Fundamental analysis is the key to making any investment. Crompton Greaves Consumer Electricals Ltd (CGCEL) is one of India’s most recognized consumer electrical companies, boasting a rich history of over 75 years. Initially part of the Avantha Group, the company has emerged as a professionally managed independent entity and is known for its strong legacy in manufacturing and distributing a wide range of electrical consumer products and lighting solutions.
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The Evolution of Crompton Greaves
Crompton has always been at the forefront of innovation in the consumer electricals market, evolving from a mere household name to a global player. The company underwent significant transformations, notably with the Crompton 2.0 initiative, which began in June 2023. This revamped strategy focuses on premiumization, go-to-market excellence, increased brand investments, and a greater push for innovation.
In FY23, the merger with Butterfly Gandhimathi Appliances added a new dimension to the company’s offerings, enabling it to expand into the kitchen appliance segment. Crompton continues to solidify its market leadership with a dominant presence in fans, pumps, and lighting solutions, and aims to maintain a robust market share through continuous R&D and innovation.
Crompton’s Growth Potential: A Strong Midcap Contender
Crompton Greaves has positioned itself as a top contender in India’s midcap sector with a diverse product portfolio and a consistent track record of financial performance. With market leadership in multiple categories, the company’s product lineup includes ceiling fans, residential pumps, lighting products, water heaters, kitchen appliances, and more. Its R&D efforts in FY23 led to over 500 product launches, 8 new patents, and 35 registered designs, proving the company’s commitment to innovation.
Key Market Segments:
- Fans: Crompton holds a 26% market share, making it the undisputed leader in this category.
- Residential Pumps: With a 27% market share, Crompton is a leading player.
- Lighting: Ranked 3rd with an 8% market share.
These sectors are essential for Crompton’s growth, as they contribute significantly to the company’s revenue.
Financial Analysis: Steady Growth and Strong Fundamentals
First take a glance at balance sheet dashboard of the company and let’s discuss step by step
Sales, Net Profit, and Operating Profit
From the graph, we can observe a steady rise in Crompton’s sales over the years. For FY23, sales amounted to ₹6,870 crores, showing consistent year-on-year growth, while the prediction for March 2025 indicates that sales could hit ₹8,251 crores.
Crompton’s net profit for March 2023 stands at ₹476 crores, a slight decline from ₹578 crores in FY22. However, predictions suggest a recovery with an anticipated profit of ₹498 crores by March 2025. Operating profit has also shown resilience, with an expected increase to ₹860 crores by March 2025 from ₹714 crores in FY23.
Operating Profit Margin (OPM)
Crompton’s Operating Profit Margin (OPM) has experienced fluctuations, peaking at 14.99% in FY21 before sliding to 9.76% in FY24. The projected OPM for FY25 stands at 10.42%, indicating gradual recovery and profitability stabilization.
Earnings Per Share (EPS)
Crompton’s Earnings Per Share (EPS) has been consistent, rising from ₹5.17 in March 2018 to ₹9.13 in March 2022. However, the EPS declined to ₹6.84 in FY24, and the forecast for FY25 shows a potential recovery with an EPS of ₹7.72.
Return on Equity (ROE)
Crompton’s Return on Equity (ROE), a critical indicator of profitability, has seen a downward trend since March 2018, when it was at 41.06%. As of March 2024, the ROE is predicted to be 14.73%, with a slight improvement to 17.04% in March 2025. This suggests that while the company remains profitable, it faces challenges in generating higher returns for its shareholders.
Asset Distribution
As of the latest report:
- Fixed Assets: ₹3,197 crores
- Investments: ₹689 crores
- Other Assets: ₹2,137 crores
- CWIP (Capital Work in Progress): ₹58 crores
Liability Distribution
Crompton has managed its liabilities effectively, with reserves totaling ₹2,871 crores and other liabilities standing at ₹2,399 crores. Notably, borrowings are relatively low at ₹683 crores, indicating a healthy balance sheet.
Future Outlook and Stock Targets
At its current market price as on 27/09/2024 of ₹423 and a PE ratio of 58.16, Crompton Greaves appears slightly overvalued compared to its industry peers. However, given its growth trajectory, market leadership, and strong fundamentals, the stock presents good potential for long-term gains.
Short-term Target (3 months):
₹450-₹470
- Stop loss: ₹400
Long-term Target (12-18 months):
₹520-₹550
- Stop loss: ₹390
FAQs
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Conclusion
Crompton Greaves Consumer Electricals Ltd is a robust midcap stock with a proven track record and promising growth potential. Despite facing some challenges in the short term, the company’s strategic initiatives, such as the Crompton 2.0 revamp and its merger with Butterfly Gandhimathi Appliances, position it well for future success. As it continues to innovate and expand its product portfolio, Crompton is expected to deliver consistent returns for its investors, making it a stock worth considering for both short-term and long-term investment horizons.
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