CG Consumer: Analysts see strong earnings growth led by lighting segment

According to analysts, heightened competition in pumps and geysers business impacted Q3 performance, despite robust 28% surge in premium fans' sales

Crompton Greaves Consumer (CG Consumer) disappointed the Street, as sales of its electric consumer durables segment fell, pulling down overall revenue growth in the December quarter (Q3).

Though electric consumer durables — which contributes about two-thirds to CG Consumer’s top line — sales were down just a per cent, both on a year-on-year (y-o-y) and sequential basis, due to tepid sales of its geysers and pumps, overall revenues grew just 6.7 per cent (down 2.2 per cent sequentially) to Rs 9.38 billion. This was lower than the growth recorded by peers as Havells and V-Guard, said analysts. The stock fell over 10 per cent in two sessions to Rs 237. This is in addition to the 6.5 per cent fall from its January 4 peak of Rs 283.

According to analysts, heightened competition in the pumps and geysers business impacted the Q3 performance, despite a robust 28 per cent surge in premium fans’ sales. Premium fans, priced at over Rs 2,500 apiece, now contribute 20 per cent to overall fans’ revenue, compared to about seven per cent two years ago.

Improved sales of premium fans and LEDs (light-emitting diodes), along with cost control measures, helped at the operating level. Net profit at Rs 695 million grew 27.8 per cent y-o-y, still lower than expectations. The electric consumer durables segment is a key concern for analysts, who estimated the firm’s market share in geysers to have declined in Q3.

In pumps where Crompton remains the leader, its market share has not declined but growth rates have suffered. Introduction of mid- and low-priced pumps by competitors have taken a toll on the company’s growth, said analysts. Positively, Crompton has introduced pumps in the mid-price segment, and expects a quick recovery. The Street will be watching the progress in pumps as well as geysers and coolers — also the priority areas for the company where it is targeting the number two position from the current sixth or seventh ranking.

 

Volume of water heaters, too, came under pressure due to increased competition. Analysts estimated the company to have lost some share due to a lag in its innovation pipeline. This would be another monitorable area.

The lighting segment did well, with sales growing an impressive 23 per cent y-o-y. LED sales had jumped 56 per cent in Q3. It now constitutes 70 per cent of Crompton’s lighting business. The lighting products segment has seen a remarkable performance, with Crompton having emerged as the second-largest player in just two years. This is also keeping analysts positive on the company. Overall, analysts at Edelweiss estimate an annual growth of 19 per cent in Crompton’s earnings and spurt in free cash flow over FY17-20, led by growth in the fans and lighting segments.

Reliance Securities earnings growth is higher at 23.3 per cent during FY17-20, while Kotak Institutional Equities expects earnings to grow 22 per cent annually over FY18-20