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All round performance...

Crompton Greaves Consumer Electrical (CGCEL) continued its growth momentum in Q4FY21 with topline, PAT growth of ~48%, ~144%, YoY, respectively, much ahead of our expectations. The company gained 1% market share in the fan segment during FY21 and retained No. 1 slot in the segment with overall market share of 27%. However, in the near term, CGCEL will witness demand challenges and EBITDA margin pressure due to lockdown, lower operating leverage and sharp rise in raw material prices. Hence, we marginally cut our revenue, earnings estimate by 5%, 4%, respectively, for FY22E. However, despite near term challenges, the company will continue to invest in R&D and strengthen its rural distributions to drive its future sales. Also, launch of premium products, cost saving measures and price hikes will support its margin once normalcy returns.

Topline growth led by both ECD, lighting division

For Q4FY21, CGCEL’s revenue grew 48% YoY to | 1522 crore led by 61%, 15% YoY growth in revenue of ECD and lighting division to | 1193 crore, | 329 crore, respectively. The sales were largely driven by rural regions wherein the company reported strong sales growth of 117% YoY in Q4FY21. In the ECD segment, all three categories fan, pump and small appliances revenues increased 59%, 61% and 74% YoY, respectively, in Q4FY21. On the lighting front, revenue growth was largely driven by B2C category wherein the company reported volume, value growth of 23% and 41% YoY, respectively. However, the B2B category of the lighting division remained under pressure due to sluggish government offtakes. Over the long term, increasing rural penetration along with market share gains in both lighting and ECD segments would help drive sales for CGCEL. We build in consolidated revenue CAGR at ~17% for FY21-23E.

Cost saving measures drive EBITDA margin

Q4FY21 EBITDA margin at 15%was higher by 122 bps YoY led by savings in employee cost and other expenditure. On the segment front, EBIT margin of lighting division increased 840 bps YoY (380 bps QoQ) to 16.1% supported by price stability and various cost optimisation measures taken in the last two years. However, the ECD segment EBIT margin dipped ~200 bps YoY mainly due to commodity cost pressure. In the short term, the EBITDA margin is likely to remain under pressure due to low operating leverage but cost optimisation measures and improved product mix would support EBITDA margin once normalcy returns.

Valuation & Outlook

CGCEL has maintained robust balance sheet (RoE: 32%, RoCE: 34%) despite various challenges. This, along with strong brand, would help CGCEL for a faster sales recovery post opening up of economy. We maintain BUY rating on the stock with unchanged TP of | 480 (valuing at 40x FY23E earnings)

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