CG Consumer appears well placed to gain market share

Improving cash flows, robust balance sheet, and margin levers among positive

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 ~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 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 also outperformed 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.

The management is now aiming to grow faster than the sector on the back of premiumisation, innovative products, and a wider distribution reach. While the company can see good growth once the recovery takes shape, analysts at ICICI Securities believe there may be demand challenges and operating profit margin pressure due to lockdowns, lower operating leverage, and a 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 took a price hike of 10-12 per cent across categories in the March quarter, it is looking at costsaving, product premiumisation, and an additional price increase to overcome the sequential increase in commodity costs.

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