Crompton Consumer: Strong demand, mkt share gains may help sustain growth

Jefferies estimates a 13% annual growth in topline during FY20-23, as well as margin expansion

The stock of Crompton Greaves Consumer Electricals, India’s largest ceiling fan maker, has rallied about 40 per cent in the last three months. Considering the sustained demand growth for its products, diverse revenue mix, and market share gains in its businesses, the upward momentum in the stock is likely to sustain, believe analysts.

Brokerages estimate the company’s revenue to grow in the 15-19 per cent range in the December quarter of financial year 2020-21 (Q3FY21), aided by sustained demand momentum across its products.

“The Consumer Durables (CD) segment is likely to witness robust growth (18 per cent estimate) aided by robust festive sales, strong winter-led heater sales and input cost led price hikes across the board (in Q3),” said Amit Mahawar, research analyst at Edelweiss Securities. The lighting segment, he says, is estimated to grow 8 per cent year-on-year (YoY), benefitting from price recovery in B2C (business-to-consumer) segment and modest volume growth.

Moreover, channel checks conducted by analysts indicate that the unorganised sector is yet to recover fully from the Covid-led disruption to business. 

Since Crompton Consumer operates in product categories within the electricals space with low/medium organised sector penetration, this offers a large headroom for growth, said Jefferies in a recent note.

One of the key reasons the company reported better-than-anticipated growth in the first half of FY21 was its focus on widening its distribution channel. Going forward, too, the management has reiterated that benefits accrued will be ploughed back to drive revenue through distribution expansion and new product launches. In this backdrop, growth momentum is expected to remain healthy over the next two years.

Jefferies forecasts a compound annual growth rate (CAGR) of 13 per cent in top line during FY21-23, and a 100 basis point-plus upside in operating profit margin aided by improving product mix, cost control initiatives and superior operating leverage, according to its base case estimates.

The Crompton Consumer stock is currently trading at 45x its FY23 estimated earnings per share, which is at a premium of over 25 per cent to its 5-year average of 35x.  Corrections could offer a better entry opportunity for long-term investors.

On the flip side, muted consumer spending, resurgence in competition from unorganised players and volatility in raw material prices are key downside risks, say experts.