Crompton Greaves Consumer Rating ‘Buy’; results beat estimates by a wide margin

By: |
November 2, 2020 3:45 AM

Strategy of expanding reach, portfolio is delivering; TP raised to Rs 380 from Rs 335

While we agree that some benefits could reverse, we believe CRG’s strategy of expanding product/distribution reach has fared far better.While we agree that some benefits could reverse, we believe CRG’s strategy of expanding product/distribution reach has fared far better.

Crompton Consumer (CRG), delivering beyond its conventional leadership segments, way exceeded consensus on growth and operating margin. While growth was led by sustained show in fans, pumps & appliances (new focus), operating margin spurt was bolstered by sales mix, cost initiatives and lighting stabilisation.

While we agree that some benefits could reverse, we believe CRG’s strategy of expanding product/distribution reach has fared far better. Agility in business is helping the company do well in appliances, tier II/III markets, new distribution formats, etc. Consolidation opportunity, especially in small appliances, remains key to re-rating.

Delivering beyond conventional growth areas: CRG posted a much wider beat surpassing the general expectation of a better pent-up demand and cost-led OPM improvement. This implies stronger growth in appliances (up 32% y-o-y) and fans (up 23%). The company’s comprehensive product launches and stable supply-chain versus weak smaller peers, expanding reach (especially rural), aided better growth.

Multiple levers boost margin: Benefits from lower input costs, sales mix (GM up 100bps y-o-y) and sharp cost control measures (employee/other expenses down 2%/160bps y-o-y) led to an all-time high Ebitda margin of 15.5%. Even as some discretionary expenses are likely to rise, structural cost efficiency benefits will continue.

Outlook: Improved growth visibility—CRG’s strategic alignment with changing sectoral dynamics has been superior, reflecting in better growth and OPM. Since our upgrade, while it has run up 40%, potential in appliances has significant headroom given rising focus & expanding reach. Hence, we maintain ‘BUY/SO’ with revised TP of Rs 380 (Rs 335 earlier, raising PE from 35x to 40x).

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