Cool De-risking

HDFC Mutual Fund recently sold 1.26 crore shares of Crompton Greaves Consumer Electricals (CGCEL) in the open market for a consideration of Rs.168 crore. Post the transaction, its stake in the company has come down to 7.2% from 9.2%. As on May 12, 2016, mutual funds held a 23% stake, while foreign institutional investors controlled 13.4%. The company was listed on the bourses on May 13 and has since gained 5.5%, slightly outperforming the benchmark Sensex which has gained 4.1% during the same period. 

CGCEL listed after the consumer business was demerged from the transmission and distribution-focused Crompton Greaves. The demerger and listing was part of the deal that saw the Gautam Thapar-led Avantha Group sell the consumer business to private equity firm Advent International and Singapore Sovereign Wealth Fund Temasek for a consideration of Rs.2,000 crore. Crompton Greaves, before its demerger, has been a high conviction bet for HDFC AMC CIO Prashant Jain.

Since FY13-15, CGCEL has seen its topline and operating profit grow 15% respectively. The Crompton brand has also gained a significant foothold in the marketplace despite spending relatively lesser on promotional activities than its competitor Havells. During FY11-15, CGCEL’s market share in the fans segment has improved by 4%. In the fans segment, the company enjoys market leadership with a market share of 27%. In the lighting segment, Crompton is placed at 3rd spot with a market share of 6%. In the fast growing LED market, too, Crompton holds 3rd spot with a market share of 9%.

CGCEL’s sales increased 10.6% YoY to Rs.1,000 crore in Q4FY16. According to the management, growth was driven by LED bulbs in the lighting segment (up 2x YoY in Q4 and 3x YoY in H2FY16) and the fans segment. Premium fans did well (10% of fans business), growing at 54% YoY in the quarter and 35% YoY in H2FY16.