Crompton Greaves Consumer's Q3FY19 results (Outperformer) - Lighting margins revive; market share gains sustain

Q3FY19 standalone result highlights

• PAT +14.6% yoy to Rs797mn: as weak revenue growth was offset by higher than expected margins. Revenues +9.8% yoy to Rs10.3bn, EBITDA margins -20bps to 12.2% and EBITDA +8.2% yoy to Rs1.26bn.
• Lighting margins rebound qoq: to 8.8% (+250bps qoq), while remaining weak on yoy basis (-502bps; price erosion) led by design optimisation, sourcing efficiency, increased in-house manufacturing, increase in premium products, etc. Accordingly, it expects margins to improve to double digits over the next few quarters. Lighting revenues fell 2% yoy as strong volumes were offset by price erosion and muted revenues from EESL (-40% yoy to Rs260m). Ex-EESL, growth was 3-4% yoy led by sustained growth in LEDs (+18% yoy; +38% volumes; 80% of revenues) offset by discontinuation of CFLs.
• ECD performance strong: with 16% yoy revenues to Rs7.1bn and margins +50bps yoy to 18.7%. Fan revenues +16% yoy led by decorative (volume +47% yoy; premium ~25% of fans), while eco segment grew on back of new products. Pumps, too, saw 15% yoy growth (volumes +20%) led by traction in mini crest, domestic pumps and agri (+44% yoy). Revamp up of water heater (WH) portfolio led to 30% growth (volume +37%).

Conf call highlights: (1) Exploring inorganic growth options to add new product categories (2) Launched a new anti-bacteria lamp (kills 80% of the bacteria) at premium price of 15% (3) Created SPV for Orissa street lighting project (10% of lighting revenues) to be executed over next 6 months (4) EESL backlog of Rs500m (5) Gained mkt share across segments with fans mkt share at ~25% (+1% YTD-19) (6) Pumps and WH see lower value growth on product mix to capture share, eg. Crest mini enabled penetration in mkts & regions (specially South India) (7) Cooler season likely to be delayed on extended winters

Impact on financials: FY19-21E EPS raised by 3-4% to Rs6/7.6/9.2

Valuations & view

Crompton Consumer (CGCEL) cost programs to retrace lighting margins to 10-11% over the next 2-3 quarters is on rack. Further, its focus on products (innovation and premium products) to aid competitiveness and drive market share gains over the long term. We thereby estimate 21% earnings CAGR over FY18-21E, which coupled with an asset-light model should drive superior return ratios (35%+ over FY18-21E). At 28.4x FY20E earnings, the stock looks attractive. Maintain Outperformer