Crompton is continuously working on product innovation, diversification and premiumisation and also gaining market share across segments and products.
Crompton Greaves Consumer Electricals (CGCE) reported a decent topline growth with an expansion in operating margins in the first quarter of FY19. Revenue growth was aided by market share gains in fans and pumps.
The company plans to drive future growth through continuous product innovations within its key categories.
Growth led by Electrical consumer durables segment
CGCE’s revenues for the quarter rose 14 percent year-on-year (YoY) to Rs 1,204 crores. Price hikes along with premiumisation aided the improvement in gross margins by 190 basis points (bps) to 32.4 percent. Earnings before interest, tax, depreciation, and amortisation (EBITDA) grew 29.5 percent YoY to Rs 167 crores in Q1FY19 from Rs 129 crores in Q1FY18.
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Electrical consumer durables (Fans, Pumps, and Appliances) segment has considerably higher margins compared to the lighting & fixtures segment. The revenue growth for this segment stood at 15 percent. The EBIT grew 27 percent to Rs 180 crores with 100 bps improvement in margins.
The revenue and margins of lighting & fixtures were subdued as the non-LED business declined 30 percent YoY. The LED business which accounts for 75-80 percent of lighting & fixtures segment continued to witness good traction and grew at a healthy rate of 40 percent YoY. The share of LED business within this segment could increase to 90 percent by FY20.
Strong focus on product innovation
The company continues to focus on driving profitability through product innovation and operating efficiencies. Crompton was the first company to introduce ‘Anti-dust’ fans in the market around one and half years ago. The company witnessed good success since its launch with sales worth Rs 200 crores from the ‘Anti-dust’ fan, making it the single largest selling innovation in the market.
Crompton has also introduced ’Air 360’ fan which has 50 percent more breeze coverage area than a traditional fan. Around 10 percent of total fans growth was driven by Air 360. Premium fans range (above Rs 2,000) range witnessed a growth of over 20 percent on account of the expansion in the distribution network and higher advertisement expenditure. Within fans, the company gained a market share of 100 bps during the quarter.
During the past one year, Crompton has witnessed increased competitive intensity in pumps which impacted sales in the previous few quarters. To revive the sales growth, it entered the lower end of the pumps category with the launch of Crest Mini. Agriculture pumps and domestic pumps are witnessing strong volume growth within the pumps category.
The go-to-market strategy being implemented gradually
The company is targeting retail expansion through the development of a strong distribution and sales network. To achieve this, it is implementing the go-to-market (GTM) strategies on a regional basis by integrating supply with that particular region. This strategy was adopted two years ago and has allowed Crompton to balance the risks and gain market presence and visibility in an incremental manner.
While the company’s GTM strategy has witnessed successful implementation across the South, it continues to face some operational challenges in the West and North. North India has seen a decline in sales over the past few quarters as inventory levels continue to settle and attention shifts from wholesale to retail. The company is trying to sort out the issues over the next 3-6 months through a phased rollout in selective branches.
Outlook and Recommendation
CGCE is continuously working on product innovation, diversification, and premiumisation and also gaining market share across segments and products.
