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Motilal Oswal
Crompton Greaves Con (Buy)
Target: ₹310
CMP: ₹265.60
Competitive intensity has bottomed out in the Lighting industry, though not completely over for Crompton Greaves Consumer Electricals. This can be gauged by the price hikes over the past six months. The last round of price cuts occurred in Aug’19 and will form part of the base Sep’20 onwards.
Thus, we expect value growth in the Lighting segment to follow volume growth while margins should be on an uptrend Q2-FY21 onwards (full quarter impact expected to reflect in Q3-FY21 only).
The Lighting segment has been under stress for the past two years now owing to price erosion at the industry level. Crompton’s ECD segment has been performing well with double-digit growth for eight consecutive quarters prior to the COVID-19 outbreak in March 20. The ECD segment growth was largely supported by water heaters and air coolers.
Crompton’s business model is most resilient in times of a crisis. The company showcased best performance in Q1-FY21 with EBITDA decline of nearly 49 per cent (v/s decline of about 80 per cent for our aggregate universe).
Since Crompton’s categories have higher replacement demand, we see higher probability of steady performance in the coming quarters and in FY22 (v/s negative impact for peers from weak consumer demand).
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