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  • CMP : 254.9 Chg : -0.80 (-0.31%)
  • Target : 415.0 (13.08%)
  • Target Period : 12-18 Month
Result Update

28 Oct 2022

Lighting, fans segment impacts revenue growth…

About The Stock

Crompton Greaves Consumer (CGCEL) is among India’s leading fast moving electrical goods (FMEG) companies, present in electrical consumer durables (~63% of revenue) and lighting businesses (~16% of revenue). CGCEL acquired Butterfly Gandhimathi Appliances, which contributes ~21% 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 ~30% each (three-year average), respectively, with stringent working capital policy
Q2FY23 Results

Revenue growth impacted by decline in core business (ECD & lighting)

  • Consolidated revenues are up ~22.7% YoY to ₹ 1699.6 crore led by consolidation of Butterfly revenues. However, ECD and lightings revenue declined ~3% and ~7%, respectively
  • EBITDA margin declined 409 bps YoY to 11.4% due to higher operating costs. Gross margin remained flat YoY due to a reduction in raw material prices and improved sales mix
  • PAT declined ~21% YoY to ₹ 125.9 crore as a result of lower EBITDA
What should Investors do?

CGCEL’s share price has given return of ~68% in the past five years (from ~₹ 219 in October 2017 to ~₹ 367 levels in October 2022).

  • We maintain our HOLD rating on the stock
Target Price and Valuation

We value CGCEL at ₹ 415 i.e. 37x P/EFY24E EPS.

Key Triggers for future price performance
  • Total ~1.7 crore new houses under PMAY, urbanisation and rising aspiration are demand boosters of home appliances
  • Expanding Butterfly products pan India leveraging existing dealer networks
  • Plans additional revenues by entering into new category ‘Built-in kitchen’ segment. Built-in kitchen industry is pegged at ₹ 2200 crore; growing at 10%. Company aims 10% market share in next three years
Alternate Stock Idea

We like Polycab India in our coverage. Polycab is market leader in the wire & cable business with organised market share of 22-24%. In FMEG segment, it is growing through new product launches and dealer addition across India. Robust b/s with three-year average RoE, RoCE of 18%, 22%, respectively.

BUY with a target price of ₹ 3300

Particulars

Particulars (₹ crore) Amount
Market Capitalization 16,410.2
Total Debt (FY22) (| Crore) 1,607.5
Cash & Invest. (FY22) (| Crore) 1,539.0
EV (| Crore) 23,072.1
52 week H/L (₹) 402.0/248.0
Equity Capital 128.8
Face Value (₹) 2.0

Price Chart

Recent Events & Key Risks

  • Key Risk: (i) Rising competition in core business segment (ii) Better than expected EBITDA margin

Research Analyst

Hitesh Taunk
hitesh.taunk@icicisecurities.com

Sanjay Manyal
sanjay.manyal@icicisecurities.com

Result Update
ICICI Securities – Retail Equity Research

Key Financial Summary

Particulars FY19 FY20 FY21 FY22 5 Yr CAGR (17-22) FY23E FY24E 2 Year CAGR (FY22-24E)
Net Sales 4,478.9 4,520.3 4,803.5 5,394.1 6.0 7,269.0 8,232.4 23.5
EBITDA 584.3 599.1 720.5 769.4 9.0 919.4 1,092.0 19.1
EBITDA Margin (%) 13.0 13.3 15.0 14.3 - 12.6 13.3 -
Net Profit 401.4 496.4 616.7 578.4 15.0 558.7 696.6 9.7
EPS (|) 6.4 7.9 9.8 9.2 - 8.9 11.1 -
P/E (x) 57.3 46.3 37.3 39.8 - 41.2 33.0 -
RoE (%) 36.6 33.8 31.9 24.0 - 21.7 23.4 -
RoCE (%) 42.8 38.3 34.4 16.2 - 16.6 20.5 -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q2FY23 Results: Core business constricts revenue growth, EBITDA margin under pressure

  • CGCEL’s reported consolidated revenue at ~| 1699.6 crore is up by 22.7% YoY on a higher base and was led by consolidation of Butterfly business. Revenue growth was restricted due to 3% YoY decline in ECD segment and 7% YoY decline in lighting segment
  • Segment wise, ECD segment revenues declined 3% YoY to | 1062.3 crore, dragged by decline in fan revenues by 7%. Lighting segment revenues declined ~7% YoY to | 269.6 crore as a result of steep fall in demand of conventional lightings (declined by 35%)
  • On a three year CAGR basis, CGCEL’s core business revenues (i.e. ECD & lighting) grew at a CAGR of 7%
  • EBITDA margin at 11.4% was impacted by higher operating costs. Gross margin remained flat YoY at ~32% as a result of reduction in raw material prices as well as improved sales mix
  • Interest outgo increased by ~3.7x YoY to ~| 29.9 crore, owing to higher debt. Higher interest cost as well as lower EBITDA resulted in a decline in PAT by 20.7% YoY to | 125.9 crore

 

Q2FY23 Earnings Conference Call highlights

 

  • Market Share Gains: CGCEL’s market share in premium fans and water heaters improved on a QoQ basis

 

  • Demand Outlook: Demand is likely to be subdued in the near term in the lighting and fan business due to inflation as well as change in BEE norms. The company’s pumps business continues to face challenges due to inflation in commodity prices and has seen flattish revenue growth. Alternate channel contribution to company’s sales has increased from 12% to 15% and is continuing to see a rise

 

  • Margins: Gross margin was under pressure in Q2FY23 due to consumption of high cost inventory. EBITDA margin was also impacted by lower gross margin as well as increase in other expenses. The company will be taking average price hikes of ~9% on average in the ECD segment after transition to BEE norms

 

  • Butterfly business: According to the management, the company is focusing on driving sales through retail channel as compared to e-commerce sales where Butterfly is already at the second position. E-commerce – 80%. The management expects margins in the Butterfly business to improve from Q3FY23
 
  • Built-in kitchen appliances segment: CGCEL opened 20+ signature studios across metro cities in Q2FY23 and plans to open more studios in the coming quarters. The company is focusing on building consumer awareness in this segment by investing in it
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