Crompton: Fans Market Leader

(A) About Crompton Greaves Consumer Electricals Ltd

Crompton Greaves Consumer Electricals Limited is one of the leading Players in India’s Consumer Electricals sector. The company manufactures & markets a wide spectrum of Consumer Products ranging from Fans, Lamps and Luminaires to Pumps and Household Appliances such as - Water Heaters, Geysers, Kitchen Appliances etc. The company originated when Mr. Lala Karamchand Thapar, an eminent Indian Industrialist, took over "Crompton Parkinson Works Limited" in 1947.

Later in 1966, this company renamed as "CG Power and Industrial Solutions Limited (CGPIL)". The company then started operating through 2 Segments - Power and Industrial Systems and Consumer Durables. In the year 2015, CGPIL demerged into 2 separate Business Entities to focus on the Power & Industrial Business and Consumer Durable Business separately. Thus, in October 2015, Company started its Operations as an Independent Entity, named as - "Crompton Greaves Consumer Electricals Limited".

In the same Year, Gautam Thapar, Chairman of Avantha Group (New Delhi-based Avantha Group had its roots in the Thapar Group), signed a Deal to sell the entire 34.3% Stakes in the Consumer Products Business of Crompton Greaves to two Private Equity Firms - Advent International and Temasek for INR 2,000 Crore. Company also appointed a whole new Management. Thus, a new Crompton Greaves Consumer Electricals Limited formed.

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(B) Journey of Crompton Greaves

history of crompton greaves consumer electricals
Journey of Crompton Greaves

(C) Executive Management of Crompton

(i) Mr. Hemant Nerurkar - Chairman & Independent Director

Mr. Hemant Nerukar is the current Chairman of Crompton Greaves Consumer Electricals Limited. He holds a Bachelor’s Degree in Metallurgical Engineering from the College of Engineering, Pune University. Mr Hemant holds vast experience of over 35 years in Tata Steel in various functions. He joined Tata Steel in the year 1972 and rose to the level of Managing Director, as in-charge of India and South East Asia operations.

He holds position on the Boards of more than 25 companies. Mr Hemant holds top positions including Non-Executive Chairman of DFM Foods Ltd, Chairman at NCC Ltd, Chairman of Garashi Motors India Limited amongst many others.

Mr. Nerurkar also attended several management courses in India and overseas, including CEDEP in France. He associates with several professional organizations, such as Indian Institute of Metals, INSDAG and AIMA, amongst others.

Age of Mr. Hemant is 72 years. He has been with Crompton since 25 January 2016.

(ii) Mr. Shantanu Khosla - Managing Director

Mr. Shantanu Khosla is the present Managing Director of Crompton Greaves. Mr. Khosla holds a Bachelor’s Degree in Mechanical Engineering from Indian Institute of Technology, Bombay and MBA from Indian Institute of Management, Calcutta. Then after completing his education, he joined Richardson Hindustan Ltd as a Management Trainee. Prior to joining Crompton Greaves, he served as the Managing Director and Chief Executive Officer (CEO) of Procter & Gamble from July 2002 to June 2015.

Mr Khosla is also a Member of Board of Governors of Advertising Standards Council of India. he has been with the Company since 21 September 2016. His Remuneration for FY20 is INR 8,07,18,124 which is. 0.18% of Total Revenue and 1.63% of the Total Profit of the Company.

(iii) Mr. Mathew Job - Executive Director

Mr Mathew Job is an Executive Director in Crompton Greaves. He holds a Bachelor’s Degree in Technology (Electrical and Electronics) from University of Kerala and MBA from Indian Institute of Management, Calcutta. Then, he joined Crompton Greaves in September 2015.  Prior to joining Crompton Greaves, he served as the Managing Director of Racold (Ariston) Thermo Limited till September 2015. 

Prior to that, he was the Vice President and Managing Director of Grohe India Private Limited from November 2009 to January 2012. Mr. Mathew also held various key roles with Philips Electronics India Limited from June 1994 to October 2009.

Also, Mr Mathew holds vast experience of managing distribution & business roles of different sizes. Also, he operated both in mature businesses such as Philips Lighting and startup operations like Grohe.

(D) Shareholding Pattern

stock research of crompton with details of major shareholders
Crompton Greaves - Shareholding Pattern as on 31.12.2020

Promoter Group's Shareholding decreased from 26.19% in September 2020 to 17.42% in December 2020.

major shareholders of Crompton fans
major public shareholders of crompton fans

Key to Note: Pledged Shares

Crompton Greaves' Promoter Group has been Pledging Shares from many years. In the 3rd Quarter of FY20, Promoters' pledging increased from 49% to 64%. As on 31 December 2020, Crompton's Promoter pledging is as high as 66%.

The promoters are subsidiaries of 2 PE firms. PE firms Advent International Corp and Temasek Holdings hold shares in the company through their subsidiaries Amalfiaco Ltd and Macritchie Investment.

Amalfiaco Ltd. (Subsidiary of PE firm Temasek Holdings) pledged whole of equity shares held by it in the Company as a security towards loan taken by Amalfiaco Ltd.

crompton fans management details with % of pledged shares by the promoters
Crompton Greaves - Year-on-Year Shares Pledging By Promoters

It is an important observation that reduction of Promoters' Holding & continuous Pledging of Shares is a flaw in Ownership. Also, there is lack of Management's skin in the game.

(E) Product Categorization

The company offers diversified range of products which include Fans, Lighting, Pumps, and Household Appliances and is continuously expanding its Product Range through innovation. Crompton caters to the requirements of Individual Consumers as well as Customers in the Industrial, Commercial and Agricultural Sectors.

(i) Fans

Crompton provides a wide variety of different types of Fans in various Sizes, Designs and colors, which includes - Ceiling Fans, Pedestal Fans, Table Fans, Wall Mounted Fans, Exhaust Fans and Kitchen Fans.

(ii) Lighting

Company's Lighting Solutions involve a wide range of Smart Lighting, LED Bulbs, Ceiling Lights, Battens, Table Lamps and Conventional Lamps.

(iii) Pumps

Crompton Greaves offers an extensive range of - (i) Agricultural Pumps -  for irrigating Agricultural Land, (ii) Residential Pumps - for Household Applications, (iii) Speciality Pumps - for special Applications like Handling Sewage / Waste water / Rainwater, Pressure cleaning, Swimming pool Water recycling, RO Water Systems etc. and (iv) Solar Pumps - an be deployed in Multiple Applications in Domestic and Industrial Space.

(iv) Home Appliances

Crompton's wide range of Home Appliances includes an extensive & innovative range of Air Coolers, Room Heaters, Water Heaters & Geysers, Food Preparation Appliances - Mixer Grinder, Electric Kettle, Wet Grinder & Induction Cooktop and Garment Care - Dry Iron and Steam Iron.

(F) Revenue Segmentation

During FY20, Crompton derives its maximum Revenue i.e. 44% from the Fan Segment. On the other hand, Lighting Products contribute 25%, Pumps 23% and Appliances contribute 8% to the Total Revenue of the Company.

crompton fans revenue segmentation

(G) Manufacturing Facilities

Crompton Greaves has Total 8 Manufacturing Facilities across India -

  • 2 Manufacturing Facilities are located in Ahmednagar, Maharashtra.
  • 3 Manufacturing Plants are in Baddi, Himachal Pradesh.
  • 1 Manufacturing Unit in Kundaim of Goa.
  • 1 Manufacturing Facility in Bethora, Goa.
  • And, 1 Manufacturing Unit is in Vadodara, Gujarat.

(H) Cost Structure

In F.Y. 2019-20, Crompton Greaves' Cost Structure comprises of the following Expenses -

Cost Structure of Crompton Greaves fans with detailed research report

(i) Advertisement Expenses

Indian Consumer Electricals Sector comprises of various organized and unorganized Players. All these players adopt various strategies to remain in this race & gain market share. The most essential strategy is advertisement & sales promotion through different Media Channels.

During FY20, Company spent INR 98.93 Crores on Advertisement i.e. 2.2% of the Total Revenue of the Company. The Company retained the Advertisement Expenditure over the years. (Also, Check the cost for Crompton's peer - Havells)

advertisement & sale promotion by Crompton fans for gaining market share

(ii) Raw Material Consumed

Metals such as Copper, Aluminium and Steel form key Raw Materials for any Consumer Electricals Company like Crompton Greaves. Thus, any movement in the cost of these commodities, directly affect the Cost of Raw Material Consumed incurred by the Company.

raw material expenses analysis of Crompton greaves consumer electricals ltd

(I) Group Structure

As on 31.March.2020, Crompton Greaves has three Subsidiaries.

group structure of crompton greaves
Crompton Greaves - Group Structure
  • Crompton's Two Wholly-owned Subsidiaries Pinnacles Lighting Project Private Limited and Nexustar Lighting Project Private Limited incorporated on 31st December, 2018 and 2nd January, 2019 respectively. The companies Execute, Design, Manufacture, Test, Supply, O&M of LED Street Lights & Poles and other related Works for the implementation of Greenfield Street Lighting Project for 36 Urban Local Bodies (ULBs) in Odisha.
  • Subsidiaries' contribution to the total profit of the company is not more than 1%.

(J) Market Share & Peers Group

Crompton is the Market Leader in domestic Fan and Residential Water Pump Business with value Market Share of 24% and 28% respectively.

market share of consumer electricals players

(K) Distribution Network of Crompton

Crompton Greaves has a Nationwide Network with more than 3000 Distributors and over 1 Lakh Retailers and strong After-Sales Support of over 500 Service Centers and 10,000+ SKUs. The Company is also focusing on strengthening footprint in Rural, E-commerce and alternative Channels to reach the end Consumers. Moreover, the Company has directly catered to 359 Towns with below 1,00,000 Population and has appointed 241 Channel Partners in Rural Areas.

(Checkout the distribution Network of Havells)

(L) Operational Parameters

(i) Segment-wise Revenue

segment revenue analysis of Crompton fans for stock research analysis

Crompton's total revenue grew at a CAGR of 5.03% in last 3 years. This is on account of growth of Electric consumer durables segment & more specifically fans segment.

(ii) Revenue Mix

Crompton stock research analysis with details of revenue mix in last 5 years

(iii) Segment-wise Profit

segment wise profit analysis of crompton greaves fans

Profit of Electric Consumer Durables segment grew at 10.79% CAGR in last 3 years. This is on account increase in share of premium fans in revenue.

(iv) Growth of Segments

FY 2016

  • Crompton's portfolio includes ceiling fans with 75 models. 30% of fan models in the “Standard/Plain” category, while the balance 70% is in the “Premium” category.
  • Premium Fans' contributed 9% of the fans revenue for FY15.

FY 2017

  • By December 2016, premium fans contributed 15% to the fans revenue.
  • Then, the management reported premium fans contribution to 16% of fans segment.

FY 2018

  • Market share of Crompton fans increased by 3-4%.
  • Contribution of premium fans under fans segment also increased to 20%.

FY 2019

  • Crompton continued to gain market share in fans.
  • The market share grew to 27% vs 23% in FY16.
  • Also, company's mass premium fans contribute 60% to the fans segment.
  • Further, premium fans contributed 25% to the fans segment.

FY 2020

  • Currently, premium fans contribute 30% of the fans segment.

(M) Financial Parameters of Crompton

(i) Net Sales

CAGR of net sales is 5.03% in last 3 years.

Crompton greaves stock prices increased on account of good financial growth

(ii) Profit After Tax

CAGR of net profit is 20.58%% in last 3 years.

Crompton greaves stock prices increased on account of good financial growth

(iii) Free Cash Flow

With moderate capex and strong operating performance, Crompton generates healthy free cash flow. For FY2020, free cash flow also increased on account of reduction of effective tax rate post Government's new tax provisions.

Crompton greaves stock prices increased on account of good financial growth including free cash growth

(iv) PBIDTM (%)

Crompton greaves stock prices increased on account of good margin performance

(v) PATM (%)

Crompton greaves stock prices increased on account of good PAT margin ratios

(vi) ROE (%)

Crompton greaves stock price increased on account of increasing return ratios

(vii) ROCE (%)

Crompton greaves stock price increased on account of increasing return ratios

Due to asset light model & growth, company maintained healthy return ratios.

(viii) Total Debt/Equity(x)

During FY20, company's debt reduced from Rs 650 crore to Rs 350 crore on account of repayment. Eventually, debt equity suitably fell due to repayment and increase in equity capital.

Crompton greaves debt reduced hugely over last 4 years thus generating positive growth of stock price

(ix) Dividend Pay Out Ratio (%)

The management did not declare dividend for FY20.

stock research of Crompton Greaves Consumer Electricals Ltd with details of dividend payout

(N) Management Discussion & Concall Highlights Dec 2020

Financial Highlights

  • Crompton Greaves' Q-3 F.Y. 2021 Revenue grew by 25.8% YoY due to strong growth in Electric Consumer Durable (ECD) Segment and Lighting Segment.
  • Lighting Revenue in Q-3 grew by 10% - INR 312 Crores, driven by healthy 13% Volume growth in B2C LED Lighting, while B2B Segment witnessed Demand headwinds from Institutions.
  • On the other hand, Revenue of ECD Segment in 3rd Quarter grew by 32% YoY - INR 1036 Crore, led by - 36% Revenue growth in Fans, 45% Revenue growth of Appliances. The Revenue of Premium Fans grew by 51%.
  • Revenue growth in Appliances primarily because of 50% YoY Revenue growth in Geysers and 25% growth in Pumps. In addition, the Premium Geysers grew strongly by 50%.
  • Moreover, Revenues from E-commerce channel saw 53% YoY growth in Q3 F.Y. 21.
  • Also, Company's Sales from Rural regions increased 88% YoY in the 3rd Quarter of F.Y. 2021.
  • Crompton Greaves witnessed significant rise in EBIT Margin from 4.3% in Q3 F.Y. 2020 to 12.3% in Q3 F.Y. 2021.
  • As per the Management, this significant growth in EBIT Margin is the result of Price stability and various Cost rationalization initiatives by Company.
  • In addition, Net cash balance by the end of December 2020 is at INR 807 crore.
  • Profit After Tax (PAT) declined 6.1% YoY due to Tax written back by the Company.

Other Key Highlights

  • Crompton initiated Price hikes in the range of 5-8% from January 2021 onwards largely to offset rising Input Costs.
  • Management also stated that the Company's focus on Price, Product Mix and Cost would help drive its future performance.
  • Company is continuously focusing on driving Sales through launch of Premium Products.
  • Further, the company has planned a phase wise expansion to increase its rural reach. In phase 1, Crompton plans to cover 400 Towns with population between 50,000 and 1,00,000, of which 75% is already covered.
  • Then in phase 2, the company is planning to cover 2000 Towns with population ranging between 20,000 and 50,000.

(O) Opportunities

(i) Well-diversified Product Portfolio

Crompton Greaves has a well-diversified Product Portfolio which includes Fans, Lighting Solutions , Pumps, and Household & Kitchen Appliances. Company also continue to focus on innovations in their Products Segment. The efforts in Portfolio have consistently delivered New Products with enhanced Product Performance and Durability. Also, these efforts yielded positive results as seen in the Innovative Product launches across all categories. This in turn reduces dependence on a particular Product or Category.

(ii) Government Schemes and Programs

Government has stepped-in, in a big way as Demand aggregator for Energy Efficient Products. Government’s renewed focus to push Solar Power in Agriculture Sector under "Kisan Urja Suraksha Evam Utthan Mahabhiyan (KUSUM)" Scheme is positive and opens new Opportunities in Solar Pumps Business.

Additionally, Government’s thrust on "Smart City", “Affordable Housing” and “Housing for All” Programs will also offer opportunities for the long-term growth of Electricals Consumer Segment.

(iii) E-commerce Business

COVID-19 global Pandemic is a defining event of F.Y. 2020. It has changed lifestyle of every being in many ways. It also reflects change in Consumer Buying behavior. E-Commerce has become a vital Channel and an Economic driver for both Domestic growth and International trade.

(iv) Increase In Disposable Income

With long-term prospects being bright for India’s GDP, rise in Consumer’s Disposable Income will lead to shift towards premiumization/value added products coupled with Cultural shift towards Nuclear Families present bright prospects for Electrical Consumer Durables (ECD) and Lighting Business.

(P) Risk/Concerns

(i) Pandemic Outbreak

The outbreak of pandemic COVID-19 has disturbed the Political, Social, Economic, Religious and Financial Structures of the whole World. It is also observed that the Economic Recovery from this fatal disease is only possible by F.Y. 2022 because it has left severe impacts on the Global Economy and the Countries face Multiple difficulties to bring back stable conditions.

(ii) Movement In Commodities' Cost

Metals such as Copper, Aluminium and Steel are significant part of Company's input costs. These Metal prices have moved upwards and further inflation risk remains. The recent weakening of the Rupee vs the US Dollar will put pressure on inflation. The rise in the Prices of these Commodities will affect the maintenance and improvement of Company's Profitability.

(iii) Increasing Competition

LED lighting industry remains fragmented, on back of Technology-induced Disruption and changes in purchase process for business customers. This product category has seen entry of multiple players with resulting effect on pricing and market shares. Other product segments like are also facing competition from various Organized and unorganized Players due to less entry barriers. This increasing Competition may affect Market Share as well as Revenue Growth of the Company.

The industry has witnessed new entrants in the fan and LED segment including Eveready, Luminous, Sujata, Polycab, etc.

(iv) Delay in Implementation of Government Plans

Government announce various initiatives for the industry improvement. But, their implementation & after impacts takes time & mostly get delayed. Also, due to pandemic the implementation shall get further delayed.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry's Publications.

Disclaimer: The report only represents personal opinions and views of the author. No part of the report should be considered as recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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