Analysts say higher premium segment sales are also likely to help Crompton take care of margin pressure
Shares of consumer appliances and durables manufacturer Crompton Greaves Consumer Electricals Ltd have fallen 10% in November. According to analysts, investor sentiment that was upbeat earlier has taken a beating, because festive demand failed to meet expectations. What’s more, growth metrics in the coming quarters may be inflated by a high base and pent-up demand. In essence, analysts are wary of placing importance on them.
That said, Crompton has fared better than peers, point out analysts. Electricals and appliances, though discretionary, are less volatile in terms of demand compared with other large appliances. Expansion in tier-II and tier-III cities and widening distribution networks may also help. The onset of winter will help drive demand in segments such as geysers, where Crompton has a strong presence. A good rabi crop may bode well for agricultural pump sales. The company’s premiumization initiatives should also help. To be sure, growth in fans during Q2 was driven by strong performance in the premium and decorative segment, leading to higher market share as per the company.
Analysts at Nirmal Bang Institutional Equities say that the premium end of the market continues to see both value and volume growth, whereas entry-level categories are seeing subdued volume growth. Higher sales in the premium segment are also likely to help take care of margin pressure. But price hikes and cost controls will remain key for margins in a high commodity price environment.
Meanwhile, Nirmal Bang expects 16.7% and 14.3% revenue and earnings growth on a compounded annual growth rate basis over FY21-24. Cash flows, lean working capital cycle, industry-leading return ratios and fixed asset turn may support Crompton’s valuations
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