Revenue at Rs 3.4 billion (up 1% y-o-y, 7% q-o-q) was in line.
Crompton Greaves Consumer Electricals’ (CGCEL) revenue at Rs 12 billion (+7% y-o-y, +17% q-o-q) was 4% below our and Bloomberg consensus estimates. Ebitda at Rs 1.7 billion was 4% below our estimate (`1.76 billion) and 7% below consensus estimate (`1.81 billion). Reported PAT of Rs 1.4 billion (+37% y-o-y, +78% q-o-q) was sharply ahead of our (Rs 1.1 billion) and consensus estimates (`1.16 billion). This was mainly driven by lower average tax rate of 16% (compared with our estimate of 34%) owing to a tax provision write-back of `285 million.
Revenue at Rs 3.4 billion (up 1% y-o-y, 7% q-o-q) was in line. Management indicated that excluding EESL revenue, the lighting segment’s revenue grew 11% y-o-y. We expected Ebit margins to improve q-o-q, but at 11.5% (our estimate 10%), Ebit margins improved by a sharp 40 bps y-o-y and 260 bps q-o-q. Revenue at `8.6 billion (our estimate Rs 9.1 billion) grew 10% y-o-y. This miss was due to the late onset of summer and extended winter. Ebit margins at 19.5% were below our estimate (20.5%) as the firm had to absorb some of the commodity price rises due to the sluggish market environment.
We continue to believe that investor concerns over both ECD and lighting segments are receding. While the fan segment continues to perform well, there has also been a marked improvement in pump (with the launch of Crest Mini and strong growth in agri pumps) and appliances (geyser segment revamp, launch of air cooler and increasing focus on small appliances) segments. In the lighting segment, we believe the worst of the price erosion is over and with ongoing cost cut initiatives, Ebit margins have seen a sharp rebound over the past two quarters. The long-term consumer story also remains unchanged.
We value CGCEL at 35xFY21F P/E to derive at our target price of Rs 300.
Our target multiple of 35x implies an 8% discount to our target multiple of 38x that we assign for its peer Havells. Downside risks: 1) deterioration in consumer demand is a key risk; 2) price hikes of key raw materials could impact the Ebit margins; 3) slower than expected rise in the share of premium products in the mix could impact margins and earnings estimates.