MOSL: CG CONSUMER ELECTRICALS (Buy)-In-line-factory shutdown, focus on margins over sales impact revenues

​CG Consumer Electricals: In-line; factory shutdown, focus on margins over sales impact revenues

(CROMPTON IN, Mkt Cap USD2.1b, CMP INR224, TP INR255, 15% Upside, Buy)

• Results in line with expectations: CG Consumer Electricals (CGCEL) reported 4QFY17 sales of INR10.8b (+7.4% YoY), in line with our estimate. Sales were partially impacted by planned shutdown of a factory to implement the ERP program (~5% impact) and the company's focus to maintain margins at the cost of sales. Electrical Consumer segment grew 8.3% YoY, led by growth in fans category. Premium fans (16% of fans revenue) has been the key growth driver of fans category. EBITDA of INR1.4b was in line with our estimate -INR20m inventory write-down was taken in Lighting segment. Net profit of INR0.9b was ahead of our estimate of INR0.8b. The company incurred INR120m (1% of sales) on advertising during the quarter. For FY17, sales stood at INR39.8b, EBIDTA at INR4.9b and PAT at INR2.9b.
  
• Continued focus on profitable growth: Gross margin expanded 60bp YoY to 31.1%. EBIDTA of INR1.4b (+9% YoY) was in line with our estimate. Operating margin was 12.9% v/s estimate of 12.6%. Adjusting for one-off inventory write-down of INR60m in Lighting, EBIDTA margin stood at 13.4%. Margin expansion was driven by its focus on cost reduction, better product mix and premiumization.