Crompton Greaves Consumer Electricals - Re-discovering itself Company Report - Prabhudas Lilladher
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Company Report
Industry: Capital Goods
Crompton Greaves Consumer Electricals
Re-discovering itself
Kunal Sheth (kunalsheth@plindia.com) Shreyans Jain (shreyansjain@plindia.com)
+91-22-66322257 +91-22-66322256
Crompton Greaves Consumer Electricals
Contents
Page No.
Executive Summary .................................................................................................... 5
Company snapshot ............................................................................................................................ 5
Key Management Profile ................................................................................................................... 7
Unorganized market still large portion of market ............................................................................. 8
Key strategy of the new management .............................................................................................. 9
Brand Excellence .......................................................................................................................... 9
Portfolio Excellence ................................................................................................................... 12
Go-To-Market Excellence........................................................................................................... 16
Operational Excellence .............................................................................................................. 18
Organizational Excellence .......................................................................................................... 18
Strong Return Ratios and Cash Flows ....................................................................... 19
Industry ..................................................................................................................... 22
Light electrical Industry ................................................................................................................... 22
Electric Lighting Industry ................................................................................................................. 23
Electric Fan Industry ........................................................................................................................ 26
Pump industry ................................................................................................................................. 30
Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that
the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.
Please refer to important disclosures and disclaimers at the end of the report
October 11, 2017 2
Company Report
October 11, 2017
Crompton Greaves Consumer Electricals
Crompton Greaves Consumer Electricals (CGCEL) is in a phase of transformation as
Rating BUY
the new management leverages on a strong brand and leadership in key
Price Rs213
categories by a) investing and increasing brand awareness, b) developing
Target Price Rs270
innovative products in core categories like Fans and Pumps, and c) strengthening
Implied Upside 26.8%
the go-to-market in order to increase its reach (100,000 stores and ~3000 dealers)
Sensex 31,834
and improve product availability on a Pan-India basis.
Nifty 9,985
(Prices as on October 11, 2017)
Early success of strategy implemented by new team led by Mr. Shantanu Khosla
(MD) is already visible as Premium fans are ~16% of fans sales (~10% in 1Q17), LED
is ~66% of lighting sales (~50% in 1Q17) and Gross margin has increased by
~150bps. We believe with structural tail winds like rising disposable income, low
Trading data penetration levels, improved power availability, increasing housing demand along
Market Cap. (Rs m) 133,338.0 with management’s focus on implementation of core strategy should help CGCEL
Shares o/s (m) 626.0 deliver multi-year profitable growth.
3M Avg. Daily value (Rs m) 178.4
We believe improved leveraging of the brand and increased reach will help CGCEL
grow above the industry average (Industry expected to grow at CAGR of ~11%). We
Major shareholders expect the sales to grow at a CAGR of 12.7% over FY17-20E led by market share
Promoters 34.38% gains from unorganised players, focus on growing LED, premium fans and
Foreign 33.23% agriculture pumps business. We expect 108bps margin improvement over FY17-20E
Domestic Inst. 16.73% led by premiumisation and cost cutting initiatives. We expect CGCEL to deliver
Public & Other 15.66% 19.5% earnings CAGR over FY17-20E with healthy ROEs (~50%) and strong free cash
flow (~100% of PAT).
We value the stock at 33.5xFY20 earnings and arrive at target price of Rs270, a
Stock Performance
26.8% upside. We initiate with “BUY”. Exit of key managerial personnel and
(%) 1M 6M 12M
increased competition are key risks to our call.
Absolute 0.2 (2.3) 22.8
Relative 0.4 (9.2) 9.5
Contd...4
Key financials (Y/e March) 2017 2018E 2019E 2020E
How we differ from Consensus
EPS (Rs) PL Cons. % Diff. Revenues (Rs m) 39,759 44,070 50,084 57,008
2019 6.6 6.8 3.0 Growth (%) 119.5 10.8 13.6 13.8
2020 8.0 8.1 1.6 EBITDA (Rs m) 4,902 5,513 6,588 7,763
PAT (Rs m) 2,932 3,379 4,131 5,014
EPS (Rs) 4.7 5.4 6.6 8.0
Growth (%) 146.1 15.2 22.2 21.4
Price Perf. (RIC: CROP.BO, BB: CROMPTON IN) Net DPS (Rs) 1.5 2.0 3.0 3.5
(Rs)
300 Profitability & Valuation 2017 2018E 2019E 2020E
250 EBITDA margin (%) 12.3 12.5 13.2 13.6
200 RoE (%) 76.4 53.4 50.7 48.8
150 RoCE (%) 34.4 29.4 30.8 32.2
100 EV / sales (x) 3.5 3.1 2.7 2.4
50 EV / EBITDA (x) 28.4 25.0 20.7 17.3
0 PE (x) 45.5 39.5 32.3 26.6
Feb-17
Dec-16
Jun-17
Aug-17
Oct-16
Oct-17
Apr-17
P / BV (x) 24.7 18.4 14.8 11.6
Net dividend yield (%) 0.7 0.9 1.4 1.6
Source: Bloomberg Source: Company Data; PL Research
Crompton Greaves Consumer Electricals
Market leadership and strong brand to drive growth: CGCEL is present in key
large and fast growing consumer electrical segments such as Fans, Lighting
pumps and Appliances. With multiple tailwinds such as shift towards energy-
efficient products, growth in urban and rural housing, improving power
availability in rural areas and increasing investments in irrigation, growth for all
key segments should remain robust over the next few years. Light electrical
Industry is expected to grow at a CAGR of ~10.7% over FY16-20E. Increasing
focus towards brand-building and improving distribution reach should also help
them achieve higher-than-industry growth.
Industry leading growth and margin improvement: We expect the sales to
grow at a CAGR of 12.7% over FY17-20E led by 11.5% CAGR in lighting segment
with strong growth in LED and 12.5% CAGR in Electric consumer durable
segment. Growth in premium fans/pumps and appliances is expected to lead
the growth in the electric consumer durables segment. We believe CGCEL can
significantly increase the retail reach based on mapping of potential touch
points. We expect 108bps margin improvement over FY17-20E led by
introduction of premium products in Fans and Lighting. The company strategy is
already yielding results with premium fans now at 16% of fans sales (10% in
Q1FY17) and LED now at 66% of lighting sales (50% in Q1FY17). The company is
focusing on cost control, supply chain optimization, manufacturing foot print
optimization and design optimization.
Strong management team with thrust on growth and cash profits: A team of
experienced senior management led by Mr. Shantanu Khosla has been put in
place to steer growth and profitability. The key focus areas for the new team
will be to increase brand awareness, improve penetration, customer-centric
innovations, Premiumisation, operational efficiencies and scaling-up of
capabilities for long-term sustainability. Management is focusing on growing
sales faster than the market and operating profits in line with sales with
stronger cashflows
Outlook and Valuation: The stock is trading at 26.6x FY20E earnings, given the
strong return ratios and cash flows we have valued the stock at 33.5xFY20E
earnings.
Exhibit 1: Peer Comparison (INR million)
SALES EBITDA Margin (%) PAT ROE P/E
Companies
FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E FY18E FY19E FY20E
Havells 87,710 103,245 118,391 11.8 12.3 12.6 6,725 8,269 9,962 19.7 21.7 23.3 47.2 38.3 33.9
V-Guard 24,439 28,234 31,388 9.9 10.6 10.8 1,790 2,250 2,611 25.1 25.9 24.3 45.2 35.7 32.5
BAJAJ 46,829 52,530 60,118 6.1 6.7 7.1 1,391 1,864 2,398 14.8 17.4 19.4 26.7 19.9 15.5
Crompton Consumer 44,235 50,952 58,315 12.6 13.0 13.2 3,478 4,283 5,132 50.6 44.8 42.6 39.0 31.4 25.8
Asian Paints 178,748 207,527 237,717 18.6 19.0 19.4 21,576 25,672 29,702 26.7 27.8 28.2 51.6 43.4 37.4
Berger Paints 54,135 62,939 72,409 15.2 15.5 15.4 4,973 6,001 6,940 24.3 25.5 26.3 50.6 41.9 36.2
Kansai Nerolac 48,353 55,344 62,812 18.2 18.5 19.3 5,812 6,696 7,742 18.5 18.5 20.0 45.5 39.6 34.2
Kajaria Ceramics 28,751 33,238 38,288 18.7 19.3 20.0 2,887 3,597 4,449 22.4 23.3 23.7 40.1 32.2 25.9
Somany Ceramics 19,279 22,753 26,093 10.5 11.5 11.1 990 1,411 1,677 17.4 20.9 21.6 35.6 25.1 21.1
Hindustan Sanitary 23,296 26,995 30,224 14.2 14.9 15.1 1,162 1,561 1,754 8.1 10.3 10.8 24.4 18.2 16.2
Source: Bloomberg, PL Research
October 11, 2017 4
Crompton Greaves Consumer Electricals
Executive Summary
Company snapshot
CGCEL is one of India’s leading consumer electrical companies present in consumer
electrical segment with focus on quality, innovation and smart design across a range
of different product categories. CGCEL was formed in Feb 2015 with the demerger of
the consumer product business of Crompton Greaves. The demerger, which became
effective from Oct 2015, resulted in CGCEL emerging as a pure-play light electrical
products company with leading market share across the product categories it
operates in. The company manufactures and markets a wide spectrum of consumer
products ranging from Fans, Light Sources and Luminaries, Pumps and Household
Appliances, such as Geysers, Mixer Grinders, Toasters and Irons. It has been the
market leader in fans, domestic pumps and street lighting for over 20 years. CGCEL
has manufacturing locations in Goa, Vadodara, Ahmednagar and Baddi and its
products are available in nearly 100,000 retail points across the country.
Exhibit 2: Diverse portfolio in growing market with strong brand
Category Fans Lighting Pumps Appliances
Revenue
15% 11% 9% 15%
CAGR(FY12-17)
General Lighting service and Fluorescent
Ceiling fans Residential Pumps Water Heaters
Tubular Lamps
Table Fans High Intensity Discharge lamps (HID) Agricultural Pumps Small Appliances
Commercial and Industrial Air Coolers and Room
Pedestal Fans Compact Fluorescent lamps (CFL)
Pumps Heaters
Power Solutions : UPS
Wall-mounted Fans Light- Emitting diode lamps (LED)
Products and Batteries
Ventilating Fans Conventional Luminaires
Heavy duty exhaust fans LED Luminaires
Air circulator High Mast/Street lightning Poles
Industrial Fans Interior and Architectural lightning
Home Lighting
Market Share 25-26% 10% 7-9% NA
Havells,Orient, Usha,
Philips, Surya, Bajaj, Havells, Wipro, Kirloskar, CRI, Texmo, Aqua,
Competitors Luminous, PolyCab, Surya, Bajaj, Philips, Havells
PolyCab, HPL, GE M&P, Grundfo
Anchor
Source: Company Data, PL Research
October 11, 2017 5
Crompton Greaves Consumer Electricals
Exhibit 3: Segmental Revenue break-up (Rs m)
FY12 FY13 FY14 FY15 FY16 FY17
Fans, Ventilation and Pollution Control Systems 9,122 11,138 12,848 14,140 15,995 18,288
Electric Lamps 6,667 7,689 9,010 9,677 10,427 11,252
Power-driven pumps 5,019 5,869 5,790 6,560 7,012 7,823
Appliances 1,211 1,210 1,817 2,030 2,250 2,388
Total 22,018 26,816 29,465 32,330 35,684 39,751
Source: Company Data, PL Research
Exhibit 4: Segmental Revenue break up - 2017
Appliances
6%
Power driven
pumps
20% Fans, Ventilation
and Pollution
Control Systems
46%
Electric Lamps
28%
Source: Company Data, PL Research
Exhibit 5: Current Manufacturing facilities
Location Product
GIDC Industrial Estate: Goa Fans
Kundaim Industrial Estate: Goa Fans
HPSIDC Industrial Area, Baddi, Dist: Solan, HP Fans
HPSIDC Industrial Area, Baddi, Dist: Solan, HP Fans
Kural Village, Padra Taluka, Dist: Baroda, Gujarat Lighting
Village Thane, Tehsil Baddi, Dist: Solan, Himachal Pradesh Lighting
A-28, MIDC Area, Ahmednagar, Maharashtra, Pumps
C-19, MIDC Area, Ahmednagar, Maharashtra Pumps
Source: Company Data, PL Research
October 11, 2017 6
Crompton Greaves Consumer Electricals
Key Management Profile
Shantanu Khosla, Managing Director: Mr. Khosla joined CGCEL in January 2016.
Prior to CGCEL, he served as MD & CEO of Procter & Gamble, India from July
2002 to June 2015. He holds Bachelor of Technology in Mechanical Engineering
from Indian Institute of Technology, Mumbai. Mr. Shantanu Khosla has also
completed his Masters in Business Administration from Indian Institute of
Management, Calcutta.
Mathew Job, CEO: Mr. Job joined CGCEL in January 2016. Previously, he worked
with Philips Electronics, India from June 1994 to October 2009, where he held
several key positions. From November 2009 till January 2012, Mr. Job worked
with Grohe India as VP and Managing Director. He then moved on to Racold
(Ariston) Thermo as Managing Director where he worked till September 2015.
He has studied Bachelor in Technology (Electrical & Electronics). He is an
alumnus of Indian Institute of Management, Calcutta.
Sandeep Batra, CFO: Mr. Sandeep Batra joined CGCEL in January 2016. Prior to
this, he was with ICI Limited from January 1988 to January 2009, where he held
various important responsibilities and eventually assumed the role of CFO. He
then joined Pidilite Industries as its CFO in January 2009. He is an alumnus from
St. Xavier’s College, Kolkata, a Chartered Accountant and a Company Secretary
by profession. He also serves as Company Secretary and Compliance Officer of
CGCEL.
D Sundaram, Independent Director: Mr. Sundaram is the Vice Chairman and
Managing Director of TVS Capital Funds. He was associated with HUL for more
than 34 years, where he served under various roles before becoming the Vice
Chairman in 2008. He is also on the Board of Governors of Institute of Financial
Management and Research, Chennai. He is Post Graduate in Management
Studies (MMS), Chennai, Fellow of the Institute of Cost and Management
Accountants, and has attended the Harvard Business School’s Advanced
Management Programme.
P M Murty, Independent Director: Mr. P M Murty was a graduate from Indian
Institute of Management, Calcutta. Mr. Murty had more than 42 years of
experience with Asian Paints, where he held various senior positions including
that of Managing Director of Asian Paints from 2009–2012.
Hemant Madhusudan Nerurkar, Additional Independent Director: Mr.
Nerurkar has experience of over 35 years in Tata Steel in various positions. He
joined Tata Steel in 1972 and rose to the level of Managing Director in-charge of
India and South East Asia operations. He is the Chairman of Board of Directors in
TRL Krosaki Refractories (formerly Tata Refractories - a JV company of Tata Steel
and Krosaki Harima Corporation, Japan) and NCC (formerly Nagarjuna).
October 11, 2017 7
Crompton Greaves Consumer Electricals
Diverse product portfolio and strong brand in growing market
CGCEL is present in all the key large and fast growing consumer electrical segments
such as Fans (45% of revenues), Lighting (29% of revenues) and Pumps (20% of
revenues). With multiple tailwinds such as growth in housing, shift towards energy-
efficient products, improving power availability will help company deliver robust
growth across segments over the next few years.
Exhibit 6: Lighting, Fans and Pumps projections (Rs bn)
350 Lighting 100 Fan 100 Pump
300
80 80
250
200 60 60
150 40 40
100
20 20
50
0 0 0
2011 2016 2020 2011 2016 2020 2011 2016 2020
Source: Company Data, PL Research
Unorganized market still large portion of market
Unorganised players still account for Unorganised players still account for significant share of market (40% in Lighting,
significant share of market (40% in 25% in Fans and 30% in Pumps). There has been a steady shift in demand towards
Lighting, 25% in Fans and 30% in Pumps). larger organised players with established brands. Increase in focus on energy-
efficient products due to increase in power cost, increasing regulation, better after-
sales support and favourable warranty terms are likely to help the shift towards
organised market. This is likely to benefit players such as CGCEL which is a well-
established brand.
Exhibit 7: Market share of Unorganised players in %
Organised Unorganised
120
100
25 30
80 40
60
40 75 70
60
20
0
Lighting Fans Pumps
Source: Company Data, PL Research
October 11, 2017 8
Crompton Greaves Consumer Electricals
Key strategy of the new management
Exhibit 8: Key Focus Area
Brand
Excellence
Organization Portfolio
al Excellence Excellence
Key
focus
area
Go-To-
Operational
Market
Excellence
Excellence
Source: Company Data, PL Research
Brand Excellence
We believe CG ad spend will step up close CGCEL’s new management believes that the CG brand has significant potential and
to industry average of 3-4% of sales wants to focus on stepping up the brand awareness efforts significantly. The
against run rate of ~ 2.5% sales in the past. company had put out TV commercials during the recent IPL season and is now
planning to extend the campaign to General entertainment channels and regional
channels. The company also specifically wants to target young buyers (25-35 age
brackets). It believes awareness about the CG brand is low among the youth, given
the relatively low awareness effort in the past. We believe CG ad spend will step up
close to industry average of 3-4% of sales against run rate of ~ 2.5% sales in the
past.
Exhibit 9: Advertisement spend as percent of Sales (%)
Name of company FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Bajaj Electricals 2.2 1.9 1.8 1.7 2.2 1.9 1.8 1.8
Crompton Greaves 1.4 0.9 1.2 1.7 2.0 2.2 1.9 2.9
Havells 3.5 2.5 3.1 3.4 2.4 3.0 3.2 3.1
V Guard 5.1 4.0 4.2 4.3 3.9 4.0 4.3 4.4
Source: Company Data, PL Research
October 11, 2017 9
Crompton Greaves Consumer Electricals
Two key pillars of brand excellence strategy are:
To be established as the brand of choice for home improvement electrical
durables: CGCEL intends to develop and market products that are energy-
efficient and user friendly. The company intend to design products to provide
consumer relevant solutions for overall home improvement. It intends to
enhance the quality of products and sustain as a reliable brand of choice for
home improvement electrical durables.
Improve brand visibility: CGCEL intends to invest in branding to create
awareness and preference for their products in the market. The company
believes that these investments will help scale-up pace of growth in the coming
years
Exhibit 10: Commercial snapshot
Source: Company Data, PL Research
October 11, 2017 10Crompton Greaves Consumer Electricals
Exhibit 11: Print media Ad for pumps
Source: Company Data, PL Research
Exhibit 12: Print media Ad for appliance
Source: Company Data, PL Research
October 11, 2017 11Crompton Greaves Consumer Electricals
Portfolio Excellence
CGCEL has devised a strategy of focusing on meaningful innovation in core
categories of fans and pumps, while growing the lighting and appliance business.
Focus on energy-efficient products across all product lines: CGCEL intends to
develop and introduce energy-efficient products to cater to the changing
requirements of consumers. For this purpose, it will focus on energy-efficient
fans, LED Lighting, solar powered products and star-rated products. It has
introduced 5-star rated fans recently which consume 20-30% less power than
normal fans; it is also planning to launch BLDC fans which consumes 50% less
power.
The efforts have started bearing fruits and Aggressively pursue business opportunities in the LED lighting product
CG saw LED business grow by ~41% YoY in category: LED technology has caused a major disruption in the lighting market.
Q1FY18 and now stands at ~66% of Traditional lighting is now being replaced by LED lighting in all market segments.
lighting business sales. LED Lighting being more durable and energy efficient is the technology for the
future. CGCEL has made channel correction/pricing correction in market and
also introduced innovative products to ensure fast growth and increased sales
of LED in overall lighting business. It has also participated in the government
EESL programme to ensure high volumes. The efforts have started bearing
fruits and CG saw LED business grow by ~41% YoY in Q1FY18 and now stands
at ~66% of lighting business sales.
Exhibit 13: LED growing fast and becoming large part of lighting segment
LED Growth - YoY % to total LED sales
160% 70%
140% 60%
120% 50%
100%
40%
80%
30%
60%
40% 20%
20% 10%
0% 0%
Q1-FY17 Q2-FY17 Q3-FY17 Q4-FY17 Q1FY18
Source: Company Data, PL Research
The focus and strategy is working well with Focus on premiumization in fans: CGCEL is the number 1 player in the Fan
premium segment of fans registering >23% market with ~25% market share. Premium fans are ~20% of the overall market;
volume growth in Q1FY18 and now and were 10% of fan segment sales in Q1FY17. CG wants to focus on increasing
contributes 16% of fan segment. contributing of premium fans in the sales. It has already few innovative products
in the market like temperature sensing fans, high-end decorative fans, Kids
range of fans etc. The focus and strategy is working well with premium
segment of fans registering >23% volume growth in Q1FY18 and now
contributes 16% of fan segment. With limited competition in the premium fans
segment, CGCEL see huge opportunity for growth in premium fans segment.
October 11, 2017 12Crompton Greaves Consumer Electricals
Exhibit 14: Fan Commercial snapshot
Source: Company Data, PL Research
Exhibit 15: New Anti -dust fans
Source: Company Data, PL Research
October 11, 2017 13Crompton Greaves Consumer Electricals
Exhibit 16: Premium fans growing fast and increasing contribution is overall fans sales
Growth of premium fans % to total fan sales
70% 18%
60% 16%
14%
50%
12%
40% 10%
30% 8%
6%
20%
4%
10% 2%
0% 0%
Q1-FY17 Q2-FY17 Q3-FY17 Q4-FY17 Q1FY18
Source: Company Data, PL Research
Exhibit 17: Division of Fan Segment (Nos)
Types of Fans Crompton Greaves Havells V-guard Orient Usha
Premium Fans 21 17 16 28 4
Standard Fans 38 15 11 13 18
Kids Fans 3 2 0 2 0
Total Ceiling Fans 62 34 27 43 22
Others 30 15 37 37 41
Total Fans 92 49 64 80 63
Source: Company Data, PL Research
While CGCEL has 8% market share in Focus on Agri pumps: While CGCEL has 8% market share in overall pump market, it
overall pump market, it has ~28% market has ~28% market share in domestic market which means a very low share in
share in domestic market which means a Agriculture pumps. It is introducing customised portfolio for the agri market keeping
very low share in Agriculture pumps. in mind the operating conditions, given the poor quality of power available to run
the pumps. It is also working on various local promotional activities to get increased
Growth in Agriculture pumps was 25% YoY visibility. Growth in Agriculture pumps was 25% YoY in Q1FY18.
in Q1FY18.
October 11, 2017 14Crompton Greaves Consumer Electricals
Exhibit 18: Agri Pumps Commercial snapshot
Source: Company Data, PL Research
Scale up appliance business: While the appliances business has posted robust
15% revenue CAGR over FY12-17, it is still the smallest segment for CGCEL
contributing just 6% to FY17 revenues (Rs2.3bn). The company is among top 4
players in the water heater category. In the kitchen appliances category, CGCEL
is a relatively late entrant (Bajaj electrical is the leader). CGCEL is initially looking
to scale up its presence across key categories like water heater/Air
cooler/Mixer-Grinder/Iron. It will limit its focus to top 10-12 cities in initial
phase of ramp up to ensure focussed approach. The consumer appliances
segment has seen a number of new entrants over the past few years. New
players plan to use existing established brand in other products to increase
presence in this segment. However, given the presence of many regional players
across diverse product categories, competition is likely to be high. Need for a
different channel to sell appliance make it a challenge to scale up for lot of
players.
Exhibit 19: Various players and segments
Companies Water heaters Mixer Grinders Induction Oven Toaster Iron
V Guard
Crompton Greaves
Havells
Philips
Racold
Source: Company Data, PL Research
October 11, 2017 15Crompton Greaves Consumer Electricals
Exhibit 20: Portfolio Excellence – Latest launches
Higher Wattage
100mm SS
LED Floodlight Power Ray – Single pump Pressure
Bliss Instant Cozie Air LSTP Range LED Borewell
Anti-dust fan with High 18w dimmable booster – washing pump
Water Heater Coolers Streetlight Submersible
Efficacy – batten IPCHM – CPW
pump – 4VOSS
250/300/350W
Source: Company Data, PL Research
Go-To-Market Excellence
CGCEL currently has ~3000 dealers/distributors and more than 100,000+ touch
points. It aspires to significantly increase its touch points across the country with
special focus on increasing beyond tier I/II cities. The company scheme and
incentives are also likely to be more secondary driven to ensure increased incentive
for retail push. The clear focus is to improve availability of its product.
Exhibit 21: Existing distribution network of key light electrical players (FY17)
Company Distributors by company Distribution touch points by products
Bajaj Electricals 1000 500,000
Crompton Greaves 3000+ 100,000
Havells 5500-6300 100,000
V Guard 500 30000-33000
Surya Roshni 20000 200,000
Eveready 40000 30,000
Source: Company, PL Research
CGCEL is continuously focusing on network Strengthen overall reach with focus beyond Tier I &Tier II cities: CGCEL is
expansion and market penetration beyond continuously focusing on network expansion and market penetration beyond Tier I
Tier I and Tier II cities, for each of product and Tier II cities, for each of product categories. In order to expand market
categories presence, it intends to create awareness of its products in the untapped markets. In
order to further strengthen markets and increase geographical presence, the
company proposes to enhance presence in retail markets in Tier I and Tier II cities.
October 11, 2017 16Crompton Greaves Consumer Electricals
Exhibit 22: Exclusive Crompton pumps showroom displaying the entire range of pumps
under one roof.
Source: Company Data, PL Research
Expand rural reach for agricultural pumps and other products: Due to climatic
conditions in India, demand for agricultural water pumps and allied products has
increased significantly in rural areas. In order to tap this demand, CGCEL intends to
expand distribution network in rural areas.
Exhibit 23: Mobile vans for promotion of Crompton agricultural pumps in the rural markets
Source: Company Data, PL Research
Focus on new channels of distribution like modern trade and e-commerce: CGCEL
intends to explore new channels of reaching out to our customers. With the advent
of e-commerce, it proposes to focus on sales through modern retail outlets and e-
retail for consumer durable appliances. The company believes that these new
channels shall help to expand reach at low cost.
October 11, 2017 17Crompton Greaves Consumer Electricals
Operational Excellence
Improve overall costs and supply chain optimization: CGCEL intends to improve
their supply chain capabilities to ensure availability of the right product mix at the
right place at the right time at optimum cost. This will enable the company to
achieve a marked improvement in their customer service levels.
Organizational Excellence
Focus on building capabilities and high performance culture: CGCEL intends to build
capabilities across the length, breadth and depth of their organization. Focus will be
on optimizing the use and effectiveness of all their resources and build a high
performance culture.
October 11, 2017 18Crompton Greaves Consumer Electricals
Strong Return Ratios and Cash Flows
We expect the sales to grow at a CAGR of We expect the sales to grow at a CAGR of 12.7% over FY17-20E led by 11.5% CAGR in
12.7% over FY17-20E lighting segment led by strong growth in LED and 12.5% CAGR in Electric consumer
durable segment led by growth in premium fans/pumps and appliances increasing
reach and availability, CGCEL expects to grow faster than the market.
Exhibit 24: Sales to grow by 12.4% CAGR
Sales (Rs m) YoY gr. (%) (RHS)
60,000 140.0%
50,000 120.0%
100.0%
40,000
80.0%
30,000
60.0%
20,000
40.0%
10,000 20.0%
0 0.0%
FY15 FY16 FY17 FY18E FY19E FY20E
Source: Company Data, PL Research
We expect 108bps margin improvement We expect 108bps margin improvement over FY17-20E led by introduction of
over FY17-20E premium products in Fans and improvement in Lighting. While the increased focus
on reach and brand awareness is likely to put pressure on margins in the near term,
the company is focusing on cost control, supply chain optimization, manufacturing
foot print optimization and design optimization to cushion the impact of increased
S&D cost.
Exhibit 25: Margins to remain stable
9,000 EBITDA (Rs m) Margin (%) (RHS) 14.0
8,000 13.5
7,000
13.0
6,000
5,000 12.5
4,000 12.0
3,000
11.5
2,000
1,000 11.0
0 10.5
FY15 FY16 FY17 FY18E FY19E FY20E
Source: Company Data, PL Research
October 11, 2017 19Crompton Greaves Consumer Electricals
Exhibit 26: Net Debt to equity to decline to 0.09 by FY20
We expect the company to be net cash 2.00 1.89
positive by FY19 1.80
1.60
1.40
1.20 1.11
(x)
1.00
0.80 0.63
0.60
0.36
0.40
0.20 0.09
--
FY16 FY17 FY18E FY19E FY20E
Source: Company Data, PL Research
Asset-light model to ensure healthy return ratio
CGCEL has a focused strategy to remain asset light company. It currently has a mix of
50:50 in house manufacturing and outsourcing and it would like to maintain the
ratio at similar levels going ahead as well. CGCEL believes that the right mix of
outsourcing also helps in reacting to market changes quickly.
We expect ROE to stabiles at healthy levels Exhibit 27: ROE to stabiles at healthy levels of 40%+
of 45%+ in FY18 60.0 54.4
52.1
50.0 46.5 45.2
43.2
40.0
(%)
30.0
20.0
10.0
0.0
FY16 FY17 FY18E FY19E FY20E
Source: Company Data, PL Research
Crompton should also generate significant free cash flow annually given very low
working capital and capex requirements. Annual free cash flow could be close to
~100% of PAT.
October 11, 2017 20Crompton Greaves Consumer Electricals
Key risks
Competitive landscape remains high: Competition in most segments in which
CGCEL operates remains high with new players entering the space. In Fans, we
have seen entry of new players like Polycab, Finolex etc. In Consumer durables
also, there are various regional brands aspiring to become national brands
which could keep the competition high.
Growth of substitute for fans: On the residential side, due to increasing
disposable income, up trending to air coolers & air conditioners could increase.
Rise in sales of substitute products can hamper sales of fans and impact
earnings of the company.
Availability of low-cost power for irrigation can impact agri-pump sales: Cheap
local pumps sold by unorganized players are energy-inefficient and consume
high power. However, as farmers get low-cost power due to government
subsidies, they prefer to use cheap pumps from unorganized players. This too
can have an adverse impact on the company’s sales.
October 11, 2017 21Crompton Greaves Consumer Electricals
Industry
Light electrical Industry
Rising disposable income, low penetration levels, improved power availability,
increasing housing demand are the key long-term demand drivers for the light
electrical industry. Seventh Pay commission and GST could be other near-term
triggers. We expect the market size of segments in which CGCEL operates to grow at
CAGR of 10.7% over FY16-20E.
Exhibit 28: Light electrical industry market size
(Rs bn) FY16 FY20 CAGR
Lighting 182 305 15.2%
Fan 55 78 9.1%
pump 52 80 11.4%
Consumer Appliances 650 1050 12.7%
Domestic Switchgear(MCB) 200 255 6.3%
LV Industrial Switchgear 220 275 5.7%
Modular Switches 20 38 17.4%
Domestic Wires and Cables(LT) 80 115 9.5%
Total 1459 2196 10.8%
Source: Company Data, PL Research
Exhibit 29: Market Penetration product wise
Description % penetration
Fans 80%
Water Heaters 10%
Mixer - Grinder 35%
Induction cook topCrompton Greaves Consumer Electricals
Electric Lighting Industry
Overview
Electric lighting devices are classified on the basis of technology used for producing
light. Based on technology, light can be classified as general lighting service (GLS
which includes incandescent lamp), HID lights, fluorescent tubular lights (FTL),
compact fluorescent lights (CFL) and light emitting diodes (LED). The lighting industry
can also be classified on the basis of end use such as residential, commercial,
industrial and outdoor (street, flood and infrastructure) lighting. In India, commercial
lighting dominates overall lighting market with 45-50% share, followed by residential
lighting at 25-30%. In contrast, globally, the residential segment commands a higher
share of 40-45%. The reason for lower residential share in India’s case is on account
of relatively lower level of electrification as well as unavailability of continuous
power supply throughout the country. ELCOM estimate market size of lighting
industry to be ~Rs180bn in FY16.
Exhibit 30: Market segmentation of electric lighting in India
Electrical
Lighting
General lighting Fluorescent tubular Compact fluorescent Light emitting diode
Others
services (GLS) lamps (FTL) lamps (CFL) (LED)
45% 40% 10-15%
Source: Company Data, PL Research
Demand for electric lighting in India is largely met by domestic players. Imports (10-
11% of market share) primarily include LED (35-37% of imports). India imports
largely from China (66%) and Malaysia (9%). In the domestic market, there are
innumerable small, unorganised players who meet close to 40% of the total demand.
Organised segment is fairly consolidated with top six players accounting for about
70% of the organised market. In recent times, share of the unorganised market has
been rising, primarily in the LED segment as there were no quality standards on the
sales of LEDs in the domestic market. However, going forward, share of unorganised
market is likely to fall with announcement and implementation of norms for LED
bulbs by Bureau of Indian Standards (BIS). This is expected to help control quality
and restrict sales of uncertified LED bulbs. The standards are also likely to be
implemented for LED lighting fixtures (Luminaires) in the near future.
October 11, 2017 23Crompton Greaves Consumer Electricals
Exhibit 31: Estimated market share for electrical lightning
Unorganised
market
40%
Organised
market
60%
Source: Industry, PL Research
Exhibit 32: Market size of Indian lighting industry
Source: Company Data, ELCOMA, PL Research
Exhibit 33: Estimated market share of organised players in FY15
Philips
20%
Others
30%
Crompton
Greaves
10%
Bajaj Electricals
Surya Roshni 10%
14%
Havells Wipro
8% 8%
Source: Company Data, PL Research
October 11, 2017 24Crompton Greaves Consumer Electricals
As per industry estimates, share of the LED segment is expected to increase to ~50%
in 2016-17 of the total lighting market from 15-20% in 2014-15. While a portion of
GLS source is expected to be substituted by LED, new demand for lighting is
expected to increase with electrification and increased availability of power in rural
areas. In case of urban areas, increase in housing demand and urbanisation is
expected to steer demand. As per 2011 census, close to 31% of Indian households
use kerosene for lighting purposes whereas 0.5% or 1.2m households do not have
access to fuel lighting sources. Increase in average realisation will largely drive
overall growth in the lighting industry with volume growth likely to remain flat-to-
marginally positive. This is because incandescent bulbs - average life of six to eight
months - will be substituted by LED bulbs with average life of eight to nine years
Market growth drivers
Rise in rural penetration with increased electrification
In order to improve electric supply and reach in rural areas, GoI announced
Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY) for the rural segment in
December 2014. Under electrification programmes, GoI has sanctioned around
Rs236bn for 273 projects across 15 states for 2012-2017. Increase in rural
electrification is likely to drive the demand for lighting products.
Availability of power in urban areas 24 X 7
To improve the electricity supply and availability, improve reach in urban areas,
GoI launched Integrated Power Development Scheme (IPDS) in 2014-15. The
programme seeks to establish 24 X 7 power supply in areas which are currently
deprived of long duration power supply. Currently, only metros and some large
cities get continuous power supply. Reduction of power outages with the
implementation of IPDS will give a demand boost for lighting products in urban
areas.
Government initiatives to replace GLS lamps with LED lights
Domestic Efficient Lighting Programme (DELP)
Domestic consumers account for 25-27% of the total electricity demand in India.
GoI wishes to promote efficient lighting in the household sector in order to
reduce electricity consumption by around 50bn kWh every year at the national
level. For this, GoI plans to replace incandescent lamps, which are mostly used
in households, with LED lamps.
According to GoI, around 770m units would have to be replaced and it targets to
do so by March 2019.
Going forward, with an increase in procurement by the government, LED prices
are likely to fall further, boosting demand. Fall in LED prices under DELP has
hammered down retail prices from over Rs300 per unit in 2014 to Rs100-150
per unit currently for 9W LED bulb.
October 11, 2017 25Crompton Greaves Consumer Electricals
Street Light National Programme (SLNP)
SLNP was launched to replace street lights with energy-efficient lighting options.
For this purpose, 100 cities have been selected and GoI aims to replace 35m
units of street lighting points with LEDs by March 2019. This will push LED sales,
further brightening the lighting industry’s prospects.
Increasing awareness drives for LED lighting
In order to fight the power deficit crisis, India aims to save energy by
implementing energy-efficient technologies and adopting renewable energy
sources. For instance, LED lighting leads to huge energy saving. Many LED
conclaves have been conducted in cities such as New Delhi, Hyderabad and
Mumbai. Also, the Ministry of Power has appropriately used media to increase
awareness on energy-efficient lighting solutions.
Growth in urban and rural housing
Growth in urban and rural housing is likely to drive demand for electric lighting
over the next five years. Semi-urban and rural housing projects are expected to
get a boost due to increase in investments by the government in the medium
term. Apart from government assistance under Ministry of Housing and Urban
Poverty Alleviation (MHUPA), urban housing will be driven by a change in
demographic patterns, increase in the number of nuclear families and investor
demand. Smart cities mission, a separate government initiative, aims to provide
funds for affordable housing in 98 cities across the country. Improved standard
of living will also boost demand for decorative lightings in urban areas.
Electric Fan Industry
Overview
Electric fans are categorised under the brown goods (small appliances) segment of
the consumer durable industry. Apart from usage in houses and commercial spaces
for cooling and ventilation, electric fans are used in industries for sucking away gases
through the exhaust variants. Broadly, the electric fans industry can be classified
based on the type (mobility, size, etc.) and end use. Table, pedestal and wall fans
(TPW) are mobile and used mostly in places which require localised cooling, i.e.
place with high ceilings. Domestic exhausts are increasingly being used in kitchens
and washrooms for ventilation. Industrial fans, on the other hand, are used to
provide flow of air for industrial processes. As per CRISIL Research estimates, market
size of the domestic fan industry was Rs55-60bn in 2016-17.
October 11, 2017 26Crompton Greaves Consumer Electricals
Exhibit 34: Market segmentation of electric fans in India
Electrical fans
(Rs50-60bn)
Table, pedestal and wall
Ceiling Fans Domstic exhaust Industrial
(TPW Fans)
72-77% 15-20% 5-10%
Source: Company Data, PL Research
Exhibit 35: Estimated break-up of market share
Unorganised
market
25%
Organised
market
75%
Source: Company Data, PL Research
Exhibit 36: Estimated market share in 2014-15
Usha
(19-20%
Crompton Market share Orient
Greaves of organised Electric
(25-26%) segment (22-23%)
Havells
(13-14%)
Source: Company Data, PL Research
October 11, 2017 27Crompton Greaves Consumer Electricals
Demand for electric fans in India is largely met locally. Imports account for 8-
10% of the total share. In the domestic market, there are many small players in
the unorganised segment that meet close to 25% of the fan demand. The
organised segment is fairly consolidated with the top four players accounting for
about 80% of the organised market share.
Market growth drivers
Rise in rural penetration with increased electrification to drive new demand
Electric fan penetration in rural areas is estimated at 65%, which is lower than
urban areas. In order to improve electric supply and reach in urban and rural
areas, GoI introduced DDUGJY for rural areas and IPDS for urban areas in
December 2014. Higher power availability is likely to drive new fan demand in
rural households. As a result, CRISIL Research estimates rural penetration of
fans to reach 76-78% in 2019-20.
Urban areas to drive replacement demand
Bulk of the replacement demand is likely to arise from the highly-penetrated
urban and semi-urban markets. Urban penetration for electric fans was 90-95%
in 2014-15. Of the overall market size of close to 47m units in 2014-15,
replacement demand accounted for two-thirds. Features such as warranty,
aesthetic design will play a key role to capture replacement demand and ensure
repeat transaction with customers.
Growth in urban and rural housing to drive overall demand
As discussed in the electric lighting section, development in urban and rural
housing is expected to be strong over the next five years. This will help the fan
industry demand positively.
Urban and semi-urban areas typically account for replacement demand for
electric fans, whereas rural areas are characterised by new sales. For the
replacement market, CRISIL Research estimates average life of a fan in Indian
market conditions to be around 10 years. Share of the replacement market is
estimated at around 65% in 2014-15.Fresh demand, on the other hand, depends
on increase in real estate activities, urbanisation and rural penetration.
Demand for ceiling and exhaust fans increased due to increase in housing
construction activities, improvement in electric fan penetration rates, rural
electrification and replacement demand in urban areas.
October 11, 2017 28Crompton Greaves Consumer Electricals
Exhibit 37: Industry size to reach Rs75bn by 2019-20 Exhibit 38: Organised share to increase to 84% by 2019-20
100 Fan Unorganised Segment Organised Segment
80 70
58-60
60
60 46.5
50
(m units)
40
40
30
20 20
10
0 0
2011 2016 2020 2014-15 2019-20
Source: Company Data, PL Research Source: Company Data, PL Research
Over the next five years, the electric fan industry is expected to register a
growth of 7-9% CAGR, to reach Rs85bn by 2019-20, led by improved rural
penetration, new housing demand and improved realisation due to increased
raw material prices and increased contribution of premium fans. However,
growth will be different for organised and unorganised players with the former
registering a healthy CAGR of 6-8% during 2014-15 to 2019-20, while the latter’s
growth is estimated to decline 3-4%. Consequently, the organised segment’s
share is expected to increase to 84% in 2019-20 from 75% in 2014-15. Share of
the unorganised segment is likely to reduce over the next five years as large
players are increasingly outsourcing their manufacturing activities to smaller
players rather than expanding capacity. Industrial demand for electrical fans is
also expected to increase with the government’s focus on manufacturing sector
with schemes like “Make in India”.
In India, there are many electrical fans players; Regional and National,
Organised and Unorganised. Going forward, we expect consolidation as small
players are unable to innovate and large players are looking to outsource to
small players. Branding and positioning of products are important factors driving
demand in this segment. Players with brand recall manage to get a good price
for premium and mid-range products.
October 11, 2017 29Crompton Greaves Consumer Electricals
Pump industry
Overview
Pumps are service equipments used across sectors and are vital elements for fluid
handling applications. The Indian pump industry can be broadly classified based on
its end use into industrial, agricultural and domestic pumps. Pumps can also be
categorised in terms of size and capacity. Small pumps cater to agriculture, domestic
housing and village water supply; medium-size pumps cater to irrigation projects and
urban water supply and sanitation. Large pumps serve industrial purposes. For
example, in power plants, pumps are used in cooling water generation. In industries
such as chemicals, fertilisers, oil and gas, petroleum and petrochemicals, pumps are
required to handle process fluids for a host of applications. As per CRISIL Research
estimates, the market size of the Indian pump industry was Rs85-90bn in 2014-15,
with non-water application pumps for industrial usage accounting for 35-40% of the
market. The pump market for water application is valued at ~Rs50bn, with the
agriculture sector accounting for ~45%, followed by pumps for domestic use and
industrial pumps.
Exhibit 39: Market segmentation for pumps used in water application
Water Pumps
Agriculture Pumps Domestic Pumps Industrial Pumps
(45%) (35%) (20%)
Source: Company Data, PL Research
Demand for water pumps in India is largely met by domestic manufacturers; only 5%
requirement is imported. In the domestic market, there are many small players in
the unorganised segment that meet close to 30% of the total pump demand. The
organised segment is fairly consolidated with top five players accounting for 40-45%
of the share. The unorganised segment’s share has been reducing gradually as larger
players are creating strong distribution network and increasing brand-building
efforts in this highly competitive industry. Water pumps manufactured in India are
largely sold locally. Exports account for 3-5% of the domestic market at Rs150-300
crore.
October 11, 2017 30Crompton Greaves Consumer Electricals
Exhibit 40: Estimated Market Share Break-up
Unorganised
market
30%
Organised
market
70%
Source: Company Data, PL Research
Key demand drivers
Increase in irrigation investment leading to higher penetration
Irrigation projects include dams, canals and lift irrigation. Agricultural pumps are
used to pump water from the irrigation water sources (ground water, surface
water or storage tank and wells) to the sprinklers which sprinkle water in the
fields. Demand for agricultural pumps is directly proportional to investments in
irrigation and increase in its penetration.
While significant investments have been made in irrigation projects over the
past few decades, which have increased penetration from 33-35% in 1990s to
about 50% in 2014-15, still half of the farm land in India lacks proper irrigation
systems and farmers rely primarily on rain water.
At the Central level, investments have been driven by programmes such as the
Accelerated Irrigation Benefits Programme (AIBP) and Command Area
Development (CAD), which have helped expedite the implementation of
ongoing projects. As per CRISIL Research estimates, cumulative investments
close to Rs2.3trn have been made over the past five years ended 2014-15.
During 2014-15 to 2019-20, CRISIL Research expects cumulative investments in
irrigation to increase by 1.6 times to Rs3.6trn. Apart from the existing
programmes, GoI has announced an investment plan of Rs500bn over the next
five years under Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) aimed at
providing irrigation to all. For the current fiscal, the government has allocated
Rs53bn which is expected to bring an additional 6 lakh hectares under irrigation,
while 5 lakh hectares will benefit from drip irrigation.
October 11, 2017 31Crompton Greaves Consumer Electricals
Expected growth in housing to boost pump demand
Domestic pumps are mostly used in the housing segment to pump up the water
to the water storage tanks to be further distributed to households. Individual
pumps of small-to-medium capacity are installed in bungalows and row houses.
Growth in urban housing is expected to be healthy over the next five-six years
(as already discussed in the lighting segment). In this backdrop, the pump
industry should be benefitted.
Growth in industrial activities to benefit industrial water pumps
Industrial activities are expected to grow over the next five years. India
performing better than other BRICS nation and registering a stable economic
outlook is a positive sign for overall business growth. Government programmes
like “Make in India” will only increase the production activities. Demand for
industrial process equipment is expected to rise and this will impact the water
application pumps demand for the good.
Decreasing ground water levels to boost high pressure water pumps demand
Deep-water pumps are primarily used to extract water from wells with depth
greater than 10 metres below ground levels. Over the years, ground water levels
across India have reduced on account of increasing dependence on ground
water as against surface water due to erratic rainfall as well as efforts to
increase food production. As on 2014, close to 17% of the ~14,000 wells
surveyed by the Ministry of water resources had depth greater than 10 metres
below ground levels. Increasing dependence on ground water as well as fall in
its level is likely to boost demand for high pressure water pumps in the future.
Market assessment
Water pump market to cross Rs80bn by FY20
The Indian Water pump industry grew at a mere 3-5% CAGR during 2009-10 to 2014-
15, to cross Rs50bn, because of a fall in demand from end-user sectors. In the
agriculture segment, pump demand depends on the average level of rainfall in a
particular year. Agricultural pump sales usually increase when rainfall is below long
period average (LPA) as farmers increase the use of ground water for crop
cultivation. On the other hand, in case of a good monsoon, demand gets impacted as
farmers largely utilise rainwater for cultivation (as was the case in 2013-14). Good
monsoon in three of the last five years impacted demand for pumps in the
agriculture segment. In case of the housing segment, pump sales were subdued as
the urban housing demand grew at just 1% CAGR during 2009-10 to 2014-15, mainly
influenced by slowdown in 2013-14. Consequently, better monsoon and slowdown
in housing demand impacted pump demand during the previous five-year period.
October 11, 2017 32Crompton Greaves Consumer Electricals
Exhibit 41: Estimated market size of water pump Industry
90
80
80
70
60 53
50
(Rs bn)
43
40
30
20
10
0
2009-10 2014-15 2019-20E
Source: Company Data, PL Research
Going forward, sales of water pumps is expected to pick up, driven by improvement
in housing demand and government initiatives towards increasing irrigation
penetration. Growth will be largely driven by volume as realisation growth will be
muted, given continued weak metal prices over the next five years. Industrial
demand for water pumps is also expected to increase with the government’s focus
on developing urban infrastructure.
CRISIL Research expects the Indian water pump market to grow at a CAGR of 8-10%
over the next five years to reach Rs78-83bn by 2019-20.
In India, there are many pump manufacturers - Regional and National, Organised
and Unorganised. Consolidation is expected in this industry with small players
unable to expand their market reach beyond a certain limit. For agricultural and
domestic purposes, pumps are sold via a distributor network. Price is the most
important driver in this segment although the energy-efficient variant is becoming
popular.
Exhibit 42: Break-up of water and non-water application pumps in Exhibit 43: Estimated market share of players in total pump market in
total pump market of Rs85-90bn FY15
Kirloskar
brothers
12%
CRI pumps
Non water 11%
application
41% Others KSB pumps
52% 8%
Water
application Crompton
59% Greaves
8%
Texmo
V-Guard
Shakti Pumps 6%
1% 2%
Source: Company Data, PL Research Source: Company Data, PL Research
October 11, 2017 33Crompton Greaves Consumer Electricals
Income Statement (Rs m) Balance Sheet Abstract (Rs m)
Y/e March 2017 2018E 2019E 2020E Y/e March 2017 2018E 2019E 2020E
Net Revenue 39,759 44,070 50,084 57,008 Shareholder's Funds 5,392 7,259 9,028 11,522
Raw Material Expenses 27,349 30,232 34,258 38,880 Total Debt 6,676 6,676 6,676 6,676
Gross Profit 12,411 13,838 15,827 18,129 Other Liabilities — — — —
Employee Cost 2,252 3,037 3,341 3,675 Total Liabilities 12,067 13,935 15,704 18,198
Other Expenses 5,257 5,288 5,898 6,691 Net Fixed Assets 8,797 9,170 9,661 9,911
EBITDA 4,902 5,513 6,588 7,763 Goodwill — — — —
Depr. & Amortization 110 120 129 135 Investments — — — —
Net Interest 655 655 655 655 Net Current Assets 3,270 4,765 6,269 8,536
Other Income 195 232 271 401 Cash & Equivalents 700 2,109 3,387 5,724
Profit before Tax 4,331 4,969 6,075 7,373 Other Current Assets 11,653 12,195 13,722 15,462
Total Tax 1,399 1,590 1,944 2,359 Current Liabilities 9,083 9,538 10,840 12,651
Profit after Tax 2,932 3,379 4,131 5,014 Other Assets — — — —
Ex-Od items / Min. Int. — — — — Total Assets 12,067 13,935 15,704 18,198
Adj. PAT 2,932 3,379 4,131 5,014
Avg. Shares O/S (m) 626.8 626.8 626.8 626.8
EPS (Rs.) 4.7 5.4 6.6 8.0
Cash Flow Abstract (Rs m) Quarterly Financials (Rs m)
Y/e March 2017 2018E 2019E 2020E Y/e March Q2FY17 Q3FY17 Q4FY17 Q1FY18
C/F from Operations 3,105 4,068 4,690 5,874 Net Revenue 8,900 8,889 10,762 10,555
C/F from Investing (3,151) (500) (500) (250) EBITDA 974 993 1,386 1,294
C/F from Financing (154) (2,159) (2,911) (3,287) % of revenue 10.9 11.2 12.9 12.3
Inc. / Dec. in Cash (200) 1,409 1,279 2,337 Depr. & Amortization 27 26 29 32
Opening Cash 900 700 2,109 3,387 Net Interest 161 162 153 161
Closing Cash 700 2,109 3,387 5,724 Other Income — — — —
FCFF (1,720) 3,041 3,544 4,969 Profit before Tax 781 804 1,183 1,101
FCFE (262) 3,041 3,544 4,969 Total Tax 273 281 388 395
Profit after Tax 508 523 796 706
Adj. PAT 513 523 816 706
Source: Company Data, PL Research.
Key Financial Metrics
Y/e March 2017 2018E 2019E 2020E
Growth
Revenue (%) 119.5 10.8 13.6 13.8
EBITDA (%) 134.0 12.5 19.5 17.8
PAT (%) 146.1 15.2 22.2 21.4
EPS (%) 146.1 15.2 22.2 21.4
Profitability
EBITDA Margin (%) 12.3 12.5 13.2 13.6
PAT Margin (%) 7.4 7.7 8.2 8.8
RoCE (%) 34.4 29.4 30.8 32.2
RoE (%) 76.4 53.4 50.7 48.8
Balance Sheet
Net Debt : Equity 1.1 0.6 0.4 0.1
Net Wrkng Cap. (days) — — — —
Valuation
PER (x) 45.5 39.5 32.3 26.6
P / B (x) 24.7 18.4 14.8 11.6
EV / EBITDA (x) 28.4 25.0 20.7 17.3
EV / Sales (x) 3.5 3.1 2.7 2.4
Earnings Quality
Eff. Tax Rate 32.3 32.0 32.0 32.0
Other Inc / PBT 4.5 4.7 4.5 5.4
Eff. Depr. Rate (%) 1.3 1.3 1.3 1.4
FCFE / PAT (8.9) 90.0 85.8 99.1
Source: Company Data, PL Research.
October 11, 2017 34Crompton Greaves Consumer Electricals Notes October 11, 2017 35
Crompton Greaves Consumer Electricals
Prabhudas Lilladher Pvt. Ltd.
3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage PL’s Recommendation Nomenclature
50% BUY : Over 15% Outperformance to Sensex over 12-months
43.8%
39.8% Accumulate : Outperformance to Sensex over 12-months
40%
% of Total Coverage
Reduce : Underperformance to Sensex over 12-months
30% Sell : Over 15% underperformance to Sensex over 12-months
20% 16.4% Trading Buy : Over 10% absolute upside in 1-month
10% Trading Sell : Over 10% absolute decline in 1-month
0.0% Not Rated (NR) : No specific call on the stock
0%
BUY Accumulate Reduce Sell Under Review (UR) : Rating likely to change shortly
DISCLAIMER/DISCLOSURES
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about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.
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October 11, 2017 SREESANKAR
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