Prospects rebounding for Crompton Greaves Consumer on govt's rural push

After falling from its all-time high of Rs 295 in January to Rs 215 last month, Street sentiment is reviving for Crompton Greaves Consumer Electricals (Crompton). The stock is now figuring among analysts’ picks on expectations that it would gain from the government’s rural push and initiatives.

 

Crompton is among the top five rural players, according to CLSA. Nomura, too, has it among its top picks due to expected gains from growth in the rural economy and infrastructure spending. The government’s measures to boost rural and agricultural economy will benefit Crompton’s agriculture pumps segment. It will boost growth for its fans segment also, added analysts.

 

As part of Crompton’s strategy, it is focusing on agricultural pumps to propel growth. After seeing sluggish growth in the past, which was impacted by higher competition, the company is seeing traction following the introduction of mid-price range pumps. The December quarter was sluggish for the company due to the introduction of mid- to low-priced pumps, but its March quarter witnessed improvement.

 

Analysts said Crompton’s launch of Crest Mini range of pumps has helped. It has received strong initial response (25 per cent volume growth in the March quarter) leading to a 14 per cent growth rate in the segment’s revenues. Additional triggers from agriculture bode well for the pumps segment, which contributes about a fifth to the company’s revenues.

 

The larger fans segment, which is about two-thirds of the revenue, is gaining ground. Analysts at Nomura say while the urban segment is highly saturated, rural penetration of fans is low at 65 per cent. This is a good opportunity for Crompton as rising rural income and rural housing growth can add to the company’s prospects.

 

Crompton’s market share in fans is growing and was 27 per cent in FY18, from 23 per cent in FY16. Strong rural growth can also lead to further gains.

 

Lastly, Crompton’s lighting segment is expected to sustain the double-digit growth (21 per cent in March quarter).

 

Stocks of most consumer durables players have remained weak in recent times, as June quarter sales have not met expectations of a rise in summer demand. This is due to the monsoon. Given Crompton’s prospects, most analysts believe it is an opportunity for investors.


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