Fortune Scrip     

Published: Mar 31, 2023
Updated: Mar 31, 2023

Crompton Greaves Consumer Electricals Ltd.

Old brand, dynamic new avatar

At a time when the domestic as well as international stock markets have been facing headwinds from geopolitical issues triggered by the prolonged Russia-Ukraine war, fears of recession in the US and Europe, the failure of Silicon Valley Bank and Signature Bank and widespread allegations against Indian industrialist Gautam Adani, who is said to be close to Prime Minister Narendra Modi, it takes a lot of patience to select the Fortune Scrip. After a lot of thinking, we have picked Crompton Greaves Consumer Electricals Ltd as the Fortune Scrip for this fortnight.

Crompton Greaves Consumer Electricals (CGCEL) is a new-generation consumer company with a 90+ years brand legacy. ‘Crompton Greaves’ is one of the oldest brands in the country and has a rich legacy associated with great quality, high reliability, superior engineering capability and remarkable product design that inspires an immense amount of trust. CGCEL was born in its new form in February 2016 as an independent company under professional management, and the new management is making the brand more contemporary and is building its own legacy to emerge as a more dynamic, youner and innovative Crompton. The management will engineer this by building innovative products that provide meaningful solutions to consumer requirements. During the last few years, the company has launched some breakthrough products like India’s first anti-dust fan and anti-bacterial LED bulb.

This leading fast moving electrical goods (FMEG) player is present in the electrical (which contributes around 71 per cent of revenues) and lighting business (contributing 14 per cent of revenues). The company has acquired Butterfly Gandhimathi Appliances (which contributes around 13 per cent of revenues). The undisputed market leader in the domestic fan industry with a marketshare of 29 per cent, CGCEL has now enhanced its focus on increasing its marketshare in home appliance categories like air cooler, water heater and kitchen appliances. The company is steadily growing in its financial performance with its compounded sales growth during the last 5 years being 7 per cent CAGR and the compounded profit growing at a CAGR of 15 per cent. What is more, prospects going ahead are all the more promising. And that is why we have selected it as the Fortune Scrip for this fortnight. Consider:

• Rising incomes, increasing urbanization, rising aspirations and improving standards of living along with the construction of 17 million new houses under PM Awas Yojana will give a big boost to demand for home appliances and lighting equipment.
• Realising the rising popularity of Butterfly appliances, the company is expanding production and distribution of Butterfly products on a pan-India basis, leveraging existing dealer networks.
• At the same time, the company is expanding its product range by entering a new category – the built-in kitchen segment. The built-in kitchen segment is pegged at around Rs 2,200 crore and is growing at rate of 10 per cent per year. The CGCEL management aims at a 10 per cent marketshare in the next 3 years and a marketing strategy has been devised to achieve this objective.

QUALITY FIRST

• The company lays a lot of emphasis on operational efficiency which is part of its holistic approach to quality and efficiency across all activities that go into delivering the product or services to the consumer. The focus is on driving executive excellence at a high level of efficiency to deliver consistent improvement in its overall business performance. The company is harnessing the power of implementing IT solutions, undertaking cost rationalisation, lowering operating costs and reducing inventory to drive this pillar.
• CGCEL is going from strength to strength on the financial front. During the last seven years, its sales turnover has more than tripled from Rs 1,783 crore in fiscal 2016 to Rs 5,373 crore in fiscal 2022, with operating profit also expanding more than three times – from Rs 209 crore to Rs 761 crore and the profit at net level shooting up more than five times – from Rs 105 crore to Rs 593 crore. The company’s financial position is getting stronger by the year, with reserves at the end of March 2022 reaching Rs 2,484 crore – almost 20 times is equity capital of Rs 127 crore. The company’s balance sheet is a robust one, with ROE and ROCE of 30 per cent each (three- year average) respectively, with a stringent working capital policy.

SHARE HICCUP

Shares of the company were bid up to over Rs 400 per piece of the face value of Rs 2. But in the wake of the recent selling avalanche in the market triggered by the Russia-Ukraine war, fears of an impending recession in the US and Europe, the alleged Adani scam and its widespread impact, and the failure of Silicon Valley Bank and Signature Bank in the US, the share price of CGCEL has tumbled down to Rs 290. This is a highly attractive entry price and discerning investors should start accumulating these stocks to reap a rich harvest going ahead.