CG Consumer well placed to gain share on demand recovery across categories

Improving cash flows, robust balance sheet and margin levers are other positives

After a strong performance in the March quarter, market share gains, expectations of demand recovery and margin levers are the key triggers for Crompton Greaves Consumer Electricals. The company, which makes a range of consumer products, reported its highest ever quarterly revenues of Rs 1,522 crore, up 48 per cent YoY on a lower base.

All the main consumer product categories such as fans, appliances and pumps which make up 78 per cent of revenues reported robust growth ranging from 59-74 per cent. Growth in the lighting segment was led by consumer lighting which grew by 41 per cent.

The company gained a 1 per cent share in fans from smaller players in FY21 with its current share at 28 per cent. It has also outperformed the sector growth across segments such as pumps, mixer grinders and air coolers. Analysts at Edelweiss Research say that the company’s growth numbers reflect industry-level characteristics like double-digit price hikes and robust March quarter demand driving restocking across a range of products.

Going ahead, the management is aiming to grow faster than the sector on the back of premiumisation, innovative products and wider distribution reach. While the company could see good growth once the recovery takes shape, analysts at ICICI Securities believe there could be demand challenges and operating profit margin pressure due to lockdown, lower operating leverage and sharp rise in raw material prices. Given the near term challenges, most brokerages have cut their FY22 and FY23 earnings estimates by 5-9 per cent.

Though the company has taken a price hike of 10-12 per cent across categories in the March quarter, it is looking at cost saving, product premiumisation and additional price increase to overcome sequential increase in commodity costs.

Strong growth, higher cash flows due to efficient working capital management and improving balance sheet are positives and should help it to capitalise on pent up demand once normalcy returns. Most brokerages have a buy rating on the stock which is trading at 35 times its FY23 earnings estimates. Given the growth prospects across segments, investors can look at the stock on dips for the long term.