Idea for Profit

Highlights:
– Mixed set of earnings for Crompton Greaves Consumer Electrical
– Weakness in lighting division dragged CG’s bottom line
– Scope for growth as penetration levels are low in consumer durables
– CGCE appears reasonably valued at 30 times FY20 estimated earnings

Consumer durable company Crompton Greaves Consumer Electrical (CGCE) reported a mixed set of financials in Q3 FY19. While topline growth was steady the operating performance was weaker as margin was impacted by higher commodity prices and increase in selling and distribution expenditures. Despite a lack lustre quarterly performance, the company continue to expand their distribution network and are gaining market across product categories.

CGCE: Growth led by electrical consumer durables segment
CGCE’s Q3 revenue increased 10 percent year-on-year (YoY) to Rs 1,030 crore. Growth in earnings before interest, tax, depreciation and amortisation (EBITDA) was slower at 8 percent as margin came in softer at 12.2 percent. Higher other income and decline in finance costs aided the profit after tax, which increased 15 percent YoY.
Electrical consumer durables drove overall topline growth. Higher contribution from fans, geysers and pumps aided quarterly revenue. Change in product mix led to an around 50 bps expansion in segment margin for the quarter gone by.
Performance of the lighting & fixtures segment was subdued as revenue for the segment came in two percent lower. Price erosion in the LED business and absence of Energy Efficiency Services (EESL) orders from municipality and government entities impacted top line. Margin continued to remain under pressure YoY, but showed some improvement on a sequential basis.
The company continues to focus on driving profitability through new product launches and rationalisation of its cost structure. The increase in employee expenses (up three percent) and other operating expenses (up four percent) was much lower in comparison to sales growth.

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