Value investor- India mid & small caps

Bhaskar Chakraborty

Equity Bottom-Up

Crompton Greaves Consumer Electricals / Equity Bottom-Up

<ul><li>Crompton Consumer (CROMPTON IN) shares a number of business attributes with its smaller rival V-Guard (VGRD IN)- namely a long growth runway on the urbanization theme, a diversified portfolio of products, an asset-light business model with very high return ratios (best in the industry) and superior free cashflow generation.</li><li>Crompton’s brand is stronger than V-Guard’s. However, its brand strength doesn’t allow it a pricing premium, rather a reduction in customer search and conversion cost and a tight working capital cycle.</li><li>Failure rates in consumer electrical products are very high. We can’t emphasize how creditable it is on V-Guard’s part to have created 6 successful products. In contrast, Crompton’s appliances business has failed to scale and remains smaller than a single product in V-Guard’s portfolio. Even in fans where Crompton is the market leader, it was beaten to the BLDC fan that consumes 50% less power by Orient.</li><li>Crompton has the widest retail reach. While this is a key strength, we see limited upside from increased penetration. V-Guard with less than a sixth of Crompton’s points of presence has significant headroom to increase penetration in non-South markets.</li><li>We think Crompton’s portfolio faces meaningful risk of disruption from Energy Efficiency Services Ltd (EESL). EESL is tendering lighting, fans and pumps (these three comprise 94% of Crompton’s revenues) where tender prices have declined impacting margins. In contrast, V-Guard does not participate in EESL tenders as it has enough room to grow in the country.</li></ul>

Crompton Consumer (CROMPTON IN) shares a number of business attributes with its smaller rival V-Guard (VGRD IN)- namely a long growth runway on the urbanization theme, a diversified portfolio of products, an asset-light business model with very high return ratios (best in the industry) and superior free cashflow generation.Crompton’s brand is stronger than V-Guard’s. However, its brand strength doesn’t allow it a pricing premium, rather a reduction in customer search and conversion cost and a tight working capital cycle.Failure rates in consumer electrical products are very high. We can’t emphasize how creditable it is on V-Guard’s part to have created 6 successful products. In contrast, Crompton’s appliances business has failed to scale and remains smaller than a single product in V-Guard’s portfolio. Even in fans where Crompton is the market leader, it was beaten to the BLDC fan that consumes 50% less power by Orient.Crompton has the widest retail reach. While this is a key strength, we see limited upside from increased penetration. V-Guard with less than a sixth of Crompton’s points of presence has significant headroom to increase penetration in non-South markets.We think Crompton’s portfolio faces meaningful risk of disruption from Energy Efficiency Services Ltd (EESL). EESL is tendering lighting, fans and pumps (these three comprise 94% of Crompton’s revenues) where tender prices have declined impacting margins. In contrast, V-Guard does not participate in EESL tenders as it has enough room to grow in the country.

Crompton Consumer or V-Guard: Which Do We Prefer

Equity L/S Analyst | Forensic Accounting | India, Yellowstone Equity

Ankit Agrawal, CFA

Equity L/S Analyst | Forensic Accounting | India

Creating Wealth through Alpha and Compounding

Yellowstone Equity

Providing unbiased and independent research on Indian equities to global institutions and individual investors


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Note that Ankit Agrawal (Proprietor of Yellowstone Equity) is a SEBI registered Research Analyst (Registration No.: INH000007216). Registration granted by SEBI and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Investment in securities market are subject to market risks. Read all the related documents carefully before investing.

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Email: services@yellowstoneequity.com
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<ul>
<li>Polycab is a high-quality wires/cables and FMEG brand, benefitting from growing domestic consumption and rising capex led by India gaining foothold in global manufacturing.</li>
<li>Its FMEG business is currently in nascent stage representing just 10-12% of revenues but is poised to scale up exponentially over the next 3 years.</li>
<li>Its Wires and Cables business, despite commanding a dominant 22%+ market share, has been gaining share and is benefitting from strong demand tailwinds, positioning it well for double-digit growth.</li>
</ul>


Polycab is a high-quality wires/cables and FMEG brand, benefitting from growing domestic consumption and rising capex led by India gaining foothold in global manufacturing.
Its FMEG business is currently in nascent stage representing just 10-12% of revenues but is poised to scale up exponentially over the next 3 years.
Its Wires and Cables business, despite commanding a dominant 22%+ market share, has been gaining share and is benefitting from strong demand tailwinds, positioning it well for double-digit growth.


2023 High Conviction | Polycab: A High Quality Play on Rise of India as a Manufacturing Hub

India

Crompton Greaves Consumer Electricals Limited manufactures consumer electrical products. The Company offers fans, lamps, luminaires, and pumps, as well as a variety of other household appliances.

Crompton Greaves Consumer Electricals (CROMPTON IN)

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Crompton Greaves Consumer Electricals (CROMPTON IN)

Crompton Consumer or V-Guard: Which Do We Prefer

Crompton Consumer (CROMPTON IN) shares a number of business attributes with its smaller rival V-Guard (VGRD IN)- namely a long growth runway on...

Bhaskar Chakraborty

2023 High Conviction | Polycab: A High Quality Play on Rise of India as a Manufacturing Hub

Polycab is well-placed to see strong earnings growth over the next 3 years starting FY24. We project a 65%+ upside potential, bulk of which could...

Ankit Agrawal, CFA

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