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Tracking the journey of CG Power in durables and its likely impact on incumbents

We analyse the progress of CG Power in consumer durables as it completes two years after the launch in H2FY22. We note: (1) It has reached revenue of INR ~4bn and is currently profitable, (2) it has 2%+ market share in fans, 3%+ in pumps and geysers have just been introduced and (3) its products are available pan-India and manufacturing is outsourced. Since CG Power is generating profitability and its product pricing is comparable with peers, we do not model any material impact on industry profitability in the short term. However, success of new formidable player like CG Power is likely to hurt long-term revenue prospects of all incumbents. We model Crompton Consumer to be relatively more impacted as consumers may get confused between Crompton and CG brands, in our view. We will closely monitor the progress of CG Power in consumer durables segment. Our top pick is Havells.

Consumer durables portfolio of CG Power

CG Power entered consumer durables in H2FY22 and has introduced fans, pumps for agri sector and geysers. This portfolio generates revenue of INR ~4bn and is profitable. We believe the margins are not comparable with industry standards but still the company is not losing money. The products have been launched pan-India and the manufacturing is outsourced. It has >2% market share in fans and >3% in pumps.

Comparison with Finolex, RR Kabel and Polycab

We note multiple players have entered FMEG segment in the past decade and some of the key companies are Finolex, RR Kabel and Polycab. These companies benefit from brands established in wires and cables, distribution reach and established connect with electricians. While CG Power does not enjoy similar competitive advantages, we note it has reached revenue size of INR ~4bn. RR Kabel and Polycab have taken ~4 years to reach revenue of INR 4bn whereas CG Power has achieved INR 4bn revenue in less than two years post its launch.

Key competitive advantages of CG Power

We believe CG Power benefits from the advantage that the brand logo of CG is extremely popular and plays an important role in attracting attention of consumers and retail outlets. Expansion of product portfolio and investments in distribution have also helped CG Power grow briskly, we believe

Implications on incumbents

Since CG Power is not operating at losses and its product pricing is largely comparable to peers, we do not model any material impact on the profitability of the sector and peers in near term. However, addition of one more formidable player (CG Power) is likely to curtail growth opportunities for all players in long term. We believe Crompton Consumer is likely to be the relatively more impacted as consumers may get confused between Crompton and CG brands (in our view)

Key points to track the impact on other players

We will closely track: (1) New product launches by CG Power; (2) distribution expansion and initiatives to connect with electricians by CG Power; (3) investments in premiumisation of products e.g. BLDC fans; and (4) investments in brand building activities (R&D investments, new product launches, ad spend and sales promotion activities).

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