MOSL: CG CONSUMER ELECTRICALS (Buy)-Adverse revenue mix, channel destocking impact performance
​CG Consumer Electricals: Adverse revenue mix, channel destocking impact performance
(CROMPTON IN, Mkt Cap USD2.0b, CMP INR209, TP INR240, 15% Upside, Buy)
- Results below expectations, impacted by GST-led channel destocking: CG Consumer Electricals (CGCEL) reported 1QFY18 sales of INR10.6b (-3.7% YoY), below our estimate. Sales were impacted, as dealers resorted to channel destocking in May and June on transition to GST (impact of INR1.3b-1.5b). Adjusting for the GST impact, sales grew 7% YoY. EBITDA declined 17.8% YoY to INR1.3b, impacted by adverse revenue mix and ESOPs (INR140m) issued. Net profit of INR0.8b was below our estimate of INR1b. CGEL incurred INR330m (3.1% of sales) on advertising and promotion during the quarter.
- Margin compression led by adverse revenue mix: Gross margin expanded 100bp YoY to 30.6%, led by cost reduction as well as premiumization initiatives taken by the company. EBITDA of INR1.3b (-18% YoY) was below our estimate. Operating margin was 12.3% v/s 14.4% in 1QFY17. Margin compression was on account of adverse revenue mix. Low-margin lighting business contributed 25% to revenue compared to 23% in 1QFY17, whereas high-margin electrical consumer durables contributed 75% as against 77% in 1QFY17. Margins were also impacted as CGCEL issued 0.15m share as ESOPs to employees (employee cost at 6.5% v/s 4.2% in 1QFY17).
Crompton Greaves Consumer Electricals Limited manufactures and markets a range of consumer products. The Company's main products/services include lighting products (luminaries and light sources) and electrical consumer durables (fan and appliances and pumps). It operates through two segments: Lighting Products and Electrical Consumer Durables. Its Lighting Products segment comprises luminaires and light sources. Its Electrical Consumer Durables segment comprises fans, appliances and pumps. It offers ceiling fans, table fans, pedestal fans, wall mounted fans, domestic exhaust fans, special fans and personal fans. It offers lighting products, including lamps, consumer luminaires, solar and lighting automation. Its household appliances include geysers, mixer grinders, toasters and irons. Its pumps are classified into industrial, agricultural and domestic pumps, and offers surface pumps, submersible pumps, accessories and pumping systems.
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