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Strong performance continues

* Crompton Greaves Consumer Electricals (CGCE) reported strong set of numbers for Q4FY21. Its consolidated revenue grew by 48.3% YoY led by strong growth across geographies and different product categories. Despite facing rising commodity cost pressure, CGCE reported 122bps YoY improvement in operating margins led by better operating leverage and cost control initiatives. The net profit was boosted (+144% YoY) by a one-time tax write back and a sharp rise (+72.2% YoY) in other income. In the near term, demand would be impacted on account of on-going restrictions and expect normalcy by Q2FY22. We believe CGCE would continue to outperform the industry driven by strengthening market share, widening distribution reach and strong focus on premiumization. Maintain Buy.

Result Update Q4FY21

* CGCE consolidated net revenue grew by 48.3% YoY to Rs. 1,522 cr led by strong growth in both its key segment. The ECD business registered a growth of 61% YoY to Rs. 1,193 cr whereas the lighting segment where the growth had been impacted over the last several quarters grew by 15.4% YoY to Rs. 329 cr. In the ECD segment, Fans registered a growth of 59% in Q4 driven by higher sales of premium fans. Pumps business grew by 61% YoY. The appliances business continued its strong growth momentum registering a 74% YoY growth. This was led by Air Coolers, Mixer Grinder, & Geysers. The lighting segment growth was led by the B2C lighting LED (volume growth of 23% YoY) whereas the B2B continued to witness challenges.

* The operating profit grew by 61.4% YoY to Rs. 228 cr as margins expanded by 122 bps. On the segment front, the ECD segment margins were impacted both on a YoY and sequential basis due to rising commodity costs. The lighting segment margins expanded by 380 bps sequentially and more than doubled on a YoY basis. The net profit jumped 144% YoY to Rs. 249 cr on account of higher operating profit, sharp rise in other income and one-time tax write back during the quarter.

* Other key highlights: i) CGCE continued to gain market share by 1% in fans in Q4FY21, iI) Rural channels & E-commerce continued its strong growth momentum of 117% and 86% YoY iii) Due to lockdown imposed by several regions, demand would be impacted, and normalcy is expected by Q2.

Outlook & Valuation

CGCE has come out stronger aided by strong demand recovery and have managed to gain market share in its key segments. It would continue to focus on increasing sales from rural and e-commerce channels and also look to enter new categories to capitalize on its growing distribution network and brand presence. On the margins front, we believe the recent commodity price inflation would have limited impact on CGCE as the company has already taken some price hikes.

Further, constant focus on premiumization and cost optimization measures would help the company to maintain its margins. Hence, we like CGCE for its strong growth potential, consistent rise in market share in its key segment coupled with healthy dividend pay-out ratio, strong cash flow generation, lean working capital cycle and robust return ratios. Factoring the impact of demand uncertainty in the near term, we have lowered our estimates for FY22E. We maintain a Buy on the stock with a target price of Rs. 479.

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