Published on 19/10/2017 11:37:40 AM | Source: ICICI Securities Ltd
Consumer Electricals Charged for strong growth - ICICI Sec
Reason for report: Initiating coverage
Research Analyst: Ansuman Deb ansuman.deb@icicisecurities.com +91 22 6637 7312 The consumer electricals (CE) sector in India is on a strong growth footing driven by better outlook of housing, electrification and economic affordability. Housing schemes and energy efficiency drives by the government and reforms like GST are helping organised players gain market share and overall premiumisation is aiding margins. We initiate coverage on Crompton Consumer (BUY, TP Rs270) and V-Guard (ADD, TP Rs208), both suitably placed to benefit from this theme. While Crompton, with a renewed vigor post demerger, is set to actualise its complete brand potential, V-Guard is set to further consolidate its position among the big consumer electrical companies of India.
* Consumer Electricals (CE) has 15% growth potential in India. This is evident from the past where total revenue CAGR for the sector has been ~12% since 2010. Diversified CE companies have outperformed and ex Bajaj Electricals revenue CAGR for diversified CE has been 16% since 2010.
* Each CE segment has its own strengths. One of the cornerstones of Indian consumer electricals is the relative strength of each segment. We find that each segment has its own merits; be it the relative high market share of incumbents in fans or the high growth rate of lighting, coolers and appliances or the high unorganised share in lights, pumps and wires.We remain confident on growth potential of various categories in the sector. The leading growth is expected in lighting followed by appliances which are expected to grow at 12-15%, followed by fans, pumps, switchgear expected to grow at 8-10% and the last is the wires and cables which is estimated to grow at ~6-7%. Transition to higher organised share and premiumisation will offer additional growth for incumbent players.
* Abundant levers of growth put Indian CE sector in a sweet spot. A state-wise analysis of growth in housing number, housing quality, average number of people in household and the electricity penetration indicates a wide asymmetry between many states. As development catches up in the laggard states, additional 60bps growth to consumer electricals can arise through housing growth, while further 40 bps growth can be generated through overall improvement in housing quality. Similar comparison of residential electricity consumption in various states indicates additional 25bps of growth achievable through higher electricity consumption as India attains a more uniform and improved appetite for electricity which has remained abysmally low relative to global comparable. The plethora of government schemes in housing and electrification will assist in realising this growth. Yet, the theme of energy efficiency has just started to deliver results in India through the works of EESL and schemes like UJALA. As India bolsters energy efficiency efforts, we believe additional push to consumption can happen through “rebound effect” as some savings are channelized to higher direct consumption of electricity. Similar rebound effect in other countries indicates possible 75bps of additional growth possible to the consumer electrical sector.
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