with better return ratios.


* Distribution – Focus on enhancing distribution, Fans reach has now improved by 3%. Higher credit period have helped improved increased business from the trade partners.


* Technology – Investments in tally patch are now giving dividends. Now 76% of the secondary sales are tracked through tally patch.


* Premiumization and innovation – focus on premiumization has now led to higher growth in premium product with premium fans growing 51% yoy. Innovation continues to remain the core focus with revamped portfolio have paid handsome dividends.


* Commodity inflation – Commodity inflation continues to pose some headwinds and would pose challenges in Q4 as well. To offset commodity price inflation have taken price increase of 5‐8% across product categories.  


* Cost Savings – Cost savings are on track, and have achieved Rs400mn cost savings in Q3. Company is on track for cost savings target for FY21.


* ECD – ECD has seen industry leading growth, with Fans growing at 36%, with premium Fans growing at 51% and super premium fans showing good traction. Have gained 1% market share in Fans on rolling basis. Pumps has seen 19% growth with residential pumps growing at 22% in volume terms and 25% in value terms. Appliances has seen 45% with Geysers has seen 49% growth and moving towards the leadership position. Sold around 1.25lakh geyser in Q3. Mixer grinder has seen exponential growth.


* Lighting – Lighting B2C LED volume growth has been 13% so has been the value growth. Conventional lighting has declined 17% and now contributes only 15% to the lighting revenue. On the margin front have now reached double digit and is likely to sustain. Price erosion has been behind the industry now.


* Margin outlook – Margins are likely to be balanced by passing some of the commodity increase and some cost savings. There could be near term pressure in margins but confident of restoring industry leading margin in medium term.


* Supply chain – Supply chain has eased considerably and utilization has improved 30‐40% as compared to previous year. Even supply chain at the vendors has improved except there was some disruption due to farmers agitation as some of the capacity is located in northern region. Import is now less than 5% of the total revenue.


* Market share gains ‐  Crompton has been fastest growing Fans brand in past 12 months and has seen market share gains.


* PLI scheme benefits – Awaiting the details of the scheme and will take any decision post that.  


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