Crompton Greaves Consumer Electricals

Update on the Indian Equity Market:

After a big sell-off on Friday, markets witnessed some relief as Nifty started the week on a positive note with 252 point gains to close at 14,782. Within the sectoral indices, all but one, PSU BANK (-0.3%), closed in green led by MEDIA (4.3%), AUTO (2.4%), and METAL (2.0%). The Nifty index followed similar path as only one stock, BHARTIARTL (-4.3%) closed in the red. POWERGRID (6.7%), ONGC (5.5%), and GRASIM (5.4%) led the gainers within the index.

Excerpts of an interview with Mr. Shantanu Khosla, Managing Director, Crompton Greaves Consumer Electricals (CROMPTON) with CNBC -TV18 dated 25^th February 2021:

• The overall demand scenario is promising through January and February. The company reported double-digit growth in the December quarter largely driven by volumes.
• The trend in the overall demand scenario is positive and expected to continue well into 2021. The company is expected to reach to pre-COVID levels in CY21E.
• The B2C (Business to Consumer) delivered double-digit growth while B2G (Business to Government) and institutional segment was subdued during the December quarter.
• Commenting on a possible GST rate reduction, he mentioned that the company has always passed on the benefit of lower tax rates to its customers and it will continue to do so in future as well. The benefit is passed on to the customers through price reductions.
• Commodity costs have moved up significantly in the last few months. The rising prices are acting as headwinds in the cost optimization initiative taken by company. The company is managing this price rise by further deepening of cost reductions and better management.

Asset Multiplier Comments:

• With the Make-in-India program and Work from Home restrictions, there was a shortage of appliances in India. As a result, domestic electrical goods companies have witnessed a surge in demand for appliances such as washing machines, dishwashers, air-conditioners, and laptops.
• CROMPTON has also been a beneficiary and reported YoY revenue growth in the appliances category in the December quarter. CROMPTON intends to increase its presence in electrical appliances category as well to meet the increasing demand.
• As the company is focusing more on premium category products, the increasing pressure of raw material prices is expected to have lesser impact on the fundamentals of the company.

Consensus Estimates (Source: market screener and investing.com websites):

• The closing price of CROMPTON was ₹ 383/- as of 1-March-2021.  It traded at 49x/ 40x/ 34x the consensus EPS estimate of ₹ 8.0/ 9.8/ 11.4 for FY21E/22E/23E respectively.
• The consensus price target is ₹ 451/- which trades at 40x the EPS estimate for FY23E of ₹ 11.4/-

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