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Strong margin amid challenging scenario…

About the stock: Crompton Greaves Consumer (CGCEL) is among India’s leading fast moving electrical goods (FMEG) companies, present in electrical consumer durables (78% of revenue) and lighting businesses (22% of revenue).

* Market leader in the domestic fan industry with value market share of 27%. The company has enhanced focus on increasing market share in home appliances categories like (air coolers, water heater and kitchen appliances)

* Robust balance sheet with RoE & RoCE of 34% & 39% (three-year average), respectively, with stringent working capital policy

Q2FY22 Results: Delivered in line revenue, with positive surprise on margin front.

* Reported revenue growth of 14% YoY to | 1385 crore led ~18% growth in the ECD segment. Price hikes were in the range of 3-4% YoY in Q2

* Price hikes, better product mix (45% YoY growth in the premium fan) and cost saving measures helped maintain EBITDA margin at 15.5% during Q2

* PAT increased 12% YoY to | 159 crore, with better margin, topline growth

What should investors do? CGCEL’s share price has grown by 2.5x in the past five years (from ~| 184 in October 2016 to ~| 450 levels in October 2021).

* We maintain our BUY rating on the stock

Target Price and Valuation: We introduce FY24E estimates and roll over valuation at FY24 valuing the company at | 525 i.e. 40x P/E on FY23E EPS.

Key triggers for future price performance:

* Total ~1.7 crore new houses under PMAY, replacement of ~20 million water pumps under government’s flagship scheme KUSUM, urbanisation and rising aspiration are demand boosters of home appliances

* Dealer addition in areas with population 10,000-100,000 in next five years

* Focus on launches of premium products to drive margin

* Model revenue, earnings CAGR of 15%, 10%, respectively, in FY21-24E

Alternate Stock Idea: Apart from CGCEL, we also like Havells in the same space.

* Trigger for Havells’ future revenue growth would be revival in Lloyds revenues and improvement in margin

* BUY with a target price of | 1545

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