Crompton Greaves Consumer Electricals: On a Firm Footing; Jefferies reiterates buy with Rs 490 price target

Crompton Greaves posted strong growth in Q3 FY21 ( PBT +42% YoY) and op-margin at 14.8% (+200bps), with market share gains in Fans (+1%) & Appliances. Crompton Greaves hiked prices by 5-8% from Jan'21 (rising input costs). Traction in emerging channels (+88% in Rural; +53% in E-Comm), new launches, premiumization (premium fans +51%YoY), cost control and robust B/S (net cash Rs8bn) support growth. Factoring Q3 beat and managemant comments, Jefferies raised their FY22-24e EPS on Crompton Greaves by 7-11%. Retain Buy.

Crompton Greaves Q3 FY21 Highlights:

Standalone revenue/PBT posting +24%/+42%YoY beating estimates. Crompton Greaves growth was driven by ECD (+32%), while Lighting was weak (+1%), mostly volume-led. Despite minor commodity headwinds in Q3 of FY21, the operating margins of Crompton Greaves expanded +200bps to 14.8%, aided by cost control. Ad-spend accounted at 1.9% of sales (2% in Q3 FY20).

Crompton Greaves ECD - Notable Driver:

This segment accounts for 78% of sales. Crompton Greaves revenue grew notably by +32% YoY to Rs 10.4 bn, with EBIT margin at 19.8% (-9 bps YoY), indicating continued offtake in B2C over B2B. Crompton Greaves continued to gain market share in Fans (+100 bps) and Appliances. ECD growth was broad-based across segments - Fans (+36% YoY), Appliances (+45%) and Residential Pumps (+25%). Within categories, Premium Fans / Geysers were key drivers, clocking growth of +51% / +50%. Premium fans are 18% of Fans mix. Crompton Greaves has taken price hikes of 5-8% effective Jan'21, to pass on commodity increases.

Crompton Greaves Lighting Division performance - Margin improves:

Sales traction was relatively subdued at +1% to Rs 2.9 bn. However, Crompton Greaves EBIT margin expanded notably by +476bps to 11.6%, likely aided by improving mix and cost reduction. B2C Lighting volumes were up +13%, whereas B2G business grew on the back of KSEB tender and Odisha project execution. However, B2B continues to face challenges due to slow order pick-up from institutions. Conventional Lighting (15% of mix) declined by -17% YoY.

Crompton Greaves Emerging Channels:

Go-To-Market strategy is fructifying into enhanced distribution, which bodes well with Crompton Greaves's medium-term growth prospects. In Q3, ECommerce and MOR grew +53%, whereas Rural channel posted significant growth of +88%. Per mgmt, rural economy seems to be more resilient and promising, further aided by company's investment.

Crompton Greaves Outlook:

Factoring Q3 beat and mgmt commentary, Jefferies raised Crompton Greaves FY22-24e EPS by 7-11% (FY21e EPS +12%), penciling higher traction in B2C (mainly ECD). Over FY20-24e, Jefferies penciled standalone sales/PAT to register +10%/12% CAGR, aided by robust industry prospects, potential share gains, new launches, GTM strategy, cost control measures and a sturdy B/S.

Jefferies Reiterate Buy on Crompton Greaves:

Jefferies highlights that Crompton Greaves is a strong brand franchise coupled with robust financials and pan-India distribution, acting as sturdy biz moats. Jefferies retain Buy on Crompton with a revised price target of Rs 490; retain target PE at 45x.

Crompton Greaves Key Risks:

Extended demand slowdown, raw material volatility and pricing pressures.