Religare High Conviction Idea : Buy Crompton Greaves Consumer Electrical Ltd. For Target Rs.342 By Religare Broking
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Decent revenue growth, however, margin remained under pressure
Decent overall performance: CGCEL consolidated revenue came in at Rs 1,693 Cr, up by 11.6% YoY, largely driven by Electronic Consumer Durables (ECD) segment which saw fans, pump and appliances business to report double digit growth as a result segmental revenue was up by 18.5% YoY to Rs 1,209 Cr. Lighting products revenue remained flat at Rs 249 Cr while Butterfly business reported a de-growth of 5.8% YoY to Rs 234 Cr. Rise in overhead expenses and decline in other income dragged the profit down by 3.1% YoY to Rs 85 Cr.
Subdued margin: Its gross profit came in at Rs 550 Cr, up by 11.5% YoY while margin remained flat as compared to last year at 32.5%. ECD segment posted strong growth; however, it was offset by subdued performance from Lighting and Butterfly business which suppressed the gross margin expansion. Rise in channel investments and ad spends led the EBITDA to decline by 1.7% YoY to Rs 150 Cr while margin contracted by 120bps YoY to 8.8%.
Segmental performance: Despite strong revenue growth in ECD business, its EBIT grew by 1.6% YoY to Rs 164 Cr while margin contracted by 227bps to 13.6%, due to investments made towards advertising and innovation of its product portfolio. Lighting products EBIT came in at Rs 28 Cr while margin improved by 95bps YoY to 11.2%, led by improvement in product mix as well as cost optimization measures. Butterfly segment reported an EBIT loss of Rs 2 Cr, impacted by brand building expenses and ad spends in retail & ecommerce as well as rise in personal cost for the segment.
Outlook & Valuations: CGCEL has a strong presence in fans business while it has a healthy presence in Lighting products and Kitchen appliances. Under Crompton 2.0, the management has been focusing on driving its business through top-line growth while investment across channel mix to improve brand visibility and premiumization of products shall reap rewards in terms of improving its margins and overall profitability. Additionally, rise in housing infrastructure across the country shall aid in growth of its core fans and appliances business. We remain positive on the growth prospects of the company and estimate its revenue/EBITDA/PAT to grow at a CAGR of 14%/15.4%/15% over FY23-26E and maintain our Buy rating with a target price of Rs 342, valuing the company at a PE multiple of 30x on FY26E EPS.
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