IGI Logo

Strong performance led by ECD business...

Crompton Greaves Consumer Electrical (CGCEL) reported a strong all round performance with topline, PBT growth of ~26%, ~46%, respectively, in Q3FY21. The strong topline growth was contributed by electrical consumer durable (ECD) segment (75% of topline) wherein revenue growth came in at 32% YoY, much ahead of our growth expectation of 16% YoY. The company’s strong distribution network in semi urban/rural India has helped it to gain market share from unorganised players, which were largely impacted by various supply related issues. According to the management, the current market share gain is likely to sustain in future due to the company’s aggressive go to market (GTM) strategy and continuous launch of new products. On the lighting front (~25% of revenue) while B2C category of products registered strong volume growth of 13% in Q3FY21, the institutional business (that is 50% of lighting revenues) remains weak due to slow offtake by institutional clients. On the costs front, the continuous focus on its cost optimisation measure helped the company to save ~| 40 crore of operating costs in Q3FY21. The company has also taken price hikes (in the range of 5-8%) from the start of January 2021, to offset rising input costs. We believe the company’s various cost optimisation measures along with price hikes to offset higher input price would help it to maintain its operating margins at an elevated level, going forward.

Premium product category leads topline growth

For Q3FY21, CGCEL’s topline increased 26% YoY led by ~25% volume growth during the same period. Revenues from ECD and lighting product categories increased ~32% and ~10% to | 1036 crore and | 312 crore, respectively. Under the ECD category, fan, pump and appliances business grew ~36%, 19% and 45%, respectively. The premium fan and geysers segments grew strongly by 51% and 50%, respectively, in Q3FY21. The company witnessed market share gain from unorganised players and the gain is likely to stay, going forward.

Strong operating leverage drives EBITDA margin up

EBITDA margin for Q3FY21 was up 208 bps YoY to 14.8% led by saving in other expenditure. Better operating leverage along with focus on various cost optimisation measures taken by the company over the last two years has helped CGCEL to increase its EBITDA margin. Further, the company guided for elevated margin, going forward, supported by price hikes and continuous focus on cost optimisation measures.

Valuation & Outlook

CGCEL’s revenue, earnings are likely to grow at CAGR of 13.5%, 15%, respectively, in FY20-23E supported by elevated margins and saving in interest outgo. We maintain our BUY rating on the stock with a revised target price of | 480 (earlier TP of | 440) valuing at 40x FY23E earnings.

To Read Complete Report & Disclaimer Click Here

For More ICICI Direct Disclaimer https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

Above views are of the author and not of the website kindly read disclaimer