Crompton Greaves Consumer Electrical - 3QFY17 Result Update - Well-positioned to cash in the expected double-digit growth in light electrical industry - Reliance Securities

Net sales of Crompton Greaves Consumer Electrical (CGCEL) - an entity de-merged from Crompton Greaves in May 2016 - grew 9.7% yoy to Rs8.8bn in 3QFY17. Higher sales were driven by market share gains across business verticals from the organized as well as unorganized players. Its operating profit rose by 19.9% yoy to Rs993mn while its net profit increased by 39.3% yoy to Rs574mn in 3QFY17 driven by cost saving initiatives. As we believe that CGCEL is well-positioned to cash in the expected strong double-digit growth in light electrical industry, we maintain our HOLD recommendation on the stock with a Target price of Rs178 per share valuing at 30x P/E to its FY18E EPS.

Key Results Highlights

- Segmental Performance - Consumer Electrical & Lighting: Consumer Electrical segment - that contributes ~68% to CGCEL's total revenue in 3QFY17 - grew 12.3% yoy led by strong growth in the fans category Premium Fans (15% of Fans category revenue) registered 40% yoy growth. Revenue from Lighting Segment - accounting for 32% of CGEL's total top-line in 3QFY17 - grew by 4.7% yoy. Within Lightning Segment, LED segment grew by 83% yoy which now stands at ~55% of lightning sales During the quarter, the Company was able to limit the impact of demonetization by undertaking a series of actions such as special incentives for channel partners, selective extension of credit to dealers, focused pricing action, and new product launches.

- Margins continue to improve: CGEL's overall EBITDA margins improved by 95bps yoy in 3QFY17 driven by cost saving initiatives. Margin expansion was mainly driven by company's electrical consumer durables segment where EBIT margins expanded by 329bps yoy on account of product mix in favor of the premium fans. Lighting Segment witnessed stable margin at 11.2% in 3QFY17.

Outlook & Valuation

We expect CGCEL to post revenues/earnings CAGR of 11.9%/23.4% and higher ROCE of 30-40% over FY16-18E driven by strong product portfolio with established brand, market leadership and strong distribution network. We expect the new experienced management is likely to step up focus on higher consumer-centric innovation reach such as e-commerce, multi-brand retail with a view to boosting consumer business. At CMP, the stock trades at of 30.8x FY18E earnings. We reiterate our HOLD recommendation on the stock with a Target price of Rs178 per share valuing at 30x P/E to its FY18E EPS.

Source : Equity Bulls

Keywords