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Market share gains to continue

80+ year old brand and a pan-India footprint: Crompton is amongst India’s leading consumer electrical companies present in the Electrical Consumer Durables (ECD) and Lighting segments. It manufactures and distributes a diverse range of consumer products ranging from Fans, Pumps and Appliances (Water Heaters, Air Coolers, Mixer Grinders, Iron, Other Small Domestic Appliances) in the ECD segment and a complete range of lighting products.

Dominant player in Fans & Pumps: CGCE’s strong focus on innovation coupled with strong brand equity and wide distribution reach has helped the company to further strengthen its leadership position in fans with a market share of 28%. In pumps, the company is the second largest player with a market share of 17%.

Strong industry growth drivers: The electrical consumer durable industry has witnessed healthy recovery led improving economic conditions, more stable disposable income, and favourable government policies. We expect the growth momentum to continue for the industry led by increased government focus on improving infrastructure and housing for all. Moreover, a shift in consumer behaviour from price consciousness towards technologically advanced products with quality, value proposition, and safety aspects have been leading to a rise in demand for premium consumer durable products.

CGCE to continue to gain market share: We expect CGCE to continue gain market share across segments led by its constant focus on product innovation, expansion of product portfolio and continued strengthening of distribution channel through expansion into modern trade and e-commerce. Additionally, in the consumer appliances segment, the company is focused on strengthening its reach, driving premiumisation, expanding its range of products and foraying into newer segments of consumer appliances.

Acquisition of Butterfly Gandhimati to bring long term synergies: In March 2022, CGCE announced the acquisition of Butterfly Gandhimati Appliances from its promoters for a consideration of Rs. 1,380 cr. This bodes well for CGCE as it would help the company to gain fast access to kitchen appliances market. Butterfly’s wide portfolio will help the company expand its range of small domestic appliances. Moreover, it would also give CGCE a strong foothold in the southern markets and also increase Butterfly product presence to pan India leveraging CGCE wide distribution reach.

Financials all set to improve: While CGCE registered its highest ever revenue in FY22, margin contraction impacted profitability. Going forward, factoring the organic growth and impact of Butterfly Gandhimati, we expect CGCE revenue to grow at a CAGR of 24.6% over FY22-24E. On the margins front, we believe the worse of margin pressure is behind us and expect it to improve aided by recent easing in key commodity prices, price hikes, focus on premiumization and cost rationalization measures. We like CGCE for its strong growth potential, consistent rise in market share, strong cash flow generation, lean working capital cycle and robust return ratios. Hence, we recommend a Buy on the stock with a target price of Rs. 516.

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