Durables shore up CG Consumer Electricals December quarter performance

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Crompton Greaves (CG) Consumer Electricals’ in-line December quarter (Q3) performance was aided by its consumer durables segment. 

The segment, which accounts for a third of its revenues, grew 16.3 per cent. It was driven by strong sales of its core decorative and eco fans, and pumps. Peers such as Havells and Orient Electric saw their fans sales grow 17-18 per cent in Q3. CG consumer’s durables segment profit (earnings before interest and tax) also grew 19.4 per cent year-on-year (y-o-y).

These gains, however were partly offset by a decline of 2.4 per cent in the sales of lighting products because of intense competition in LED bulbs. These concerns were a key reason for the decline in CG Consumer’s share price by almost a fifth from its August 2018 highs. The segment’s profit was down by a third y-o-y in Q3, but improved 37 per cent sequentially, suggesting the worst may be behind.

“Accelerated cost savings program, through efficiency in purchase and operations, is reflected in our improved margins in the lighting segment,” said Shantanu Khosla, managing director, CG Consumer. Analysts at Motilal Oswal Securities say their channel checks suggest Crompton took price hikes in Q3, both in lighting and fans. This is likely to have pulled up its profitability.
Overall, the company’s sales at Rs 1,030 crore, up 10 per cent YoY, were a tad lower than Bloomberg’s estimates of Rs 1,045 crore. However, the net profit at Rs 79.7 crore (up 14.6 per cent) met the estimates.

The Q3 performance has provided confidence to the analysts, who see the recovery in margins to continue. In the durables segment, the performance is expected to be led by pumps, geysers and fans. 

In the LED space, while competition may be high, limited penetration (slightly more than a third) means the big growth opportunity remains intact. A smart LED street light order from the Odisha government, expected to be completed in 5 months, with margins in the teens, should boost performance in the coming quarters, feel analysts. 

After results, Arafat Saiyed at Reliance Securities maintains his positive stance on the firm. So does Motilal Oswal Securities, which sees potential gains of 25 per cent in the stock. Edelweiss expects CG to post a 13 per cent annual sales growth in FY18-21, driven by new launches and market expansion.

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