CROMPTON
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-0.40 (-0.14%)
NSE Volume
19L+
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Crompton Greaves Consumer Electricals (CGCEL) posted 4QFY20 revenue of Rs10.2bn, down 16% YoY, 8%/10% below our/consensus estimates. CGCEL lost primary sales of Rs3bn in March owing to COVID-19 lockdown; adjusting the same it would have posted 9% YoY growth in 4QFY20. CGCEL’s overall B2C volume/value growth in Jan-Feb months was 33%/14 YoY, respectively. Electric Consumer Durables (ECD) sales fell 14% YoY to Rs7.4bn (73% of total sales), but growth in Jan-Feb months was strong, driven by fans, domestic pumps and appliances. Lighting revenue fell 19% YoY to Rs2.8bn (27% of total sales) due to lower LED prices YoY and slowdown in B2B/B2G orders (50% of segment sales). Gross margin rose 60bps YoY to 31.6% due to improved sales mix and benefits from cost optimization program. EBITDA fell 18% YoY to Rs1.4bn. However, operating margin remained healthy at 13.6%, down 40bps YoY, above our/consensus estimates of 12.6%/12.8%. EBIT margin for ECD segment was up 50bps YoY at 20%, while Lighting segment EBIT margin was down 450bps YoY at 7%, but flat QoQ. PAT fell 30% YoY to Rs1bn (partly impacted by higher tax rate at 25.5% v/s 15.7% YoY), in line with our/consensus estimates. While COVID-19 lockdown will impact growth in FY21E, CGCEL has identified cost savings worth Rs1bn to cushion margins. The manufacturing plants are running at 20%-25% capacity in one shift due to (1) strict social distancing practice, (2) adequate inventory of one month with the company and (3) lower demand. CGCEL’s 22 warehouses out of 23 are operating currently, while 40%-50% of retail touch points have resumed work with 60%-70% capacity. Demand from Orange and Green zones is back to 60%-70% level, while it is 20%-25% for Red zone. We have revised our estimates factoring in the COVID-19 lockdown. We maintain Buy rating on the stock with a revised target price of Rs265 (Rs285 earlier) based on 38x FY22E earnings.
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We cut Crompton’s FY21/FY22 EPS by 16.7% and 8.4% given Covid-19 led disruption in demand. However, we believe Crompton is better placed than most of its peers given 1) low discretionary nature of products (fans, lighting and pumps.) 2) lesser dependence on seasonal products & 3) limited exposure to B2B segment. With demand uncertain, Crompton has implemented additional cost saving measures (Rs1bn) to rein in costs. However, to drive long term growth Crompton shall continue to invest in longer term strategic initiatives like 1) distribution & GTM initiatives 2) Product innovations (incl Health & Wellness) & 3) entry in new categories We retain our positive stance on Crompton given 1) sustained growth potential in core categories of fans, pumps 2) well defined plan to scale up new segments like Geysers, Air Coolers and now mixers and grinders 3) rising innovations 4) increasing focus on brand building and 5) strong balance sheet. We estimate 14.9% PAT CAGR over FY20-22. Maintain BUY with a target price of Rs267/- (30x FY22 EPS)
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We retain our positive stance on Crompton given 1) sustained growth potential in core categories of fans, pumps 2) well defined plan to scale up new segments like Geysers, Air Coolers and now mixers and grinders 3) rising innovations 4) increasing focus on brand building and 5) strong balance sheet. We estimate 19% PAT CAGR over FY20-22 and value the stock at 30x Dect21 EPS of Rs10.2. Maintain BUY with a target price of Rs306/-
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The bottomline was 14%/3% above our/consensus estimates. CGCEL aims to sustain healthy growth and margin led by premiumisation, meaningful innovation, cost reduction, augmentation of distribution network and significant investments in product categories. We have cut our earnings estimates by 2%/4%/4% for FY20E/FY21E/FY22E, owing to low profitability in the Lighting segment. We maintain Buy rating on the stock with a revised target price of Rs335 (Rs350 earlier) based on 35x September 2021E earnings.
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Crompton’s 2Q performance was weak. Dull show in lighting overshadows ECD performance. Crompton remains committed to improve their lighting biz via investments in B- B (inspired by Havells). We believe Crompton’s 2HFY20 performance will be similar to 1H and hence don’t expect a sharp recovery (unlike peers). We cut EPS by 3-5% over FY19- 22E. We value the co at 35x on Sep-21 EPS, arriving at a TP of Rs 339. Maintain BUY
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We remain positive on Crompton given 1) strong growth potential in core categories of fans, pumps 2) well defined plan to scale up new segments like Geysers, Air Coolers and now mixers and grinders 3) rising innovations and 4) increasing focus on brand building. We estimate 22% PAT CAGR over FY19-22 and value the stock at 30x Sept21 EPS of Rs10.1. Maintain BUY with a target price of Rs303
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Brighter (lighting) days ahead Crompton’s 1Q performance was a mixed bag with beat in ECD while miss on lighting. Co’s success in ECD with market share gains in fans and higher aggression in appliances was encouraging. Lighting disappoints with legacy issues (conventional lighting) and investments in B2B. We cut EPS by 2-3% over FY20-21E. We value co at 35x on Jun-21 EPS, arriving at a TP of Rs 304.
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DART view: In line quarter; ECD grew strongly: Maintain Buy The Q1FY19 results were in line with our estimates. The ECD growth was strong, with seasonal impetus for fans and pumps. However, price erosion continued in the B2B lighting, falling 5-7% YoY. Although Crompton, is trying to offset it with premium products in B2C. Lighting margins contracted 631bps QoQ, on account of higher A&P spend and accounting provisions, while EBIT margins for ECD expanded, due to better product mix. We maintain our Sales/EBITDA/PAT in FY20E, and expect the company to report a sales/PAT CAGR of 15%/17%, respectively, over FY19-21E. We view the company as a good adjunct between Havells and V-Guard, and maintain Buy, with an unchanged TP of 275, valuing the stock at 31x for FY21E.
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We like CROMPTON for its strong product portfolio, established brand, market leadership, wide distribution network, robust RoE/RoCE profile and healthy free cash flow generating business model. We maintain our Buy rating with TP of INR270 (30x Mar’21 EPS).
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CGCEL aims to sustain healthy growth and margin led by premiumisation, meaningful innovation, cost reduction, augmentation of distribution network and scaling-up of new product categories. We have marginally tweaked our earnings estimates and maintained Buy rating on the stock with a target price of Rs285 based on 35x FY21E earnings.
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With continued strong demand for new launches, market leadership and robust distribution network, we expect CGCEL’s earnings to clock 14% CAGR through FY19-21E, while RoCE is likely to improve to 42.7% in FY21E (from 40.8% in FY19). At CMP, the stock trades at 30.6x of FY20 and 25.6x of FY20 earnings. Valuing at 35x P/E to its FY20E EPS, we maintain our BUY recommendation on the stock with an revised Target Price of Rs290 (from Rs297).
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We retain our positive stance on Crompton given 1) success of new launches in emerging segments like Geysers and Air Coolers 2) rising innovations with products like Anti-Bac, Air Buddy, Aura Fluidic and Crest Mini in mature categories 3) deeper distribution reach (through GTM) 4) increasing focus on brand building and 5) gains from cost optimization program (Unnati). We estimate 20% PAT CAGR over FY19-21 and value the stock at 33x June 21 EPS of Rs9. Maintain BUY with a target price of Rs297 (earlier Rs284)
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We marginally lower our sales/EBITDA/PAT estimates by 3%/4%/1%, respectively, in FY20E, and expect the company to report a sales/PAT CAGR of 15%/17%, respectively, over FY19-21E. We view the company as a good adjunct between Havells and V-Guard, and maintain Buy, with an unchanged TP of Rs275, valuing the stock at 31x for FY21E.
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However, with commodity pressure subsiding, strong growth potential in Electronic Consumer Durables (ECD) segment, strong LED volume growth, increasing GTM (Go to Market) reach in distribution, thrust on innovation & cost optimization, we remain positive on long term growth prospects. We estimate 20% PAT CAGR over FY19-21 and value the stock at 33x March 21 EPS. Maintain Buy with a target price of Rs284 (earlier Rs272).
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Crompton seems on course to increase Lighting segment margins to double digits (250 bps QoQ expansion to 8.9%) led by 1) design optimization 2) direct sourcing of components from China 3) participating in E-auctions 4) increasing in-house manufacturing and 5) Price increase in LED bulbs. We estimate 20.5% PAT CAGR over FY19-21. We expect it to turn net cash positive in FY19 with ROE and ROCE of 41% and 40%. We believe acquisition in small appliance segment can increase growth rates. We value the stock at 33x Dec20 EPS. Maintain Buy with a target price of Rs272 (earlier Rs276).
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About
Crompton Greaves Consumer Electricals Ltd.
NSE: CROMPTON | BSE: 539876 | ISIN: INE299U01018 | Sector: Electric Equipment
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