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ECD segment drives topline growth…

About the stock: Crompton Greaves Consumer (CGCEL) is among India’s leading fast moving electrical goods (FMEG) companies, present in electrical consumer durables (~69% of revenue) and lighting businesses (~16% of revenue). CGCEL acquired Butterfly Gandhimathi Appliances, which contributes ~15% to revenue.

* Market leader in the domestic fan industry with value market share of 29%. 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 ~24%, ~23% (three-year average), respectively, with stringent working capital policy

Q4FY23 Results: ECD segment drives topline, profitability remains under pressure.

*Consolidated revenues were up ~16% YoY to | 1791 mainly driven by ~8% YoY growth in ECD segment. However, lightings segment revenue declined by ~12% YoY. Butterfly’s revenue came in at | 186.7 crore

* EBITDA margin declined 297 bps YoY to 11.8% due to higher operating costs. Gross margin improved by 169 bps YoY supported by lower raw material prices

* PAT declined ~26% YoY to | 131.2 dragged by higher interest outgo & higher depreciation costs

What should investors do? CGCEL’s share price has given a return of 13% in the past five years (from ~| 230 in May 2018 to ~| 260 levels in May 2023).

Key triggers for future price performance:

* Increased government capex, urbanisation, ~1 crore new houses under PMAY and rising aspiration are demand boosters of home appliances • Expanding Butterfly products pan India leveraging existing dealer network

* Focus on improving market position in premium fans category

* Plans additional revenues by entering into new category ‘built-in kitchen’ segment. Built-in kitchen industry is pegged at | 2200 crore; growing at 10%. The company is aiming at 10% market share in the next three years

Alternate Stock Idea: We like Havells in the same space.

* Havells has a strong presence in the organised product category across its segments. Its market share ranges between 6% and 20% across segments

*BUY with a target price of | 1425 

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