Buy Crompton Greaves CE Ltd For Target Rs. 566 - Yes Securities
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Growth momentum continues in focus segments with stable margins; maintain BUY
Result Synopsis
ECD (ex‐pumps) and B2C LED lighting continued to deliver double‐ digit revenue growth. Most of this growth was value‐led (a combination of price hikes and premium sales mix) as the company has increased prices of the products in the range of 16‐18% in 4‐5 tranches over the past year. Unlike industry peers, the company has been able to maintain its gross margins as product mix has moved significantly towards premium products. Aggressive cost savings initiatives and usage of cash balance to book commodities in advance has also helped. CROMPTON continues to gain market share in key categories like Fans and Geysers. Its distribution reach has improved by 600bps in last 12 months. CROMPTON is best placed to tide over any volatility in commodity prices and further enhance its market share. We continue to remain positive on the stock.
We expect steady growth momentum to continue in B2C with stable margins; furthermore, we expect company to continue its market share gains given its strong thrust on innovation and brand investments. We build in FY21‐24E Revenue/EBITDA/PAT CAGR of 13%/12%/9% and arrive at our PT of Rs566 valuing the company at 45x FY24EPS, a 20% discount to our target multiple on Havells and maintain our BUY rating.
Result Highlights
* Quarter Summary – CROMPTON revenue growth of 4.6% yoy was largely pricing‐ led growth. ECD growing at 6.1% and B2C LED Lighting growing at 22% yoy. Company managed to protect its gross margins despite significant commodity inflation.
* ECD ‐ ECD (ex‐Pumps) registered growth of 11% yoy. Fans grew 11% yoy with large contribution from premium and decorative fans, while Appliances business grew 13% yoy driven by core category of Geysers.
* Market share performance – Crompton continues to gain market share in Fans (+2.3%) to 27% maintaining its leadership position. It has re‐gained its leadership position in North region in Fans category.
* Working capital and operating cashflow ‐ Company has improved its working capital by Rs500mn and has cash balance of Rs13.6bn which will enable the company to tide over any challenges in future.
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