Company Overview:

Crompton Greaves Consumer Electricals Ltd is India’s market leader in fans, number one player in residential pumps and has leading market positions in its other product categories. The company manufactures and markets a wide spectrum of consumer products, ranging from fans, lamps and luminaires, to pumps and household appliances such as water heaters, Kitchen appliances etc. Crompton has a strong dealer base across the country and a wide service network that offers robust after sales service to its consumers. The company dates it origin back to 1947 when Mr. L K Thapar, an eminent Indian industrialist, took over Crompton Parkinson Works Ltd and Greaves Cotton & Crompton Parkinson Ltd. The company was now part of the Thapar Group. In 1966, these two companies were merged to form CG Power and Industrial Solutions Limited. In 2015, the consumer durables business was demerged to form a separate entity, Crompton Greaves Consumer Electricals Ltd. In FY22, the electric consumer durables segment of CGCEL earned revenue of Rs. 5,453.10 crore (US$ 685.68 million). In February 2022, Crompton Greaves agreed to acquire up to 55% stake in Butterfly Gandhimathi Appliances for Rs. 1,379.68 crore (US$ 180.53 million).

Sector Outlook and their key areas:

The Indian consumer durables market is broadly segregated into urban and rural markets and is attracting marketers from across the world. The sector comprises of a huge middle class, relatively large affluent class and a small economically disadvantaged class. The sector includes consumer electricals such as fans, kitchen and cooking appliances, lighting devices, as well as white goods such as washing machines, televisions, refrigerators, and air conditioners. Market share in the consumer durables industry is moving from the unorganised to the organised sector. According to estimates, 30% of the total market is still unorganised, which provides listed Indian players with a significant opportunity to further increase their market share going forward. : B2B business like commercial refrigeration and B2B lighting like industrial lighting, façade lighting and street lighting are growing ~20%. Dealers are confident of growth continuing in upcoming quarters as well with strong order enquiry pipeline. Dealers of commercial refrigeration suggest that they have orders that will take care of growth for FY24 with strong demand coming from the new brands and dairy players. Artificial intelligence and manufacturing automation will be important future trends as consumer awareness increases regarding technology advancements and their applications across multiple sectors. In order to increase production efficiency of various consumer durables, Industry 4.0 will stimulate investments in R&D, technology infrastructure, and manufacturing processes. Global corporations view India as one of the key markets from where future growth is likely to emerge. The growth in India’s consumer market would be primarily driven by a favorable population composition and increasing disposable income.

TECHNICAL VIEW:

CGCL Technically broken its trend line 05June, 2023 and came out of bearish zone and managed to sustain above that levels since past 1 month followed by higher high and higher low pattern on daily chart and moving in upward trending line, so we suggest to buy and add this stock near its support zone of Rs.283-Rs.274 Levels on any panic and hold any break above levels of Rs.305 on closing basis which will show CUP pattern break-out also on daily chart that can lead to create FOMO among big players and can lead to sharp move for the stock on higher levels towards next resistance zone of Rs.335-Rs.338 Levels on immediate basis. So we suggest to keep stock on Buy with immediate SL near Rs.268 Levels for price target of Rs.370.

CONCALL HIGHLIGHTS

• Management reiterated standalone revenue growth guidance of 15% and Rs3.4bn PAT guidance for FY23. Revenue split between consultancy/turnkey segments would be 45%/55%. EBITDA margins are expected to pick up in 2HFY23 led by better execution.
• FY23 order inflow guidance was maintained at Rs40bn out of which Rs16‐17bn would be from consultancy segment. The company expects order inflows of Rs50bn each year for both FY24 and FY25.
• The Ramagundam fertilizer plant was shut down for maintenance in the month of September which is why it reported a loss in 2Q. it is already functioning at 80% capacity utilization and will soon achieve 100%.
• The company is exploring opportunities in emerging sectors such as green energy, bioethanol, coal gasification, steel emission control, green hydrogen, etc. It is conducting a lot of studies at the moment for clients such as Adani and PSUs however nothing concrete has taken place so far.
• The company targets 15‐20% revenue from sectors such as coal gasification, waste to ethanol for steel, green hydrogen, data center’s (it anticipates a lot of projects in FY24), airports, etc. Over the next 5‐6 years, management expects investments to the tune of ~Rs350bn for coal gasification.

Decline in commodity prices to aid in gross margin improvement:

Prices of key commodity like copper and aluminum have registered decline of 5.1% and 13.5% on yoy basis and 7.5% and 3.9% on sequential basis. This decline has brought much needed relief to companies which has led to stability in the product prices which have been volatile for past few quarters. We expect gross margins to most of the durables/electrical companies to improve in Q1.

Key growth area:

Pumps: During the quarter, the company had undertaken various initiatives like roll back of price hike and introduction of mini pump along with other differentiated products. •The category growth was attributable to growth in residential pumps (+17% YoY). •The management is focusing on strengthening its presence in northern market with ATL and BTL investment in the category.
Appliances: The business grew by 40% YoY led by growth of 34% YoY in Geysers and Air Coolers and 60% in SDA.
Butterfly business: Management will continue with its efforts to improve B2C mix to drive healthy margin.•During the quarter, the market share across product categories remained stable with marginal share gains in mixer grinders. •Posted highest ever EBITDA and PAT Margins 9.1%/4.9% respectively in FY23. The margin expansion was on account of distribution transitioning from e-commerce to retail trade.

Our view:

CGEL has delivered healthy growth in products such as pumps, Appliances and from Butterfly business too. The company is focusing on growth across verticals in coming year. It has guided 7-10% growth in existing business & 30% growth in large appliance business (Built-in kitchen appliances, including chimneys, hobs, ovens and dishwashers). We believe wires and cables company will continue to outperform as demand continues to remain strong with increased infra spends and strong export opportunities. Ordering from B2B business continues to remain strong with strong demand for commercial refrigeration and B2B lighting. We Expect CGEL to Buy and add based on forward EPS 9.19 for F.Y 2023-24 and 11.19 for F.Y 2024-25.