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All sides covered; Recommend Buy

Crompton Greaves Consumer Electricals (CGCE) is engaged in manufacturing and marketing of a wide range of consumer products ranging from fans, light sources and luminaires, pumps and household appliances such as geysers, mixer grinders, toasters and irons. CGCE has been the market leader in fans, domestic pumps and street lighting for over 20 years. It has four manufacturing plants located in Goa, Vadodara, Ahmednagar and Baddi and its products are available in ~150,000 retail points across the country.

Investment Rationale:

* Consumer Electricals growth to remain healthy: After getting briefly impacted due to lockdown, the growth prospects for the consumer electrical sector looks promising on the back of increasing penetration, revival in housing demand, and increased government focus on providing housing for all and electrification of households especially in rural areas. In urban areas, changing consumer preference towards value added products and premiumization would drive growth for the industry.

* CGCE to continue to gain market share: CGCE’s increased focus on innovation and distribution network has enabled it to enhance its leadership position in the fans and pumps segment where the company is a market leader. The company has been the fastest growing fans brand India in the last 12 months despite challenging situation. We believe with positive industry outlook, new product launches, strong product portfolio, widening distribution reach and focus on premiumization would enable CGCE to grow faster than market.

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. The supply side issues faced by the company have also eased considerably. On the margins front, we believe the recent commodity price inflation would have limited impact on CGCE as the company has already taken price hikes (5-8%). 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. We recommend a Buy on the stock with a target price of Rs. 479.

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