Crompton Greaves, V-Guard on a strong growth footing: ICICI Securities

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Published: October 18, 2017 3:40:29 AM

While Crompton, with a renewed vigour post demerger, is set to actualise its complete brand potential, V-Guard is set to further consolidate its position among the big consumer electrical companies of India.

The consumer electricals (CE) sector in India is on a strong growth footing driven by better outlook of housing, electrification and economic affordability.

The consumer electricals (CE) sector in India is on a strong growth footing driven by better outlook of housing, electrification and economic affordability. Housing schemes and energy efficiency drives by the government and reforms like GST are helping organised players gain market share and overall premiumisation is aiding margins. We initiate coverage on Crompton Consumer (BUY, TP Rs 270) and V-Guard (ADD, TP Rs 208), both suitably placed to benefit from this theme. While Crompton, with a renewed vigour post demerger, is set to actualise its complete brand potential, V-Guard is set to further consolidate its position among the big consumer electrical companies of India. This is evident from the past where total revenue CAGR for the sector has been ~12% since 2010. Diversified CE companies have outperformed and ex Bajaj Electricals revenue CAGR for diversified CE has been 16% since 2010.

One of the cornerstones of Indian consumer electricals is the relative strength of each segment. We find that each segment has its own merits; be it the relative high market share of incumbents in fans or the high growth rate of lighting, coolers and appliances or the high unorganised share in lights, pumps and wires.We remain confident on the growth potential of various categories in the sector.

The leading growth is expected in lighting followed by appliances, which are expected to grow at 12-15%, followed by fans, pumps, switchgear expected to grow at 8-10% and the last is wires and cables, estimated to grow at ~6-7%. Transition to higher organised share and premiumisation will offer additional growth for incumbent players. A state-wise analysis of growth in housing number, housing quality, average number of people in household and the electricity penetration indicates a wide asymmetry between many states. As development catches up in the laggard states, additional 60 bps growth to consumer electricals can arise through housing growth, while a further 40 bps growth can be generated through overall improvement in housing quality.

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