Shares of consumer appliances and durables maker Crompton Greaves Consumer Electricals Ltd fell 10% in November. According to analysts, earlier upbeat investor sentiment took a blow as festive demand did not meet expectations. What’s more, growth metrics are expected to increase in the coming quarters on the back of higher base and stagnant demand. In short, analysts are wary of giving importance to them.
Analysts say Crompton has outperformed its competitors. Electrical and equipment, although discretionary, are less volatile in terms of demand than other large equipment. Expansion into Tier-II and Tier-III cities and widening the distribution network can also help. The onset of winter will help drive demand in areas such as Geysers, where Crompton has a strong presence. A good Rabi crop can be a good sign for the sale of agricultural pumps. The company’s premiumization initiative should also help. To be sure, fans’ growth during Q2 was driven by strong performance in the premium and decorative segment, leading to higher market share, according to the company.
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Analysts at Nirmal Bang Institutional Equities say the premium end of the market is witnessing an increase in both value and volume, while the entry-level categories are witnessing weak volume growth. Higher sales in the premium segment are also likely to help ease margin pressure. But price hikes and cost controls will remain critical for margins in an environment of high commodity prices.
Meanwhile, Nirmal Bang expects revenue and earnings growth of 16.7% and 14.3% on a compound annual growth rate basis during FY 2011-24. Cash flow, lean working capital cycle, industry-leading return ratio and fixed asset turns can support Crompton’s valuation
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