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Photo: Mint
Photo: Mint

Crompton Greaves stock lights up on high electricals demand

Crompton has benefited at the expense of smaller companies facing supply and liquidity issues

Notwithstanding the disruption seen in Q1, investor confidence in Crompton Greaves Consumer Electricals Ltd has continued to improve significantly. The stock has surpassed pre-covid highs after more than doubling from March lows.

The company’s range of consumer electrical appliances/durables (ECD) has continued to see strong demand, aided by the work-from-home culture. Besides, there have been market share gains due to better penetration in smaller towns and a higher rural reach. Like other large firms in the organized segment, Crompton has benefited at the expense of smaller companies facing supply and liquidity issues.

Given the low discretionary nature of products, the growth potential remains high, say analysts. The concerns on price erosion in the lighting segment is also not a major factor anymore as the market is stabilizing now. All eyes will now be on margin improvement and growth momentum in the lighting segment.

Gathering pace
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Gathering pace

The strong September quarter performance, where ECD segment sales grew 18.2%, was helped by gains in the fans and pumps segments. With other segments growing well, the pace is likely to continue in the December quarter too.

The consumer durables segment is likely to benefit from robust festive sales as the winter season pushed up demand for heating products such as geysers. Crompton had become the No. 2 company in geysers during Q2 itself, say analysts.

“We are looking for companies with better cost structures and the ability to sustain price increases," said analysts at Motilal Oswal Financial Services. Havells India Ltd, a bigger rival, is likely to gain from strong demand for electrical consumer durables. However, it has a more diversified portfolio. Its prospects also hinge on air-conditioners and larger durables sales. The low discretionary nature of electricals and appliances business of Crompton sees lower volatility.

Meanwhile, analysts at Edelweiss Securities Ltd expect the lighting segment to also register growth of around 8% year-on-year in Q3, benefiting from price recovery in the B2C segment and modest volume growth. However, with sluggish sales in the B2B or projects segment, one should remain watchful on margin growth.

The stock priced at the 400 level is trading at almost 41 times FY22 earnings estimates.

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