India Consumer Electricals

India Consumer Electricals
A sustainable growth story
Investors are advised to refer disclosures made at the end of the research report.
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (India) Limited 1
29 April 2022 India Consumer Electricals
Contents
Story in charts – Industry segments and growth outlook ......................................................................................................... 4
Story in charts – Companies (peer comparison) ....................................................................................................................... 5
Executive Summary .................................................................................................................................................................. 7
Wires & Cables (W&C): Industry dynamics and outlook ..........................................................................................................13
Fans: Industry dynamics and outlook ......................................................................................................................................16
Lighting: Industry dynamics, outlook .......................................................................................................................................18
Switchgears: Industry dynamics and outlook ..........................................................................................................................19
Switches: Industry dynamics and outlook ...............................................................................................................................20
Water-heaters: Industry dynamics and outlook ......................................................................................................................21
Stock Views .............................................................................................................................................................................22
Companies section
Bajaj Electricals ........................................................................................................................................................................31
KEI Industries ..........................................................................................................................................................................49
Finolex Cables ..........................................................................................................................................................................68
Crompton Greaves Consumer ..................................................................................................................................................84
Havells ...................................................................................................................................................................................106
Polycab ..................................................................................................................................................................................130
V-Guard ................................................................................................................................................................................151
Orient Electric ........................................................................................................................................................................167
Systematix
Institutional Equities
India Consumer Electricals Systematix

29 April 2022
A sustainable growth story xx December 2021

SECTOR REPORT Underpenetration in many of India’s consumer electrical (CE) product categories
presents a wide canvas for the industry to grow. Premiumization xx December 2021
and an ongoing
Industry
SECTOR REPORT
xxxxxx
Consumer Electricals Systematix
shift towards the organized sector further boost the prospects. The policy thrust on
infrastructure capex across sectors and secular drivers of retail xx December
demand2021are
BSEIndustry
Consumer Durables v/s BSE Sensex expected to help in no small measure. We estimate ~10% CAGR for the CE industry
xxxxxx
with a faster ~12% CAGR in wires & cables (W&C) over the medium term. The
50,000
SECTOR REPORT
Industry opportunity is large, but players looking to capitalize on their brand equity in new
categories find it hard to achieve scale as leading incumbents fiercely protect their
Systematix
45,000
xxxxxx
IndustrySECTOR REPORT
40,000 niches. Leading brands are extending their reach to the hinterland and expanding
portfolios to cater to all price points. We prefer companies with strong brands, a
35,000
Institutional
wide distribution network and scope for portfolio expansion. Equities
We initiate coverage
30,000 on the CE sector with KEI and Bajaj Electricals as our top picks.
25,000
Low penetration offers a large opportunity: Barring a few (fans, switchgears, etc),
penetration in other categories is medium (lighting and switches) to low (household
Jul-21
Oct-21
Apr-21
Aug-21
Sep-21
Nov-21
Dec-21
Jan-22
Feb-22
Mar-22
Apr-22
May-21
Jun-21
appliances). A push for housing construction, better availability of electricity in rural

BSE CD Index Sensex
areas, rising incomes and consumer aspirations are the key themes driving demand
Source: Bloomberg, Systematix Institutional Research and penetration. Rural demand has emerged as a downside hedge and players are
striving to play it with deeper distribution reach and right price points.
Leadership, brand and distribution the key entry barriers: Large manufacturers are
focused on creating niches and leading in core segments. Orient (ORIENTEL) and
Crompton (CROMPTON) have strengthened their position in mid-premium fans while
Havells (HAVL), strong in mid-premium, is now focusing on economy fans for small
towns. Bajaj (BJE) is leveraging its vast distribution network to regain the market
share it lost while Polycab (POLYCAB) and KEI (KEII) are benefitting from the large
public spend on infrastructure. Incumbents enjoy a strong brand recall and wide
distribution networks, which take years to build.
Growth strategies rest on diversification and premiumization: Leaders have grown
faster with their strategy of premiumization, and portfolio and channel expansion.
We believe leading W&C companies are the best placed in this context. POLYCAB has
successfully forayed into the FMEG segment while Finolex Cables (FNXC) is struggling
to scale up. CG Power has launched fans and KEII is planning to follow suit. HAVL has
the widest portfolio from small electricals to large appliances. For V-Guard (VGRD),
expansion in the non-South markets holds the key to growth. We initiate coverage
on the CE sector with a BUY rating on KEII, BJE and FNXC and HOLD on HAVL,
POLYCAB, CROMPTON, VGRD and ORIENTEL as the stocks appear to be fairly priced.
Exhibit 1: Recommendations and valuation table
Bloomberg CMP M-cap Upside CAGR (%; FY21-24E) P/E (x) RoE (%)
Company Reco TP (Rs)
code (Rs) (Rs bn) (%) Rev EBITDA PAT FY22E FY24E FY22E FY24E
Finolex Cables FNXC IN 405 62 Buy 526 30 20 19 10 13 10 13 13
Bajaj Electricals BJE IN 1,080 124 Buy 1,286 19 12 27 34 87 27 8 20
KEI Industries KEII IN 1,200 108 Buy 1,425 19 21 20 25 29 20 17 18
Crompton CROMPTON IN 380 239 Hold 428 13 13 12 8 42 31 26 26
Havells HAVL IN 1,300 814 Hold 1,383 6 17 16 18 68 47 20 22
Polycab POLYCAB IN 2,520 376 Hold 2,649 5 20 17 14 50 29 14 18
V-Guard VGRD IN 215 92 Hold 225 5 17 14 15 46 30 15 17
Orient Electric ORIENTEL IN 320 68 Hold 302 (6) 17 14 14 55 38 24 25
Source: Company, Systematix Institutional Research * CMP as on 27 April 2022
Ashish Poddar Pranay Shah
ashishpoddar@systematixgroup.in pranayshah@systematixgroup.in
+91 22 6704 8039 +91 22 6704 8017
Story in charts – Industry segments and growth outlook

Exhibit 2: W&C is ~45% of the Rs 1.2trn CE industry… Exhibit 3: …with Polycab and Havells as the leaders
4% (Rs bn)
Revenue (FY21)
7% 100
86
90 81
8% 80
C&W 70
60 48
Lighting
50
45% 36 33
Switchgear 40
30 24 20
Fans 19
17% 20
Others 10
Switches 0
POLYCAB
KEI
BJE
CROMPTON
VGRD
HAVL
FNXC
ORIENTEL
19%
Source: Polycab RHP, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 4: W&C industry to continue growing the fastest Exhibit 5: Fans – industry growth and outlook
(Rs bn) (Rs bn)
1,200 140 131
968
1,000 120
99
100
800
80
80
600 525 550 63
60
400 346
40
200 20
0 0
FY14 FY18 FY21 FY26P FY14 FY18 FY21 FY26P
Source: Polycab annual report, Systematix Institutional Research Source: Polycab annual report, Systematix Institutional Research
Exhibit 6: Lighting – industry growth and outlook Exhibit 7: Switches and Switchgears – industry outlook
(Rs bn) (Rs bn)
400 400
365
350 337
350
300 300
250 227 250

212 210
200 200 183
142 139
150 150
100 100
50 50
0 0
FY14 FY18 FY21 FY26P FY14 FY18 FY21 FY26P
Source: Polycab annual report, Systematix Institutional Research Source: Polycab annual report, Systematix Institutional Research
Story in charts – Companies (peer comparison)

Exhibit 8: ECD – HAVL, CROMPTON and BJE are top-3 in sales Exhibit 9: ECD – Revenue CAGR (BJE to see strong revival)
(Rs bn) (%)
Revenue (FY21)
60 80 74
49 48 70
50
60
40 33 50 43
40 36
30 25 24
20 30
18 17 16 17 16 16 18
20 20 13
8
10 8 10
10 0
1
POLYCAB
BJE
VGRD
HAVL
CROMPTON
FNXC
ORIENTEL
0
CROMPTON
BJE
POLYCAB
VGRD
FNXC
HAVL
ORIENTEL
FY16-21 FY21-24E
Source: Company, Systematix Institutional Research Source: Company, Systematix Institutional Research
Exhibit 10: ECD – adj. EBIT margin trend Exhibit 11: ECD – outsourcing mix (%)
(%) (%)
20.5
25 90
20.0
80
18.8
18.0
80 70
20
70
60
10.5
15
10.3
50 50 50
8.9
50
8.0
40
7.0
10
6.0
40
5.5
5.5
5.0
3.7
30
5
20
0 10 5
BJE
VGRD
POLYCAB
CROMPTON
HAVL
FNXC
ORIENTEL
POLYCAB
BJE
CROMPTON
VGRD
HAVL
FNXC
ORIENTEL
FY21 FY24E
Exhibit 12: BJE has the largest network of retail touchpoints Exhibit 13: A&P spends (FY20) – 3-5% of B2C sales for leaders
(No.) (%)
4.5
2,50,000 5.0
4.0
3.8
4.5
3.6
3.4
2,00,000 4.0
3.1
3.1
3.0
3.5
2.4
2.3
3.0
2.2
1,50,000
2.5 1.3
2.0
1.2
0.9
1,00,000 1.5
1.0
50,000 0.5
0.0
BJE
POLYCAB
VGRD
HAVL
CROMPTON
FNXC
ORIENTEL
0
POLYCAB
BJE
HAVL
CROMPTON
VGRD
FNXC
ORIENTEL
% Total sales % B2C sales (FMEG & wire)
Exhibit 14: W&C – POLYCAB, KEII and HAVL are top-3 in sales Exhibit 15: W&C – Revenue CAGRs (revival expected for FXNC)
(Rs bn) (%)
FY21
80 76
25 23 24
70 20 19 19
20
60 17
50 15 13 13
40 36
32 10 8
30 23
20 5 3
8
10
0
0 KEII POLYCAB HAVL FNXC VGRD
POLYCAB KEII HAVL FNXC VGRD
FY16-21 CAGR FY21-24E CAGR
Exhibit 16: W&C – adj. EBIT % (FNXC has a higher wire mix) Exhibit 17: RoE trend – CROMPTON ranks as the best
(%) (%)
16
13.4
35 32
12.7
12.5
12.2
11.7
14
11.5
30 26 26
10.5
25
10.0
12 25 22
20 20
8.8
8.7
10 20 18 18 18
15 17 17
8 15 14 13
12
6 10
4 5
2 0
CROMPTON
POLYCAB
BJE
KEII
VGRD
HAVL
FNXC
ORIENTEL
0
FNXC HAVL POLYCAB KEII VGRD
FY21 FY24E FY21 FY24E
Exhibit 18: Net WC cycle – a sharp improvement for BJE and KEII Exhibit 19: FCF – HAVL, POLYCAB, CROMPTON and BJE to lead
(Days)
(Rs bn)
180 FY21-24E (average)
155 12
160 10.1
140 10
120
120 100
90 90 90 8
100 6.5 6.1
73 79
80 6 5.4
55 50 55
60 42
30 4
40 19 20
11 1.8 1.8 1.5 1.4
20 2
0
0
BJE
POLYCAB
HAVL
CROMPTON
VGRD
KEII
FNXC
ORIENTEL
POLYCAB
BJE
KEII
VGRD
CROMPTON
HAVL
FNXC
ORIENTEL
FY21 FY24E
Executive Summary
The ~Rs 1.2trn Indian consumer electricals industry (including cables) has recovered
smartly after the downturn induced by Covid-related disruptions for two years.
Recovery was broad-based across the product categories and supported by pent-up
demand initially. However, a strong revival in the housing market, consumer
preference towards bigger and comfortable houses in a work-from-home (WFH)
scenario, premiumization and underpenetration in many product categories have set
the tone for a sustainable growth story for the industry. We initiate coverage on the
Indian Consumer Electricals Sector with a positive outlook. Within the sector, we are
more inclined towards Wires & Cables (W&C) companies owing to their robust
growth prospects and scope for business diversification towards B2C wires and fast
moving electrical goods (FMEG) segments, leading to a valuation re-rating. KEII and
BJE are our top picks in the space.
Exhibit 20: Consumer Electricals – Industry size, growth trends and key players
Product category FY21P FY14-21 FY21-24E Key players
Industry size
CAGR (%) CAGR (%)
(Rs bn)
Wires & cables 550 7 12 Polycab, KEI, Havells, Finolex, V-Guard, RR Kabel, Apar Ind, Gupta Power
Bajaj, Surya Roshni, Crompton, Havells, Orient, Philips, Syska, Wipro,
Lighting 227 7 10
Polycab
Switchgear 210 6 10 ABB, Havells, Legrand, Schneider, Siemens, Polycab
Fans 99 7 6 Crompton, Bajaj, Havells, Orient, V-Guard, Polycab
Anchor, Cosmo Electro (Kolors brand), GM Modular, Havells, Philips,
Switches 50 8 10
Schneider, Polycab
Water Heater 23 10 6 AO Smith, Bajaj, Crompton, Havells, Racold, Venus, V-Guard, Polycab
Source: Company, Polycab RHP
Exhibit 21: Product portfolios of key manufacturers

Water Home Kitchen Wires &
Players Fans Lighting Switches Switchgears
Heaters Appliances Appliances Cables
Bajaj Electricals ✓ ✓ ✓ ✓ ✓
CG Consumer ✓ ✓ ✓ ✓ ✓
Finolex Cables ✓ ✓ ✓ ✓ ✓ ✓
Havells ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
KEI ✓
Orient Electric ✓ ✓ ✓ ✓ ✓ ✓ ✓
Philips ✓ ✓ ✓
Polycab ✓ ✓ ✓ ✓ ✓ ✓
Schneider Electric ✓ ✓ ✓ ✓
Stove Kraft ✓ ✓ ✓ ✓
Surya Roshni ✓ ✓ ✓ ✓ ✓
TTK Prestige ✓ ✓
Usha International ✓ ✓ ✓ ✓
V-Guard Industries ✓ ✓ ✓ ✓ ✓ ✓
Source: Polycab RHP, Systematix Institutional Research
Structural demand drivers remain in place

After significant demand destruction in the three months over March-May 2020 (the
first phase of Covid-19 disruptions), the consumer electricals industry saw a swifter-
than-expected recovery, with leading players at the forefront of the bounce-back. A
subsequent resurgence in Covid-19 cases and the significant rise recorded in
commodity costs did not deter consumers’ buying decisions, with sustained growth
witnessed across retail categories. While the sharp rebound is partly attributable to
pent-up demand in the aftermath of the pandemic, we believe the industry is on a
secular growth trend. Demand is being stoked not only by the core drivers (a wide
population base and increasing affordability), but also by industry trends like deeper
penetration into rural areas, premiumization, government initiatives like
electrification/ rural-urban infrastructure and the ‘Make in India’ push.
Increasing affordability with higher disposable incomes: Census 2011 put India’s
population at ~1.2bn with ~246m households. After a 1.8% CAGR seen over 2001-
2011, population is expected to touch 1.5bn by 2030 (1.2% CAGR) with India
becoming the world’s most populous country. The proportion of the urban
population (~35% of total) has been rising as people from rural areas move to cities
for better job opportunities, education and a better life. India’s per capita income, a
broad indicator of living standards, has been growing steadily over the years.
According to media reports, the per capita net national income (NNI) at current
prices and constant prices has recorded 10% and 6% CAGR respectively over FY12-
18. These factors typically drive demand for housing and also accelerate expenditure
on public infrastructure (railways, roads, malls, hospitals, educational institutes, etc)
and purchase of discretionary items including consumer electricals.
Exhibit 22: India’s population growth Exhibit 23: Urbanization trend
(Bn) (Mn Households)
1.6 1.5 1,600
1,353 1,383
1.4 1.3 1,400
1.2 1,231
1.2 1,200
1.0 1,053
1.0 0.9 1,000
893 899
0.8 0.7 800 849
0.6
0.6 758
600
0.4
0.4 400
0.2 200 382 460 484
295
0.0 0
1961 1971 1981 1991 2001 2011 2017E 2030P 2000 2010 2018E 2020E
Population Urban Rural
Source: GoI, Industry reports Source: GoI, Industry reports
Underpenetration in key categories, especially in lower tier and rural regions:

Except fans and lights, penetration levels of organized retail in other product
categories are medium-to-low. Increasing electrification in rural areas, improving
electricity availability in small towns/ cities, rising aspirations with disposable
incomes, availability of energy-efficient products and a shift in consumer preference
towards reliable and branded products are the key factors driving penetration levels
higher in the hinterland and supporting growth during spells of the economy slowing.
Exhibit 24: Category-wise penetration levels
Category Overall penetration Organized penetration
Cables - domestic/ industrial High/ High Low/ Medium
Fans High High
Lighting & fixtures High Medium
Other appliances Low Low
Switches High Medium
Switchgears (MCB) High High
Water heaters Low Low
Premiumization helps ensure modest value growth even with lower demand: Rising
aspirations with higher disposable incomes and customers’ growing preference for
technology-driven and aesthetically appealing products are stoking the
premiumization trend in many categories (fans, switches, appliances, etc). Despite
low volume growth, the industry has managed to capture modest value growth in a
few categories in the recently turbulent times. We believe the trend is likely to
sustain in the medium to long term.
Exhibit 25: Share of premium fans rising rapidly
100% CAGR ~21% CAGR ~22%

6 10
90% 20
80%
70% 51 CAGR ~5% CAGR ~5%
50
60%
46
50%
40%
30% CAGR ~4% CAGR ~4%
20% 43 40 34
10%
0%
FY14 FY18 FY23p
Economy Base Premium
Government initiatives providing additional growth impetus

Numerous government initiatives – including the National Infrastructure Pipeline
(NIP), Production-Linked Incentives scheme, focus on indigenous manufacturing,
higher budgetary allocations for capital expenditure, renewable energy, digital
infrastructure push and Housing for All – have directly or indirectly benefitted the
electrical goods industry in the B2B (cables, switchgears, lighting, etc) as well as B2C
(all other FMEG products) segments. We expect the above initiatives to continue
supporting demand for electrical goods in the long term.
Government focus on improving electrification and rural/ urban infrastructure:
Introduction of various schemes with specific objectives and targeted at different
sections of the society has been a key catalyst for growth in the consumer electricals
industry in the medium to long term. While a large base of houses in rural India is
being electrified under the DDUGJY scheme, there exists immense scope till all rural
areas get access to reliable electricity. Initiatives such as Saubhagya and DDUGJY
could spur development of rural infrastructure as well as growth in household
electrical products. The revival of DISCOMs through UDAY could support the
government’s electrification initiatives. Schemes like the Domestic Efficient-Lighting
Programme (DELP), Unnat Jyoti by Affordable LEDs for All (UJALA) and the Street
Lighting National Program (SLNP), targeted at reducing costs and saving energy, are
also envisaged to drive demand for LED bulbs.
National Infrastructure Pipeline (NIP): In 2019, the Centre announced the National
Infrastructure Pipeline, with a proposed outlay of ~Rs 100,000trn, to execute ~7,000
projects over a 5-year period. To achieve India's ambitious goal to be a USD 5trn
economy by 2025, these targets have been revised upwards and currently stand at
almost Rs 200,000trn and across 9,145 projects. This significant push from the
government has increased India’s overall potential manifold and presented a
humongous opportunity to direct and indirect players in the infrastructure value-
chain. As growth in infrastructure drives derived demand for wires, cables and other
electrical products (lights, switchgears, etc), the electricals industry is bound to be a
key beneficiary of the potential demand.
Exhibit 26: National Infrastructure Pipeline – Projects and outlay Exhibit 27: Key expectations from NIP outlay
Sector Number of Investment

projects (USD bn) India achieving a USD 5trn economy status by 2025
Transport 4,628 800
Social Infrastructure 1,717 251
Per capita income set to rise to USD 4,279 by 2030, with
Water & Sanitation 1,326 284
India reaching the upper middle income country
Energy 688 482 threshold
Commercial Infrastructure 593 81
Logistics 163 51 Metropolitan cities in India to increase from 46 in 2011 to
68 by 2030
Communications 30 15
Total 9,145 1,964
Source: https://indiainvestmentgrid.gov.in/
Key trends shaping the consumer electricals industry

Incumbents enjoy a strong brand recall and wide distribution networks which take
years to build. Rising consumer preference towards quality, innovative and branded
products augurs well for the organized segment which has gained market share at
the expense of the unorganized sector. In the last few years, leading players have
grown ahead of the industry on the back of their portfolio and channel expansion
initiatives as also focus on premiumization. We expect the trends to gain momentum
in the coming period. Below we give a brief on the key trends prevailing in the
consumer electricals industry:
Strong demand revival after the first Covid-19 wave: The first wave of Covid-19 had
triggered widespread fears of demand destruction in the wake of job losses and a
significant rise in commodity costs. However, the challenges were short-lived for the
consumer electricals industry, especially leaders, across segments. Importantly,
housing activity, one of the biggest drivers of demand for consumer electrical
products, is witnessing some green shoots (after a prolonged lull) with reducing
inventories. CE companies reported healthy EBITDA margins in FY21 as the impact of
lower demand was tackled by lower discretionary expenses including A&P spends.
Organized sector gaining market share via portfolio and distribution expansion:
Large and organized players have gained significant market share in the last two
years as smaller players were not resilient enough to survive the frequent lockdowns
mandated during the Covid-19 pandemic. At the same time, larger players became
aggressive on distribution expansion in untapped areas (including smaller towns) and
innovative product launches to recover the sales lost during the lockdowns. Rural
electrification and better quality of electricity supply in tier-3 and -4 cities and
beyond are also helping generate demand for consumer durables and appliances. All
key players are looking to strengthen their operations in the semi-urban and rural
areas and gain market share through their less expensive portfolios under a different
brand targeted at these price-sensitive markets.
Emergence of alternate sales channels: Alternate channels (modern trade and e-
Commerce) gained good traction (up to 35% share in sales in some kitchen appliance
categories) owing to the ease of buying products at attractive discounts. We believe
the traditional distribution channel will continue to dominate the overall sales in the
longer term even as alternate channels will gradually gain market share.
Premiumization gaining good traction: Premiumization is another theme that has
played out across categories in the last few years, and even accelerated during the
pandemic as consumers spent more time at home and chose better quality and
innovative products. The trend should continue given that buyer preference is
shifting towards technologically-advanced products offering innovative features.
Fast adoption of digitization to face unforeseen events like Covid-19: Technology
helped leading companies manage their inventories and supply-chain issues better
during the sudden challenge posed by Covid-19. We believe technology adoption at
the back-end will further strengthen the market positioning of incumbents and be
the differentiator vis-à-vis small regional players and the unorganized sector.
Exports limited to W&C; however, potential in other product categories too: India’s
leading W&C companies (POLYCAB and KEII) have seen good traction in the global
markets as they earn 10%+ of their total revenues from exports. Wide product
portfolios and global certifications have helped these players to participate in
prestigious global tenders and win orders as well. Given the government’s stated
mission to make India a manufacturing hub for the world, we see a large opportunity
in exports for other electrical goods categories as well.
Rising costs an overhang on growth and margins: While there are many structural
drivers supporting demand for consumer electrical goods in the long term, the
industry faces certain headwinds in the short to medium term. Currently, companies
are facing margin pressure as most of the discretionary expenses have returned to
normal levels and their limited ability to take adequate price hikes despite elevated
raw material prices (copper, aluminium, ABS, etc) and other costs (freight among
others). Leading companies have chosen to grow fast and gain market share at the
cost of margins as they expect the margin pressure to be short lived and recoverable
with adequate pricing action as also an eventual easing of commodity prices.
Exhibit 28: LME copper price trend Exhibit 29: LME aluminium price trend
(USD /t) (USD /t)
12000 4500
4000
10000
3500
8000 3000
2500
6000
2000
4000 1500
1000
2000
500
0 0
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Apr-19
Apr-20
Apr-21
Apr-22
Oct-12
Oct-13
Oct-14
Oct-15
Oct-16
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21
Apr-18
Apr-21
Oct-19
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Oct-18
Apr-19
Apr-20
Oct-20
Oct-21
Apr-22
Source: Bloomberg Source: Bloomberg
Positioning of leaders in various categories of the consumer electricals industry:

▪ HAVL continues to be a widely preferred brand among younger buyers owing to
its mass-premium positioning, product design ability, quality of offerings and
high advertisement and promotional spending. CROMPTON, on the other hand,
is an older brand commanding loyalty from the older generation, while ORIENT is
an emerging brand in premium fans.
▪ In fans, HAVL enjoys a 5-10% price premium to CROMPTON and a slightly higher
premium to ORIENT and other brands. Likely introduction of energy ratings in
2022 will fuel a further market share shift towards the organized sector.
▪ CROMPTON and BJE are the preferred choice among builders owing to their
competitive prices and wide product range
▪ For after-sales service, HAVL, CROMPTON and BJE are considered the best.
Wires & Cables (W&C): Industry dynamics and outlook

The W&C segment registered ~11% CAGR over FY14-18 (and a higher volume
growth), followed by a flattish growth over FY18-21. At ~Rs 550bn, it comprises ~45%
of the electrical equipment market in India (industry estimates). Upbeat construction
activity in the housing sector and government initiatives in the power and
infrastructure sectors has been the key factors driving growth. At 12% CAGR
estimated over FY21-26, the W&C industry is expected to grow the fastest within the
CE industry. POLYCAB, KEII, HAVL, FNXC, RR Kabel and VGRD are the key players in
the category. Notably, W&Cs are manufactured fully in-house given customers’
technical requirement.
Exhibit 30: W&C segment – expect ~12% CAGR Exhibit 31: National Infrastructure Pipeline – Projects and outlay
(Rs bn)
Number of Investment
1,200
projects USD bn
968
1,000 Transport 4,628 800
800 Social Infrastructure 1,717 251

600 525 550
Energy 688 482
400 346 Commercial Infrastructure 593 81
200
Logistics 163 51
Communication 30 15
0
FY14 FY18 FY21 FY26P Total 9,145 1,964
Source: Polycab annual report, Systematix Institutional Research Source: https://indiainvestmentgrid.gov.in/
Exhibit 32: Category-wise growth factors and key players

Finolex Gupta
Category Apar Havells KEC KEI Polycab R R Kabel V-Guard
Cables Power
Power Cables (LT/ HT) ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
Growth drivers: (a) investments in power transmission and distribution (b) capacity addition in solar and wind energy, and (c) Smart Cities mission
Building Wires ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
Growth drivers: (a) affordable Housing scheme (b) growing nuclearization of families, and (c) investments in commercial and residential infra
Flexible Cables/ Wires ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
Growth drivers: (a) growing demand for household appliances and automobiles on revival in per capita income (b) increasing investments in railways for
electrification, and (c) increased construction activity supported by growing infrastructure projects
EHV Cables ✓ ✓ ✓ ✓ ✓
Growth drivers: (a) investments in power transmission and distribution, and (b) Smart Cities mission
Control/ Instrumentation Cables ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
Growth drivers: (a) industrial capex rising across industries such as auto, steel, oil and gas, and power (b) Investment expenditure by Indian Railways and in
other mass transit systems (c) Increased focus on automation in manufacturing and processing to monitor and control quality
Exhibit 33: Wires & Cables – trends, demand drivers and outlook
Segment’s share in CE EBITDA margin range for key
Market size CAGR (FY14-21) CAGR (FY21-26E)
industry (FY21) listed players
~Rs 550bn ~45% 7% 12%+ 10-15% (ECD division)
• Government focus on power, infrastructure and housing construction have been the key growth drivers
• The formal sector (comprising all-India brand-named manufacturers) capturing market share from the non-regulated
sector (smaller regional manufacturers). Industry estimates put the share of organized at ~75% currently, and much
higher in high voltage (HV) and extra-high voltage (EHV) products
Trends
• To protect margins, companies typically pass on any meaningful changes in raw material prices (mainly copper and
aluminium) to the end-consumer within 15-30 days
• W&C manufactured fully in-house due to technical requirement of customers
• Numerous government initiatives such as NIP, PLI scheme, focus on indigenous manufacturing, higher budgetary
allocation for capital expenditure, renewable energy and digital infrastructure push, Housing for All
• Electrification of rural villages and households (schemes such as Power for All, Saubhagya, etc)
• Investments in modernizing transmission & distribution systems and for improving efficiency
Demand drivers • Increased demand from renewable power generation, particularly solar and wind energy
• Infrastructure development such as Smart Cities mission and mass-transit systems
• Commercial establishments and public utilities (metro-rail, airports, hospitals, educational institutions, etc)
• Industrial sectors (auto and FMEG) to drive demand for flexible cables & wires and control cables
The W&C industry expected to register ~12% CAGR by value over 2021-2026. Leading players likely to grow faster as they gain
Outlook
market share due to operational challenges faced by small regional players
• Realizations and profitability in W&C industry dependent on RM prices (mainly copper and aluminium). Companies usually
pass on any meaningful changes in raw material prices to end-consumer within 15-30 days to protect margins. However,
high volatility in RM prices may impact growth or margins, depending on the overall demand situation and economic
outlook
Risks and challenges
• As a large part of key raw materials is imported by players given economies of cost and the quality required, margins are
exposed to exchange rate fluctuations. To mitigate the risk, companies enter into a price escalation clause for long-term
contracts and hedge their future purchases
Key players Polycab, KEI, Havells, Finolex Cables, RR Kabel and V-Guard
Source: Industry reports, Systematix Institutional Research
Exhibit 34: Cable applications in the transmission & distribution of power
Source: KEI annual report; Note: LT Cables: up to 1.1kV | HT Cables: 1.1kV to 33kV | EHV Cables: 66kV to 400kV
Fans: Industry dynamics and outlook

The ~Rs 100bn electric fans market in India is dominated by ceiling fans (~70% share
by value). Domestic demand for fans is largely met locally. The trend of
premiumization has been catching pace, driven by product innovation (decorative,
anti-dust, tech-enabled fans, etc) – mainly in replacement demand which accounts
for ~65% of the total demand. Therefore, the category’s dependency on new
construction is relatively lower. The share of regulated players in the category is
quite high at an estimated ~80%. CROMPTON (the market leader with ~25% share),
ORIENTEL, Usha, HAVL, BJE and POLYCAB are the key players in the fans space. After
a 7% CAGR over FY14-21, the category is expected to report 6% CAGR over FY21-26.
Exhibit 35: Fans – growth trend
(Rs bn)
140 131
120
99
100
80
80
63
60
40
20
0
FY14 FY18 FY21 FY26P
Source: Polycab annual report, Systematix Institutional Research
Exhibit 36: Category-wise break-up of the fans segment Exhibit 37: Share of premium fans rising rapidly
5% 100% CAGR ~21% CAGR ~22%

6 10
5% 90% 20
80%
70% 51 CAGR ~5% CAGR ~5%
50
19% 60%
Ceiling 46
50%
TPW
40%
Exhaust 30% CAGR ~4% CAGR ~4%
Industrial 20% 43 40 34
10%
71% 0%
FY14 FY18 FY23p
Economy Base Premium
Source: Polycab RHP, Systematix Institutional Research Source: Polycab RHP, Systematix Institutional Research
Exhibit 38: Fans – trends, demand drivers and outlook
~Rs 100bn ~8% 7% 6% 10-15% (ECD division)
• While volume growth in ceiling fans (~70% of the fans sector) has been hit by the slowdown in real estate sector in the
past few years, value growth has been driven primarily by increasing buyer preference for premium products (2-4x higher
realizations), including decorative, energy-efficient and customized fans
• Various government initiatives towards facilitating electricity availability in rural areas have been driving demand for
table, pedestal, and wall (TPW) fans
Trends
• The regulated (or formal) segment, at ~80%, has consistently gained market share with the rising preference for branded,
aesthetically pleasing and quality products. Likely energy rating introduction in FY22 will further fuel the shift
• As the technology to manufacture fans is fairly standardized (mainly economy/ base segments), outsourcing production to
smaller players is prevalent. The industry estimates that, given the cost-benefits from outsourcing production, the trend is
expected to continue in the medium to long term
• The economy and base fan sub-segments have seen a low ~5% CAGR, while the premium segment has registered >20%
CAGR with its share in ceiling fans rising to 10%+
• Premium fans are likely to continue witnessing strong growth with rising preference for brand-named, aesthetic and
quality products
• 2-4x higher realizations for premium fans would support value growth in the fans sector
• Demand for technology-driven higher-priced products (silent, dust-free and bladeless, with temperature or proximity
Demand drivers sensors and those controlled by wi-fi or mobile apps) gaining traction
• Rising disposable incomes and changing preferences of the urban population are shortening home-improvement cycles
and boosting replacement demand of fans.
• Also, improving electricity availability in rural areas resulting in deepening rural penetration and rising demand for
economy ceiling, table, pedestal and wall-mounted (TPW) fans
• The focus on energy-efficient fans under the EESL-financed procurement and incentivization programmes would also drive
demand for electric fans in the medium to long term
Outlook The fan category is expected to clock 6% CAGR over FY21-26 to Rs 131bn, driven by premium ceiling fans
• As penetration of fans is already quite high in urban areas, revival in housing activity is necessary to support volume
growth, which already has a high base
• Air-coolers and air-conditioners are substitutes for fans. Demand for these is growing, especially in housing and offices in
urban areas. Alternative products becoming more affordable may restrict growth in the fan industry
Key players Crompton, Bajaj Electricals, Havells, Orient Electric, Usha, Polycab, V-Guard, etc
Lighting: Industry dynamics, outlook

The lighting industry registered a 7% CAGR over FY14-21 to Rs 227bn, driven mainly
by huge demand for LEDs from EESL (a government agency). We expect a 10% CAGR
in the segment over FY21-26, driven by retail demand for LEDs after a significant
price drop and better aesthetics vis-à-vis CFLs. BJE, CROMPTON, HAVL, ORIENTEL,
Philips, Syska, Wipro and POLYCAB are the key players in the category and follow a
mixed strategy of in-house manufacturing and outsourcing.
Exhibit 39: Lighting – growth trend
(Rs bn)
400 365
350
300
250 227
212
200
142
150
100
50
0
Exhibit 40: Lighting – trends, demand drivers and outlook

Rs 227bn ~19% 7% 10% 10-15% (ECD division)
• Rapid adoption of higher priced light-emitting diodes (LEDs), aided by government measures and a shift away from
conventional lighting products including GLS, FTL and CFLs
• The initially high prices of LEDs had restricted growth to the institutional category (large organizations and government
agencies like EESL) only. Street and flood lights are the key products targeted at institutions
Trends • With technological advancement, LED chip prices have fallen significantly in the last few years. This, along with growing
awareness about their energy efficiency, has resulted in increasing sales in B2C segment
• The formal sector, at ~65%, has significantly gained market share on the introduction of LEDs, which required investment
in technology and were priced much higher than conventional lighting
• A large part of LED components is outsourced by the majors in this segment and the trend is expected to continue
• Segment growth driven by LED sales over the last five years, largely to institutions due to high prices. From 2015 to 2017,
EESL procured ~300m LED lamps out of the industry demand for 500m+
Demand drivers • Industry growth in the next five years to be mainly decided by growth of LEDs in retail after significant reduction in prices
and enhanced aesthetics than CFLs
• Demand for conventional lighting to be limited to rural areas and low-income groups
Outlook The lighting industry expected to clock a 10% CAGR over FY21-26 to reach Rs 365bn, driven by LEDs in retail
Risks and challenges The longer life span of LEDs would restrict volume growth in the medium to long term
Key players Bajaj Electricals, Crompton, Havells, Orient Electric, Philips Lighting, Syska, Wipro Consumer, Polycab, etc
Switchgears: Industry dynamics and outlook

After a 6% CAGR over FY14-21 to Rs 210bn, we estimate ~10% CAGR in the
switchgears segment over FY21-26 to Rs 337bn. Growth will be driven primarily by
the low voltage (LV) segment (~70% of domestic switchgears). Revival in the real
estate sector and industrial capex augur well for demand of these products. ABB,
HAVL, Legrand, Schneider, Siemens and POLYCAB are the leading players having in-
house manufacturing due to significant technology and certification requirements.
Exhibit 41: Switchgears – growth trend
(Rs bn)
400
350 337
300
250
210
200 183
139
150
100
50
0
Exhibit 42: Switchgears – trends, demand drivers and outlook

Rs 210bn ~17% 6% 10% 15-20%
• Sluggish activity in the real estate sector and industrial capex have kept demand subdued
• Low-voltage switchgears account for ~70% of the domestic switchgears industry. Demand of key products (MCBs, DBs,
RCCBs, etc) primarily arises from residences and industries
Trends • The MV/ HV segment products are used mainly in power distribution stations and sub-stations requiring high voltage. The
segment experienced muted growth given the challenges in the power distribution sector
• At ~90% market share, LV and MV/ HV switchgears are regulated due to significant technology requirements
• The technology-intensive nature of the product driving most players to opt for in-house manufacturing
• After modest growth in the last five years, LV switchgears expected to accelerate backed largely by the government's push
for infrastructure development (affordable housing, Railways, metro-rail, etc)
• Higher use of power in residences and industries due to more electrification would drive demand for switchgears in the
Demand drivers medium to long term
• GoI initiatives such as DDUGJY and Saubhagya schemes and the expected revival of DISCOMs under UDAY would aid
growth of the MV/ HV category
Led by LV category, the switchgears segment is expected to clock a 10% CAGR over FY21-26 to Rs 337bn on account of
Outlook
consumption demand and electrification
Risks and challenges Any slowdown in real estate and industrial capex will restrict growth of switchgears
Key players ABB, Havells, Legrand, Schneider, Siemens, Polycab, etc

Switches: Industry dynamics and outlook

The Rs 50bn switches industry has clocked an 8% CAGR over FY14-21, driven by rising
demand for modular switches (65% share in industry revenues, ~4x the price of
traditional switches). Anchor, Kolors, GM Modular, HAVL, Philips and Schneider are
some of the leading names in the segment. Lured by the large opportunity and as
part of their portfolio expansion strategy, other prominent FMEG brands including
POLYCAB and ORIENTEL have also entered the category of late. Going forward, we
expect a 10% value CAGR in the segment over FY21-26, led by modular switches.
Exhibit 43: Switches industry – growth trend
(Rs bn)
90
80
80
70
60
50
50
40
40
30
30
20
10
0
Exhibit 44: Switches – trends, demand drivers and outlook

• Despite the real estate sector slowdown, switches as a category have grown on account of the rising demand for modular
switches, which are ~4x the price of traditional switches and form ~65% of segment revenue
• Of late, the segment has seen the entry of prominent brands in a bid to diversify their product range
Trends • Given that modular switches are manufactured primarily by the regulated sector, higher growth is seen in the segment
and market share likely to grow further from ~65% currently
• Leading brands have been outsourcing traditional switches to smaller players, a trend the industry expects to sustain as
smaller non-regulated manufacturers turn to contract manufacturers post GST implementation
• Government measures to improve power availability and the push for affordable housing
• Changing consumer preference for modular switches aided by higher disposable incomes and growing demand for
Demand drivers aesthetically designed products
• The implementation of safety standards and regulations to minimize mishaps resulting from a lack of maintenance of
electronic products
Switches category expected to register a 10% value CAGR over FY21-26 to Rs 80bn, driven by modular switches at higher
Outlook
realizations
Risks and challenges Any slowdown in the real estate sector, which has revived after a long period of stagnancy, will dampen demand
Key players Anchor, Kolors, GM Modular, Havells, Philips, Schneider, Polycab, etc
Water-heaters: Industry dynamics and outlook

The Rs 23bn water heater industry has registered a 10% CAGR over FY14-21.
Introduction of energy-efficient products and rising consumer aspirations have
accelerated the penetration level, which otherwise was slow due to seasonal nature
of the product. Low volumes have led to companies (AO Smith, BJE, CROMPTON,
HAVL, Racold, Venus, VGRD, etc.) outsourcing production to smaller players. We
expect the outsourcing trend to prevail over the medium term.
Exhibit 45: Water heaters – growth trend
(Rs bn)
35
30
30
25 23
20 18
15 12
10
0
Exhibit 46: Water heaters – trends, demand drivers and outlook

• Largely seasonal demand for water heaters has translated into low penetration. Also, high operational cost (energy
charges) deters adoption
• The formal segment’s share has increased to ~65% over the years with rising preference for branded and energy-efficient
Trends products, new brands’ extension into the category, rising compliance to meet energy-efficiency parameters and a growing
network of service centers; the momentum likely to be sustained
• Low volumes have led to leading brands outsourcing production to smaller players. Given the cost benefits, the trend is
likely to continue over the medium term
• Rising disposable incomes and demand for energy-efficient products

• Better availability of electricity in smaller towns and rural areas
Demand drivers • New features (wi-fi-enabled, better coatings, auto temperature adjustments and leak detection) differentiate electric
water heaters from solar and gas-operated ones
• Stricter compliance affecting non-regulated manufacturers
Low penetration, rising disposable incomes and energy-efficient products to drive an estimated 6% CAGR over FY21-26 in
Outlook
water heaters to ~Rs 30bn
Solar water heaters rapidly gaining ground as a substitute. Operating on renewable energy, solar water heaters are more
energy-efficient than the electric ones
Key players AO Smith, Bajaj, Crompton, Havells, Racold, Venus and V-Guard
Stock Views
Bajaj Electricals (BUY, TP: Rs 1,286; 19% upside potential)
BJE – Financial Snapshot (Rs mn) Bajaj Electricals (BJE) is one of India’s most diversified and well distributed consumer
Y/E Mar FY22E FY23E FY24E electricals and appliances company. A sharper focus on the consumer products (CP)
Net sales 48,514 55,995 64,727 business and turnaround in the EPC division in the last few years have improved its
EBITDA 2,813 4,329 6,248 long-term outlook. The management aims for a faster-than-industry growth and ~1%
OPM % 5.8 7.7 9.7 annual margin addition in CP business over FY21-24, led by operating leverage and
PAT (adj.) 1,420 2,812 4,558 cost optimization while maintaining A&P spends at ~4% of CP revenues. In EPC,
EPS (Rs) 12.4 24.5 39.8 execution and working capital are the key focus areas. After a period of flat growth
PE (x) 87.1 44.0 27.1
over FY18-21, we estimate 12% revenue CAGR, 27% EBITDA CAGR and 34% PAT
P/B (x) 7.3 6.4 5.3
CAGR for BJE over FY21-24E with EBITDA margin at ~10% (~11% in CP), healthy FCF
EV/EBITDA (x) 41.2 26.4 17.7
RoE (%) 8.4 14.6 19.6
and RoE of ~20%. We initiate coverage on BJE with a BUY rating and price target of
RoCE (%) 14.3 20.4 27.1 Rs 1,286 (19% upside from CMP), based on 36x and 15x FY24E earnings for CP and
Net-D/E (x) (0.5) (0.5) (0.6) EPC respectively. The healthy growth outlook and a proposed corporate
restructuring, we believe, will support a re-rating of the stock.
KEI Industries (BUY, TP: Rs 1,425; 19% upside potential)

KEII – Financial Snapshot (Rs mn)
KEI (KEII), India’s fastest growing W&C company, is backed by a certified and wide
Y/E Mar FY22E FY23E FY24E
Net sales 55,252 63,602 73,339
product range (including EHV), vast distribution network and expertise in executing
EBITDA 5,810 6,876 7,999 large projects globally. With a keen focus on margins and cash flows, the company is
OPM % 10.5 10.8 10.9 strategically scaling down its EPC business in favour of the fast-growing retail
PAT (adj.) 3,685 4,542 5,334 portfolio (35%+ CAGR over FY21-24E; ~50% of total revenues by FY24E). It is also
EPS (adj.) (Rs) 41.0 50.5 59.4 beefing up the dealer network by 10% a year to back its foray into the FMEG
PE (x) 29.3 23.7 20.2 segment. In addition, KEII has committed ~Rs 8bn in capex for a greenfield project
P/B (x) 5.1 4.2 3.6 over the next 4-5 years to meet its guidance of 18% revenue CAGR over FY21-24E.
EV/EBITDA (x) 18.4 15.3 13.0 Increasing contribution from the more profitable retail segment, its FMEG foray and
RoE (%) 17.4 17.9 17.6 higher FCF, we believe, should drive a further re-rating in the stock. We initiate
RoCE (%) 23.7 24.7 24.6
coverage on KEII with a BUY rating and price target of Rs 1,425 (19% upside from
Net-D/E (x) (0.0) (0.1) (0.1)
CMP), based on 24x FY24E earnings (above historical mean).
Finolex Cables (BUY, TP: Rs 526; 30% upside potential)
FNXC – Financial Snapshot (Rs mn) Finolex Cables’ (FNXC) business prospects are reviving with an improving outlook for
Y/E Mar FY22E FY23E FY24E the real estate sector. After lacklustre performance over FY17-21, we expect 20%
Net sales 36,518 41,860 47,306 revenue CAGR, 19% EBITDA CAGR and 10% PAT CAGR for the company over FY21-
EBITDA 4,368 5,411 6,244 24E, driven largely by the W&C business. The OFC (optic fibre cables) business too is
OPM % 12.0 12.9 13.2 expected to look up with higher demand from the ongoing digitization drive and 5G
PAT (adj.) 4,843 5,475 6,161 rollout. However, the large cash on FNXC’s books will suppress the RoE unless used
EPS (adj.) (Rs) 31.7 35.8 40.3 for acquisitions (FMEG), dividend payout or a buyback scheme. While its
PE (x) 12.8 11.3 10.1 performance has been weaker than peers in recent years, valuations of ~10x FY24E
P/B (x) 1.6 1.5 1.3 earnings suggest scope for a catch-up given healthy FCFs and an improving outlook.
EV/EBITDA (x) 12.2 9.4 7.7
The ongoing family tussle for the company’s ownership will remain an overhang on
RoE (%) 12.7 12.8 12.9
its valuation though. We initiate coverage on the stock with a BUY rating and price
RoCE (%) 12.0 13.3 13.7
Net-D/E (x) (0.2) (0.3) (0.3) target of Rs 526, (30% upside), based on 14x FY24E core earnings + Rs 147 as value of
its 32.4% share in Finolex Industries at a 30% holdco discount.
Crompton Greaves Consumer (HOLD, TP: Rs 428; 13% upside potential)
Crompton Greaves Consumer (CROMPTON), leader in the fans and residential pumps
CROMPTON – Financial Snapshot (Rs mn) segments, maintains a keen focus on innovation, brand-building and reach. While
Y/E Mar FY22E FY23E FY24E this helps the company further consolidate its position in core segments, product
Net sales 54,584 61,120 68,442 portfolio expansion enables it to capture market share in newer categories (geysers a
EBITDA 7,728 8,742 9,991 case in point, where it has become the third largest player in 4-5 years). While the
OPM % 14.2 14.3 14.6 recently acquired Butterfly business will bring scale in kitchen appliances, it may not
PAT (adj.) 5,725 6,713 7,682 be earnings-accretive for the next two years. We are positive on CROMPTON’s
EPS (Rs) 9.1 10.7 12.2 prospects given its strong brand equity, product innovation skills and ample scope
PE (x) 41.7 35.5 31.0 for portfolio/ network expansion. Its entry in other appliance categories should also
P/B (x) 10.8 9.4 8.1
allay investor concerns on product concentration. Excluding Butterfly business, we
EV/EBITDA (x) 29.3 25.6 22.0
RoE (%) 25.9 26.4 26.2
expect 13% CAGR each in revenue and PAT over FY21-24E with ~26% RoE by FY24E.
RoCE (%) 35.3 37.0 37.3 Given the significant re-rating in the last two years, we initiate coverage on
Net-D/E (x) (0.6) (0.6) (0.6) CROMPTON with a HOLD rating and price target of Rs 428 (13% upside from CMP),
based on 35x FY24E earnings (in line with peers). Integration of Butterfly business is
the key monitorable in the near to medium term.
Havells (HOLD, TP: Rs 1,383; 6% upside potential)

HAVL – Financial Snapshot (Rs mn) Havells (HAVL), one of India’s leading consumer durables companies, is among the
Y/E Mar FY22E FY23E FY24E top-3 in many of its product categories on the strength of its brand pull, vast
Net sales 131,778 149,335 168,968 distribution network and robust processes. The Lloyd acquisition gave it an entry into
EBITDA 17,469 21,630 24,565
the large home appliances segment, wherein the long-term outlook is as strong as in
OPM % 13.3 14.5 14.5
FMEG. Several corrective measures (brand repositioning, sales channel re-structuring
PAT (adj.) 12,014 15,068 17,310
EPS (adj.) (Rs) 19.2 24.1 27.7
and in-house manufacturing) taken at Lloyd have placed the brand/ portfolio on the
PE (x) 67.7 54.0 47.0 path of sustainable growth. Also, rising consumer preference for quality branded
P/B (x) 13.8 11.8 10.1 products augurs well for HAVL. We expect a 17% revenue CAGR and 18% PAT CAGR
EV/EBITDA (x) 45.5 36.4 31.7 for the company over FY21-24E with RoE of ~22% by FY24E and healthy FCF.
RoE (%) 20.3 21.9 21.6 However, its rich valuations (47x FY24E earnings at CMP) compel us to initiate
RoCE (%) 26.4 29.1 29.1 coverage on the stock with a HOLD rating and price target of Rs 1,383 (6% upside
Net-D/E (x) (0.3) (0.4) (0.4) from here), based on 50x FY24E earnings. Strong growth/ FCF and a higher RoE are
key to the company sustaining such high valuations.
Polycab (HOLD, TP: Rs 2,649; 5% upside potential)

POLYCAB – Financial Snapshot (Rs mn)
Y/E Mar FY22E FY23E FY24E The leader in the Indian wires and cables (W&C) industry, Polycab’s (POLYCAB) entry
Net sales 117,302 133,513 152,164 in FMEG has been successful with the company emerging as a prominent B2C brand.
EBITDA 11,477 14,559 18,114 A vast and backward-integrated manufacturing base, wide distribution network and
OPM % 9.8 10.9 11.9 enthusiastic promoters supported by a professional management team have helped
PAT (adj.) 7,585 10,104 12,792 it grow faster than the industry. Going forward, rising infra spends, export
EPS (adj.) (Rs) 50.9 67.8 85.8 opportunities and expansion to adjacent categories would drive its B2B portfolio. In
PE (x) 49.5 37.2 29.4
FMEG, we estimate 25%+ revenue CAGR as also margin expansion for POLYCAB.
P/B (x) 7.1 6.3 5.4
Project Leap (to achieve Rs 200bn+ in revenues by FY26E), we believe, sets the stage
EV/EBITDA (x) 32.0 24.9 19.7
RoE (%) 14.3 16.8 18.3
for holistic growth for the company. However, the stock price has run up significantly
RoCE (%) 19.8 23.5 25.8 (4x since its listing in 2019) and we see limited room for further re-rating in the near
Net-D/E (x) (0.2) (0.2) (0.3) term. We initiate coverage on POLYCAB with a HOLD rating and an SOTP-based price
target of Rs 2,649 (5% upside from CMP), based on 32x P/E for W&C (Rs 2,454) and
35x P/E for FMEG (Rs 195) on FY24E earnings.
V-Guard (HOLD, TP: Rs 225; 5% upside potential)
V-Guard (VGRD), initially into voltage stabilizers, has diversified its portfolio to a wide
VGRD – Financial Snapshot (Rs mn) range of light electrical products over the last decade. Already a leader in South
India, it is now fortifying its pan-India footprint. While growth has remained muted in
Net sales 34,769 39,157 44,102
the last few years, robust traction in the non-South regions (~42% of revenues and
EBITDA 3,270 3,946 4,579
OPM % 9.4 10.1 10.4
~60% of distribution reach) offers significant potential for growth. We estimate 17%
PAT (adj.) 2,017 2,569 3,042 revenue CAGR, 14% EBITDA CAGR and 15% PAT CAGR for VGRD over FY21-24E, led
EPS (adj.) (Rs) 4.7 6.0 7.1 by growth across product categories and stable margins as RM cost pressure gets
PE (x) 45.9 36.0 30.4 offset by operating leverage benefits. While we like the company for its pan-India
P/B (x) 6.8 6.0 5.2 aspiration, cash-rich status and healthy FCF, we believe the stock trades close to its
EV/EBITDA (x) 27.3 22.4 19.1 fair valuations at ~30x FY24E earnings. We initiate coverage on VGRD with a HOLD
RoE (%) 14.9 16.7 17.2 rating and price target of Rs 225 (5% upside from CMP), based on 32x FY24E earnings
RoCE (%) 21.4 24.0 25.0 (~10% discount to comparable peers due to a relatively weaker brand in markets
Net-D/E (x) (0.2) (0.3) (0.3) outside the South and operating parameters).
Orient Electric (HOLD, TP: Rs 302; 6% downside potential)

ORIENTEL – Financial Snapshot (Rs mn)
Orient Electric (ORIENTEL), the leader in fans, is growing rapidly in new categories
(lighting, appliances and switchgears) as well. A renewed focus on innovative new
Net sales 25,681 28,762 32,214
EBITDA 2,291 2,738 3,228
launches and portfolio premiumization have helped the company reposition itself as
OPM % 8.9 9.5 10.0 a vibrant and new-age brand. Higher A&P spends at ~4% of sales have enhanced
PAT (adj.) 1,244 1,511 1,781 brand visibility while its wide distribution network has supported entry in new
EPS (adj.) (Rs) 5.9 7.1 8.4 categories. The company aspires to expand margins despite the RM cost headwind,
PE (x) 54.6 44.9 38.1 aided by operating leverage and premiumization. We expect 17% revenue CAGR,
P/B (x) 12.9 11.1 9.5 14% EBITDA CAGR and 14% PAT CAGR for ORIENTEL over FY21-24E with growth
EV/EBITDA (x) 28.9 24.2 20.4 across categories and stable margins. We expect RoE to sustain at ~25% and healthy
RoE (%) 23.6 24.6 24.8 FCF generation to continue. While we like ORIENTEL’s business, current valuations at
RoCE (%) 35.0 33.4 32.3 38x FY24E earnings adequately capture the growth prospects. We initiate coverage
Net-D/E (x) (0.3) (0.3) (0.3) on the stock with a HOLD rating and price target of Rs 302 (6% downside from CMP),
based on 36x FY24E earnings (in line with peers vs its 42x 5-year mean). Increasing
competitive intensity is a key risk to our earnings estimates.
Exhibit 47: Peer comparison valuations
Target
CMP M Cap Target 5-year P/E (x) P/E (x) RoE (%)
Bloomberg Upside P/E (x)
Company Reco. Price
code (%)
(Rs) (Rs bn) (Rs) FY24E Mean +1 SD -1 SD FY22E FY24E FY22E FY24E
Finolex Cables FNXC IN 405 62 Buy 526 30 13 16 22 11 13 10 13 13
Bajaj Electricals BJE IN 1,080 124 Buy 1,286 19 32 46 63 29 87 27 8 20
KEI Industries KEII IN 1,200 108 Buy 1,425 19 24 16 20 12 29 20 17 18

CROMPTON
Crompton 380 239 Hold 428 13 35 35 42 27 42 31 26 26
IN
Havells HAVL IN 1,300 814 Hold 1,383 6 50 48 58 39 68 47 20 22
Polycab POLYCAB IN 2,520 376 Hold 2,649 5 31 23 33 13 50 29 14 18
V-Guard VGRD IN 215 92 Hold 225 5 32 48 56 40 46 30 15 17
Orient Electric ORIENTEL IN 320 68 Hold 302 (6) 36 42 49 34 55 38 24 25

Source: Company, Systematix Institutional Research
Exhibit 48: Peer comparison

EPS (Rs) CAGR (%; FY16-21) CAGR (%; FY21-24E) RoIC (%) RoCE (%)
Company
FY22E FY23E FY24E Rev EBITDA PAT Rev EBITDA PAT FY22E FY24E FY22E FY24E
Finolex Cables 31.7 35.8 40.3 3 1 7 20 19 10 15 17 12 14
Bajaj Electricals 12.4 24.5 39.8 (0) 3 12 12 27 34 11 41 14 27
KEI Industries 41.0 50.5 59.4 12 13 34 21 20 25 19 21 24 25
Crompton 9.1 10.7 12.2 6 11 24 13 12 8 66 74 35 37
Havells 19.2 24.1 27.7 7 16 (4) 17 16 18 28 37 26 29
Polycab 50.9 67.8 85.8 11 18 36 20 17 14 18 26 20 26
V-Guard 4.7 6.0 7.1 8 11 12 17 14 15 20 25 21 25
Orient Electric 5.9 7.1 8.4 8 17 23 17 14 14 43 37 35 32

20
25
30
35
40
45
50
55
60
65
70
10
15
20
25
0
30
35
10
40
50
60
10
15
20
25
30
0
20
30
70
80
0
5
Apr-17 Apr-17 Apr-17 Apr-17
Jul-17 Jul-17 Jul-17 Jul-17
Oct-17 Oct-17 Oct-17 Oct-17
29 April 2022
Jan-18 Jan-18 Jan-18 Jan-18

P/E
P/E
P/E
P/E
Mean
Mean
Mean
Mean
KEII
HAVL
VGRD
FNXC
+1 SD
+1 SD
+1 SD
Jul-20
+1 SD
Jul-20 Jul-20 Jul-20
Source: BSE, Company, Systematix Institutional Research

-1 SD
-1 SD
-1 SD
-1 SD
Exhibit 49: PE band and standard deviation (one-year forward)
-1SD
+1SD
+1SD
-1SD
-1SD
-1SD
+1SD
+1SD
Mean
Mean
Mean
Mean
20
25
30
35
40
45
50
55
60
65
10
15
20
25
30
35
40
0
5
45
10
0
20
30
40
50
60
0
10
20
30
40
50
60
70
80
90
100
May-18 Apr-19 Apr-17 Apr-17

Aug-18 Jun-19 Jul-17 Jul-17
Oct-17 Oct-17
Nov-18 Aug-19
Jan-18 Jan-18
Feb-19 Oct-19
Apr-18
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters
Apr-18
May-19 Dec-19 Jul-18 Jul-18
P/E
P/E
P/E
Mar-20 Oct-18
P/E
Aug-19 Oct-18
out of
May-20 Jan-19 Jan-19

in FY20.
Oct-19
Apr-19 Apr-19
ignored due
Jul-20
negative EPS
this period is
band coming
Jan-20
to distored PE
Data points of
Jul-19 Jul-19
Sep-20
Mean
Mean
Mean
Mean
Apr-20 Oct-19 Oct-19

Nov-20
Jan-20
BJE
Jul-20 Jan-20
POLYCAB
ORIENTEL
Jan-21 Apr-20
CROMPTON
Oct-20 Apr-20
+1 SD
Mar-21 Jul-20
+1 SD
+1 SD
+1 SD
Jul-20
Jan-21
May-21 Oct-20 Oct-20
Apr-21 Jan-21
Jul-21 Jan-21
Jul-21 Apr-21 Apr-21
-1 SD
-1 SD
Sep-21
-1 SD
-1 SD
Jul-21 Jul-21
Oct-21
Dec-21 Oct-21
Jan-22 Oct-21
Feb-22 Jan-22 Jan-22
Apr-22 Apr-22 Apr-22
Apr-22
-1SD
-1SD
+1SD
-1SD
-1SD
+1SD
+1SD
+1SD
Mean
Mean
Mean
Mean
Systematix Shares and Stocks (India) Limited

India Consumer Electricals
26
Exhibit 50: Focus on growth over margins in the near term
FY16 FY17 FY18 FY19 FY20 FY21 9MFY22 CAGR
Revenue (Rs bn) (%; FY16-21)
HAVL 53.8 61.4 81.4 100.7 94.3 104.3 94.7 14
CROMPTON 39.0 40.8 44.8 45.2 48.0 38.5 5
ORIENTEL 16.0 18.6 20.6 20.3 17.0 8
BJE 45.9 42.6 47.1 66.8 49.9 45.8 34.8 (0)
VGRD 18.6 20.9 23.3 25.9 25.0 27.2 24.2 8
POLYCAB 52.0 55.0 67.7 79.9 88.3 89.3 82.3 11
FNXC 23.6 24.4 28.2 30.8 28.8 27.7 25.8 3
KEII 23.3 26.3 34.6 42.3 48.8 41.8 39.4 12
YoY Change in revenues (%)
HAVL 3 14 33 24 (6) 11 34
CROMPTON 5 10 1 6 17
ORIENTEL 17 11 (1) 38
BJE 8 (7) 10 42 (25) (8) 5
VGRD 7 12 12 12 (4) 9 31
POLYCAB 11 6 23 18 11 1 41
FNXC (4) 4 15 9 (7) (4) 40
KEII 15 13 32 22 16 (14) 34
Gross margin (%)
HAVL 41.0 40.5 38.8 37.5 38.1 37.9 33.9
CROMPTON 29.9 31.4 31.0 32.1 32.0 32.0
ORIENTEL 34.8 31.8 31.6 30.1 27.9
BJE 32.7 35.3 34.1 29.3 33.2 34.7 32.6
VGRD 29.5 29.1 30.4 30.4 33.6 31.9 31.3
POLYCAB 23.3 22.9 23.1 25.3 27.9 26.0 22.6
FNXC 27.1 29.4 27.7 26.4 27.6 25.9 22.3
KEII 29.2 30.5 30.3 30.6 30.8 30.4 27.4
A&P spend (% of sales)
HAVL 3.3 3.1 3.8 3.8 3.4 1.3
CROMPTON 2.6 2.6 2.0 2.2 1.7
ORIENTEL 4.4 4.0 4.0 2.9
BJE 1.8 1.8 2.2 1.5 1.9 2.5
VGRD 2.5 4.3 2.5 2.3 1.0
POLYCAB 1.1 1.1 1.4 1.2 1.2 0.8
FNXC 0.6 0.7 0.9 0.9 0.9 0.5
KEII 0.3 0.3 0.4 0.5 0.5 0.3
EBITDA margin (%)
HAVL 14.0 13.4 12.9 11.8 10.9 15.0 13.1
CROMPTON 12.4 13.0 13.0 13.3 15.0 14.1
ORIENTEL 8.5 7.6 8.6 10.8 8.9
BJE 5.8 5.7 6.2 5.1 4.2 6.6 5.4
VGRD 9.6 10.0 8.2 8.6 10.3 11.5 9.1
POLYCAB 9.4 8.7 10.8 11.9 12.9 13.1 9.6
FNXC 15.2 16.2 15.7 15.3 13.3 13.4 11.9
KEII 10.4 10.2 9.8 10.5 10.2 11.0 10.6
PAT (Rs bn)
HAVL 7.1 5.4 7.1 7.9 7.3 10.4 8.4 8
CROMPTON - 2.8 3.2 4.0 5.0 6.2 4.0 21
ORIENTEL - - 0.6 0.7 0.8 1.2 7.8 23
BJE 1.1 1.1 0.9 1.6 (0.1) 1.9 0.9 11
VGRD 1.1 1.4 1.3 1.7 1.9 2.0 1.4 12
POLYCAB 1.8 2.3 3.6 5.0 7.6 8.7 5.1 36
FNXC 3.3 4.0 3.3 4.1 3.9 4.6 3.8 7
KEII 0.6 0.9 1.4 1.8 2.6 2.7 2.6 34
PAT margin (%)
HAVL 13.2 8.8 8.8 7.8 7.8 10.0 8.9
CROMPTON 7.3 7.9 9.0 11.0 12.8 10.4
ORIENTEL 4.0 3.7 3.8 5.9 4.6
BJE 2.4 2.5 2.0 2.3 (0.1) 4.1 2.6
VGRD 6.0 6.9 5.8 6.4 7.5 7.4 5.6
POLYCAB 3.6 4.2 5.3 6.3 8.6 9.8 6.3
FNXC 13.9 16.4 11.7 13.2 13.6 16.7 14.5
KEII 2.7 3.6 4.2 4.3 5.2 6.5 6.6
Exhibit 51: Leading players spend heavily on advertisement & sales promotion
Polycab Experience Centre
Source: Company
COMPANIES SECTION
Systematix
Bajaj Electricals 29 April 2022
Restructuring and healthy FCF re-rating triggers

INITIATING COVERAGE Bajaj Electricals (BJE) is one of India’s most diversified and well distributed
Sector: Consumer Electricals Rating: BUY consumer electricals and appliances company. A sharper focus on the consumer
CMP: Rs 1,080 Target Price: Rs 1,286
products (CP) business and turnaround in the EPC division in the last few years
have improved its long-term outlook. The management aims for a faster-than-
Stock Info industry growth and ~1% annual margin addition in CP business over FY21-24, led
Sensex/Nifty 57,521/17,244 by operating leverage and cost optimization while maintaining A&P spends at ~4%
Bloomberg BJE IN of CP revenues. In EPC, execution and working capital are the key focus areas. After
Equity shares (mn) 114.6 a period of flat growth over FY18-21, we estimate 12% revenue CAGR, 27% EBITDA
52-wk High/Low 1,529/994 CAGR and 34% PAT CAGR for BJE over FY21-24E with EBITDA margin at ~10% (~11%
Face value Rs 2 in CP), healthy FCF and RoE of ~20%. We initiate coverage on BJE with a BUY rating
M-Cap Rs 124 bn/ USD 1.7bn and price target of Rs 1,286 (19% upside from CMP), based on 36x and 15x FY24E
3-m avg turnover USD 3.1mn earnings for CP and EPC respectively. The healthy growth outlook and a proposed
Financial Snapshot (Rs mn) corporate restructuring, we believe, will support a re-rating of the stock.
Y/E Mar FY22E FY23E FY24E A diversified consumer electricals and appliances company: BJE’s CP business
Net sales 48,514 55,995 64,727
comprises a wide range of SKUs in appliances, fans and lighting products. The largest
EBITDA 2,813 4,329 6,248
in small appliances category, the company is the leader in irons, water heaters, OTGs
OPM % 5.8 7.7 9.7
PAT (adj.) 1,420 2,812 4,558
and mixers. Its vast product range across price points also includes premium home
EPS (Rs) 12.4 24.5 39.8 appliances and cookware products in association with Morphy Richards and Nirlep
PE (x) 87.1 44.0 27.1 respectively. BJE has an extensive network of 20+ branch offices, 550+ distributors
P/B (x) 7.3 6.4 5.3 and 218,000+ retail outlets pan-India, with 500+ consumer care centres fortifying its
EV/EBITDA (x) 41.2 26.4 17.7 dominant presence in the CP segment.
RoE (%) 8.4 14.6 19.6
RoCE (%) 14.3 20.4 27.1
Industry-leading growth in CP segment; EPC nearing break-even: BJE has grown
Net-D/E (x) (0.5) (0.5) (0.6) ahead of the industry in CP since FY20 as focus returned to this business. It has also
partly recouped the market share it lost in the previous years. We expect the
Shareholding Pattern (%) momentum to be sustained with 16% revenue CAGR and ~100bps a year expansion
Mar'22 Dec'21 Sep'21 in EBITDA margin over FY21-24E, led by operating leverage and cost optimization
Promoter 63.0 63.0 63.1 measures. In EPC, BJE has corrected course and recalibrated the pace of growth – it
- Pledged 2.55 2.55 - now bids for select orders offering reasonable margins. This has resulted in better
FII 10.6 11.8 12.9 cash flows and helped reduce the high debt taken for working capital. Nearing break-
DII 12.0 11.6 11.1
even (FY23E), the EPC segment is likely to achieve 6% margins in the coming years.
Others 14.4 13.6 13.0
Corporate restructuring to unlock value: Considering the varied nature of and
Stock Performance (1-year) potential opportunities in CP and EPC businesses as also the need for a focused
1,700 approach in each, BJE plans to undertake a comprehensive review of its corporate
1,500 structure. In this direction, it is evaluating viable options and alternatives including a
1,300 demerger, subsidiarization, strategic partnerships, etc. The restructuring will help
1,100
investors better understand and compare BJE’s CP business with peer group.
900
700 Healthy outlook and corporate restructuring to drive a re-rating: Considering the
500 management’s focus on growth and margins in the CP segment and managing the
Apr-21
Jul-21
Nov-21
Jan-22
Feb-22
Aug-21
Sep-21
Dec-21
Mar-22
Apr-22
May-21
Jun-21
Oct-21
working capital cycle and cutting debt in EPC, we estimate 12% revenue CAGR, 27%
BJE Sensex EBITDA CAGR and 34% PAT CAGR for BJE over FY21-24E. We expect EBITDA margin to
improve to over 10% (11%+ in CP) with RoE of ~20% leading to healthy FCF. We also
Ashish Poddar see potential value unlocking from the proposed corporate restructuring. We initiate
ashishpoddar@systematixgroup.in coverage on the stock with a BUY rating and price target of Rs 1,286 (19% upside
+91 22 6704 8039 from CMP), based on 36x/ 15x FY24E earnings for CP/ EPC business. Any sharp
Pranay Shah volatility in commodity prices and pandemic-led supply chain disruptions are
pranayshah@systematixgroup.in potential downside risks to our estimates.
+91 22 6704 8017
29 April 2022 Bajaj Electricals
Story in charts
Exhibit 1: Consumer Products – revenue and EBIT margin trend Exhibit 2: Net debt trend
(Rs bn) (%) (Rs bn)
60 12 18
16
50 10
14
40 8 12
10
30 6
8
20 4 6
4
10 2
2
0 0 0
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Revenue EBIT % (RHS) Net-debt
Exhibit 3: EPC – revenue and EBIT margin trend Exhibit 4: PAT and growth trend
(Rs bn) (%) (Rs bn)
45 10 5
40 8
4
35 6
30 3
4
25
2 2
20
CAGR: -2% 0
15 1
10 -2
-4 0
5
0 -6 -1
Revenue EBIT % (RHS) PAT
Exhibit 5: RoE and RoCE trend Exhibit 6: OCF, Capex and FCF trend
(%) (Rs bn)
30 12
10
25
8
20 6
15 4
2
10
0
5 -2
-4
0
-6
-5 -8
FY18 FY19 FY20 FY21 FY22E FY23E FY24E OCF Capex FCF
RoE % RoCE % FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Investment Analysis
A well-diversified consumer electricals and appliances company
BJE derives 72% of its revenues from the Consumer Products (CP) segment, with the
portfolio mainly comprising appliances, fans and lighting products. The company is
the largest in the small appliances market, and the leader in irons, water heaters,
OTGs and mixers. Its vast product range across price points also includes premium
home appliances and cookware with brands like Morphy Richards and Nirlep.
Exhibit 7: Consumer Products – revenue mix (FY21)
7%
12%
Appliances
Fans
54% Lighting
Morphy Richard
27%
Source: Company
Strong revival attracting investor attention

After witnessing average growth in its CP portfolio in the last five years due to a
higher emphasis on the EPC segment, the focus has returned to the CP business. We
expect a strong revival in the CP business with 24% revenue CAGR for BJE over FY21-
24E, the highest among leading players in the segment.
Exhibit 8: BJE’s CP business to grow faster than leading peers
(%)
80 74
70
60
50 43
40 36
30 25 24
18 17 16 17 16 16 18
20 13
8
10
0
POLYCAB
BJE
VGRD
HAVL
CROMPTON
FNXC
ORIENTEL
FY16-21 FY21-24E
The largest and deepest pan-India presence
BJE, through the Range & Reach Expansion Programme (RREP), has strengthened its
dealer network over the years vis-a-vis the traditional wholesale-led model. It
currently has an extensive network of 20+ branch offices, 550+ distributors and
218,000+ retail outlets across India, with >500+ consumer care centres fortifying its
dominance. BJE aims to improve revenue per store in its strong markets and add
stores in weaker markets (the South). Along with the traditional channel, BJE has also
increased its presence in the alternate channel (~36% of CP revenues currently).
To boost brand visibility and premium positioning, BJE has stepped up its spend on
advertisement and sales promotions to ~4% of CP revenues, in line with peers’.
Exhibit 9: BJE has the widest network of retail touchpoints Exhibit 10: A&P spend as a proportion of CP revenues
(Number of (Rs mn) (%)
retailers)
1 5
2,50,000 4.5
1
4
2,00,000
3.5
1
1,50,000 3
1 2.5
1,00,000
2
0
50,000 1.5
1
0 0
0.5
POLYCAB
FNXC
BJE
CROMPTON
VGRD
HAVL
ORIENTEL
0 0
FY16 FY17 FY18 FY19 FY20 FY21
A&P spend % revenue (RHS)
Exhibit 11: Advertisements for its wide product portfolio
Source: Company
Focus on cost optimization and improving efficiency across verticals

Local sourcing. BJE management has identified many areas that present scope for
cost optimization and efficiency improvement. Increasing local sourcing is one such
area where it can reduce forex exposure and strive for better inventory
management. Currently, the company has high dependency on outsourcing (~80% of
CP revenues). However, it is focussing on localized sourcing and reducing its
dependence on imports (~20% currently).
Tie-up with Mahindra Logistics to drive margin improvement: As one of the largest
deals in the Indian logistics industry (>Rs 10bn contract value over the next five
years), BJE has signed an agreement with Mahindra Logistics (MLL) for a complete
end-to-end redesign and outsourcing of its entire logistics function. The company
aims to achieve enhanced and industry-best service levels, and >25% saving in its
logistics cost. MLL has developed for BJE a fully redesigned and consolidated logistics
network with storage optimization, transportation management and inventory
movement through technology, best practices and automation.
At the core of the network will be two large ultramodern mega-warehouses in Delhi
and Mumbai with the latest technology, automation and skill-building capabilities,
supported by environmentally conscious, greener and sustainable warehouse
practices. This network will further operate fully IT-enabled fulfilment centres, which
will facilitate market-leading delivery lead times for BJE’s dealers, distributors and
customers. As part of the solution, MLL will be deploying a healthy mix of dedicated
long-haul fleets and local distribution trucks, enabled by the latest tracking
technology and control tower operations. There will also be a transition towards
sustainable logistics using electric delivery trucks from EDel by Mahindra Logistics.
Consolidating associates and JVs to improve performance: As part of the margin
improvement process, BJE has evaluated consolidation of all its subsidiaries and JVs
in a bid to improve efficiency and get synergy benefits.
The company recently merged Starlite Lighting (Starlite) with itself, in line with its
strategic decision to increase in-house manufacturing and reduce dependency on
OEM vendors. Both Starlite and BJE are in the business of manufacturing similar
lighting products (CFLs and LEDs) and consumer electrical appliances like water
heaters and mixers including new models, food processors, juicers, hand blenders,
room heaters, fans, etc. BJE is Starlite’s largest customer for its products. It had
strategic investments in Starlite since 2007 and was financially supporting the entity.
In FY21, Starlite reported a revenue of Rs 1.8bn and had a negative networth of
Rs 3.13bn. The merger will lead to more efficient utilization of capital, greater
business synergies, superior deployment of brand promotion and sales & distribution
strategies and create a consolidated and diversified base for future growth.
BJE acquired ~80% stake in Nirlep Appliances in FY19 and gradually increased its
stake to 100%. Nirlep, the pioneer of the non-stick cookware technology in India, is a
leading non-stick cookware brand.
BJE, in FY20, demerged the manufacturing undertaking of the loss-making Hind
Lamps Ltd (an associate company) and derecognized its existing 19% of the
proportionate investment in the manufacturing operations of Hind Lamps. This
yielded a gain of Rs 118mn for BJE.
Industry leading growth and expanding margins
Rising rural electrification and improving power supply in small towns would
stimulate demand for electrical products (initially essentials such as cables, wires,
switches and fans), followed by other basic appliances (mixer grinders, air coolers,
television sets, etc). Besides, media reach and the internet have created awareness
about quality and brands, which augurs well for the formal (regulated) segment.
BJE’s CP business registered a 14% revenue CAGR over FY18-21 with EBIT margins
increasing from ~6% in FY18 to ~10% in FY21. With renewed focus, we expect an
industry-leading 16% revenue CAGR in the business driven by all the four verticals
with an 18% CAGR in appliances, 13% in fans, 13% in lighting and 20% in Morphy
Richard over FY21-24E. We expect EBIT margins to inch up to ~10% by FY24E with
room for further expansion.
Exhibit 12: Consumer Products – category-wise growth trends Exhibit 13: Consumer Products – revenue and EBIT margins
(Rs bn) (Rs bn) (%)
52.2
60 60 12
50 50 10
38.2
40
29.5
40 8
23.1
30
20.5
30 6
12.7
11.4
20
10.1
20 4
6.0
5.8
4.8
4.1
4.0
10
2.8
1.9
10 2
0
Appliances Fans Lighting Morphy BJE (CP) 0 0
Richard FY18 FY19 FY20 FY21 FY22E FY23E FY24E
FY17 FY22E FY24E Revenue EBIT % (RHS)
EPC: Focus on cash flows over just growth

BJE’s Engineering Procurement and Construction (EPC) segment includes Power
Transmission & Distribution and Illumination Projects. The company bagged a few
large power distribution projects and grew at a significant pace over FY17-19.
However, the growth also led to ballooning of debt levels due to mounting
receivables. Over the past few years, BJE has curtailed its power transmission order
book and increased operational focus to ensure project closures, increased cash
flows, reduction in receivables and repayment of most of the debt.
Power Distribution. BJE is eyeing numerous opportunities for acquiring substation
projects under the Feeder Separation Programme and securing monopole orders. It
has also extended operations to export markets (the first international project
commissioned in Zambia) given lesser competition in the power distribution
segment, predictable cash flows and better margins. The main challenge to EPC
business lies in the distribution segment and the management is striving to adopt a
conservative outlook during order selection to sustain margins. BJE has successfully
closed certain legacy projects, which has led to a reduction in its receivables.
Power Transmission. The monopole business is projected to grow further, mainly on
account of various road widening, metro rail and flyover projects in tier-2 and -3
cities. BJE’s foray into the 400kV bay extension project from Power Grid Corporation
will pave the way for future growth in this niche segment.
Illumination: Various accomplished projects for EESL, NHAI, Delhi Metro, etc and its
sound strategies and agile responses to mitigate the hit from the pandemic have
helped BJE win incremental market share. The segment is profitable with a positive
future outlook even as the semi-conductor chip shortage and price increases have
had a temporary adverse impact on LED lighting business.
Exhibit 14: BJE’s areas of operations in EPC
Illumination Power Transmission Power Distribution
Legacy orders behind now; EPC business expected to turn profitable in FY23
BJE has successfully closed certain legacy projects and continues to reduce its
receivables. The EPC business has shrunk due to intentional descaling and calibration
from purely a capital employment perspective, due to which project selection is now
based on assessment of the risk quantum. A sharp reduction in revenues led to
losses in the segment over FY19-22 due to high overheads set up to support its FY19
EPC revenues of Rs 40bn. The company has significantly reduced these overheads
since then and expects to be profitable by 4QFY22. From high growth earlier, BJE has
now shifted operational focus to project closures. This would lead to increased cash
flows, lower receivables and repayment of most of the debt.
Exhibit 15: EPC – revenue and EBIT margin trend Exhibit 16: Net debt trend
(Rs bn) (%) (Rs bn)
45 10 18
40 8 16
35 6 14
30 12
4
25 10
2
20 8
CAGR: -2% 0
15 6
10 -2
4
5 -4 2
0 -6 0
Revenue EBIT % (RHS) Net-debt
Exhibit 17: Illumination project executed for Mumbai CST Railway station
Source: Company
Corporate restructuring to unlock value in all segments

Considering the varied nature and potential opportunities offered by the CP and EPC
segments as also the need for a focused approach to unlock these opportunities, the
Board of BJE has decided to undertake a comprehensive review of the existing
corporate structure. This will cover an evaluation of all the options and alternatives
including a demerger, subsidiarization, strategic partnerships, etc.
The management will evaluate the following options and alternatives:
▪ Streamlining of the business structure to fortify market position and deliver long-
term growth
▪ Attracting the right talent and providing enhanced growth opportunities to the
existing talent – in line with a sharper strategic focus on each business segment
under separate entities
▪ Tailored capital structure and capital allocation policies based on business-
specific dynamics
▪ A sharper and well-defined corporate positioning coupled with value unlocking
for all stakeholders
▪ Distinct investment profiles to attract a deeper and broader investor base
▪ Accelerating sustainability initiatives and expediting ESG practices
BJE will also evaluate demerging the Power Transmission & Distribution business
verticals as a standalone or independent legal entity. It intends to appoint various
advisors/ consultants to assist the board in evaluating and fast-tracking the options.
What does it mean for investors?
The restructuring will help investors better understand and compare BJE’s consumer
products business with the peer group. The EPC business is stable now (less focus on
power distribution) and is expected to be profitable FY23E onwards with an
improved balance sheet as receivables are well under control.
Financial analysis
Healthy growth and FCF lead to a net cash positive status
After a period of almost flat overall revenue growth (14% CAGR in CP revenues) over
FY18-21 with descaling of the EPC business, we expect a healthy 16% revenue CAGR
for BJE over FY21-24, mainly led by the CP segment. Margins in the CP business are
expected to expand further on the back of several cost optimization and efficiency
improvement measures while EPC should also turn profitable from FY23. The
company is on the way to deliver healthy FCF given its tight control on WC cycle.
Exhibit 18: Total revenues and growth trend Exhibit 19: PAT and growth trend
(Rs bn) (Rs bn)
80 5
70
4
60
CAGR: -1%
3
50
40 2
30
1
20
0
10
0 -1
Revenue PAT
Exhibit 20: Significant reduction in receivables… Exhibit 21: …helping in achieving net cash status and lower debt
(Days) (Rs bn)
200 18
180 16
160 14
140
12
120
10
100
8
80
60 6
40 4
20 2
0 0
Receivables Inventory Payables Net WC cycle FY18 FY19 FY20 FY21 FY22E FY23E FY24E
FY18 FY19 FY20 FY21 FY22e FY23e FY24e Net-debt
Exhibit 22: RoE and RoCE trend Exhibit 23: Healthy and sustainable FCFs
(%) (Rs bn)
30 12
10
25
8
20 6
15 4
2
10
0
5 -2
-4
0
-6
-5 -8
Exhibit 24: Dupont analysis

FY18 FY19 FY20 FY21 FY22E FY23E FY24E
PAT margin (%) 2.0 2.3 (0.1) 4.1 2.9 5.0 7.0
Asset turnover (x) 2.8 2.5 2.3 2.4 2.5 2.7 2.6
Equity multiplier (x) 1.8 2.5 1.6 1.2 1.1 1.1 1.1
RoE (%) 8.9 14.8 (0.7) 12.1 8.4 14.6 19.6
Valuation and Outlook

BJE has been on a consistent growth trajectory in its CP business with timely product
launches, a wide geographical reach and the RREP program. After a substantial rise in
EPC revenues in FY19, its strategy to bid only for select projects offering reasonable
margins has resulted in cash flow generation and helped reduce the high debt taken
for working capital.
Considering the management’s focus on growth and profitability in consumer
products, tightening working capital and shrinking debt in EPC, we expect healthy
cash flows and significant savings in interest costs in the coming years. We estimate
12% revenue CAGR, 27% EBITDA CAGR and 34% PAT CAGR for BJE over FY21-24E
with EBITDA margins touching 10% (~11% in CP business), ~20% RoE and healthy FCF.
In addition to the strong growth prospects and an improving balance sheet, we
believe the proposed corporate restructuring will unlock shareholder value and
support a PE re-rating closer to that of peers. We initiate coverage on the stock with
a BUY rating and price target of Rs 1,286 (19% potential from CMP), based on 36x
and 15x FY24E earnings of CP and EPC business respectively.
Exhibit 25: SoTP valuation
FY24E PAT Target P/E Target M-cap Target price
(Rs m) (x) (Rs m) (Rs)
Consumer Products (CP) 3,762 36.0 135,432 1,182
Engineering & Projects (EPC) 796 15.0 11,935 104
Total 147,366 1,286
CMP 1,080
Upside/ (Downside; %) 19
Exhibit 26: PE band and standard deviation (1-year forward)
100
90
80 Data points of
this period is
70
ignored due +1SD
60 to distored PE
50 band coming Mean
out of
40
negative EPS -1SD
30 in FY20.
20
10
0
Apr-17
Apr-18
Apr-19
Apr-20
Apr-21
Apr-22
Jul-17
Jul-18
Jul-19
Jul-20
Jul-21
Jan-18
Jan-19
Jan-20
Jan-21
Jan-22
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21
P/E Mean +1 SD -1 SD
Source: BSE, Systematix Institutional Research
Key risks and risk mitigation measures

Volatile commodity prices may suppress growth and margins
Prices of key raw materials, including for vendors, have risen significantly in the last
year. While BJE was unable to take adequate price hikes to protect its gross margins,
EBITDA margins remained healthy in the wake of strong demand. The company plans
to take more price hikes gradually to maintain its growth and margins.
Aggressive bidding in EPC projects (as seen earlier)
BJE had historically bid aggressively for power distribution projects entailing
significantly higher working capital requirement and the mounting debt deteriorated
its balance sheet quality. However, focus on financial closure of the ongoing projects
for the last two years has led to an improvement in the company’s cash flows and
recovery. While BJE would be bidding for high growth projects of Railways and
monopoles to drive growth and profitability in EPC, any aggressive bidding on its part
can strain the balance sheet.
Intense competition in Consumer Products (CP)
New players are entering in hordes, pulled by the large opportunity offered by
consumer products segment. Incumbents too are becoming aggressive on new
launches and categories as also network expansion. We derive comfort from BJE’s
ability to launch new products/ SKUs given that it has the strongest distribution
network in the industry and its proactive marketing initiatives.
Pandemic-led demand and supply chain disruptions
The Covid-19 pandemic has caused unprecedented hardships for the last two years
with travel restrictions and lockdowns across the country. The restrictions have
affected supply chains, labour availability and demand. BJE proactively initiated Work
from Home (WFH) and managed the supply challenges through seeding-based supply
forecasting with positive outcomes. Steps to boost production and ensure timely
distribution of products across warehouses have minimized the impact of supply
disruptions on secondary and tertiary sales.
Annexures
Company background
Bajaj Electricals (BJE) is a part of India's leading business conglomerate, the "Bajaj Group". With a business portfolio that spans
consumer product categories (appliances, fans and lighting) and EPC (illumination, power transmission and power distribution), BJE
has a strong positioning in premium home appliances and cookware segments with brands like Morphy Richards and Nirlep. BJE has
an extensive network of 20+ branch offices, 550+ distributors and 218,000+ retail outlets across India with >500+ consumer care
centres. The EPC business includes EHV transmission line projects, EHV substations, monopoles for transmission & distribution,
electrification projects, high mast and street lighting, sports lighting, industrial and commercial lighting, specialized illumination
projects on turnkey basis and other solutions.
Exhibit 27: Revenue mix (FY21) Exhibit 28: Consumer Products (CP) – revenue mix (FY21)
7%
28% 12%
Appliances
Consumer Products Fans
EPC 54% Lighting
Morphy Richard
27%
72%
Source: Company Source: Company
Exhibit 29: Plant locations

Location Products
Chakan (Maharashtra) Fans and LED products
Ranjangaon (Maharashtra) Poles, monopoles and EPC products
Parwanoo Unit (Himachal Pradesh) HID lamps
Shikohabad (UP) - Hind Lamps LED bulbs and battens
Nashik (Maharashtra) - Starlite Water heaters, mixers, LED bulbs and battens
Aurangabad (Maharashtra) - Nirlep Non-stick cookware, pressure cookers
Source: Company
Promoters and key managerial personnel

Shekhar Bajaj, CMD, has >40 years of experience in the industry. He has successfully implemented various new policies that have
contributed to the company’s success.
Anuj Poddar, Executive Director, joined BJE in November 2018 and has been instrumental in turning around BJE’s business. Earlier,
he had played a crucial role in formation of Viacom18 and its foray into mass entertainment with Colors. He has also worked with
Arthur Andersen and KPMG prior to these.
EC Prasad, CFO, joined BJE in November 2019 and has been in this position since July 2021. He is a Chartered Accountant and ICWA
with >24 years of experience. He worked for Voltas for ~17 years and was with Emami Paper Mills for almost six years.
Exhibit 30: Shareholding pattern and key stakeholders
Equity stake (%) Key institutional holders % equity
Sep-21 Dec-21 Mar-22 Mar-22
Promoters 63.1 63.0 63.0 HDFC MF 5.7
Free float 37.0 37.0 37.0 Smallcap World Fund 5.7
- Foreign Institutions 12.9 11.8 10.6 Nippon MF 2.7
- Domestic Institutions 11.1 11.6 12.0 ICICI Pru MF 2.6
- Public 13.0 13.6 14.4 CDPQ Quebec 2.0
Source: BSE, Bloomberg
Exhibit 31: A vast product portfolio
Consumer Appliances
Fans & Coolers
Consumer Lighting EPC – illumination
Morphy Richards
Mixer Grinder Oven Toaster Griller Pop-up Toaster Water Heater Microwave Oven
Source: Company
Annual Report Analysis (FY17 to FY21)

Exhibit 32: Annual Report Analysis
Year Demand Scenario and outlook Plans and initiatives
• Renewed trademark license agreement with Morphy Richards for
marketing in India and SAARC countries; agreement for a 5-year
• The demonetization shock in November created a short-term
extension from FY18 till FY22
aberration in 3Q and resulted in a 7.1% decline in revenues
• A key strategic development included the merger of four
• However, improved operational efficiency and implementation of
consumer-facing businesses – kitchen appliances, domestic
FY17 redistribution strategy supported gross margins
appliances, fans and lighting – into one
• Satisfactory monsoon provided some green shoots in demand
• Operations of GLS bulbs and tube lights manufacturing unit
• The company’s initiatives to strengthen its distribution network
located at Kosi, UP closed as it was unprofitable and beyond
expected to start paying off in FY18
revival due to introduction of the latest LED tech in industry
• Rollout of new products catering to mass and premium market
• Successful rollout of Range and Reach Expansion Programme
(RREP) in 80% of the country
• Demand disruption due to GST implementation as traders made
• Proposal to acquire a 100% stake in Nirlep Appliances, a
initial adjustments for the new tax regime
manufacturer of non-stick cookware in India
• Performance also affected due to destocking by traders in June
• Starlite Lighting became a JV after BJE increased its stake to 47%
and the second quarter
FY18 on exercising its right to acquire the shares in return for a short-
• Sales picked up in the subsequent quarters
term loan facility
• Addressal of long-standing legacy issues and government
• With transition of the distribution model from Push to Pull driven
investments in infrastructure development a boost to EPC
nearing completion, BJE ready for the next leg of its growth
business
strategy i.e., launch of new products and capacity expansion by
leveraging its dealer inventory programme
• BJE took steps to regain the market share lost in recent years due
to intense competition
• Acquired a 79.9% share of Nirlep Appliances
• Revenue growth of 41%, mainly from EPC and illumination • Capacity addition plans at plants for power transmission business
segment with execution of power distribution projects received in the coming years
from the UP government • Illumination – target of capitalizing on various industry
FY19
• EPC business marked its entry into export markets opportunities and openings such as smart city projects, orders
• Consumer small appliances, fans and lighting industry projected from EESL, etc
to witness 9%, 11% and 14% YoY growth respectively in FY20 • Reworking of the business model and positioning itself as an end-
to-end solutions provider rather than as a product seller
• Exports – plans to explore the huge market potential offered by
MEA markets to expand reach in the coming years
• Covid-19 related lockdowns led to a hit on economy as well as
businesses in 4Q with a likely subdued performance in FY21
• Revenues from ECD up 12% and EPC down by 52% with 25%
growth in export business
FY20 • Raised Rs 3.5bn via a rights Issue for repayment of loans due
• Industry expected to see significant growth in coming years with
a continuously expanding consumer market on rising disposable
incomes, higher purchasing power and government initiatives
towards encouraging LED tech
• Revenues declined primarily due to the Covid-19 pandemic-
induced lockdowns as well as calibration in EPC business
• However, growth in EBIT and PAT remained strong
• Supply chain disruption for unorganized players due to Covid • Collaborated with Mahindra Logistics to offer innovative logistics
lockdowns accelerated a market share shift to branded and optimization and outsourcing services under ‘Project Samriddhi’
national players with the objective of achieving improved and best-in-class service
FY21 • Fans segment expected to grow exponentially with higher levels, and lower logistics cost by >25% annually
affordability and government support; however, star labelling • NCLT approved the demerger of Hind Lamp and derecognized its
regulations from FY22 may create price resistance existing 19% of the proportionate investment, resulting in a gain
• Strong growth momentum expected to sustain in LED tech with of Rs 118mn for BJE
urbanization, government initiatives and disposable incomes
• Demand uncertainty, commodity price rise and rising
competition key risks to growth
FINANCIALS (CONSOLIDATED)
Profit & Loss Statement Balance Sheet
YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E
Net revenues 49,872 45,846 48,514 55,995 64,727 Share capital 228 229 229 229 229
Growth (%) (25.3) (8.1) 5.8 15.4 15.6 Net worth 13,483 15,782 16,859 19,212 23,312
Raw material expenses 33,296 29,956 33,108 37,909 43,467 Total debt 8,250 2,977 2,377 1,777 1,177
Gross Margin (%) 33.2 34.7 31.8 32.3 32.8 Minority interest - - - - -
Employee & Other exp. 14,493 12,859 12,593 13,757 15,012 DT Liability/ (Asset) - - - - -
EBITDA 2,083 3,032 2,813 4,329 6,248 Capital Employed 21,733 18,759 19,235 20,989 24,488
EBITDA margins (%) 4.2 6.6 5.8 7.7 9.7 Net tangible assets 4,260 3,670 3,482 3,448 3,458
Depreciation 737 752 688 734 790 Net Intangible assets 442 458 458 458 458
Other income 462 692 593 513 708 Goodwill - - - - -
Finance costs 1,708 764 761 556 351 CWIP 94 100 95 90 85
PBT 100 2,463 1,860 3,553 5,815 Investments (Strategic) - - - - -
Effective tax rate (%) 174.3 23.3 25.5 21.9 22.3 Investments (Financial) 129 1,307 9,307 10,307 13,307
Associates/(Minorities) (18) 16 34 38 42 Current Assets 39,700 36,525 25,236 26,269 27,286
Net Income (93) 1,906 1,420 2,812 4,558 Cash 1,047 616 989 1,018 971
Adjusted net income (93) 1,906 1,420 2,812 4,558 Current Liabilities 23,940 23,918 20,332 20,602 21,077
Shares outstanding 114 115 115 115 115 Working capital 15,760 12,607 4,904 5,667 6,209
FDEPS (Rs per share) (0.8) 16.6 12.4 24.5 39.8 Capital Deployed 21,733 18,759 19,235 20,989 24,488
FDEPS growth (%) - - (25.5) 98.0 62.1 Contingent Liabilities 3,510 2,977 - - -
Cash Flow Ratios

YE: Mar (Rs mn) FY20 FY21 FY22E FY23E FY24E YE: Mar FY20 FY21 FY22E FY23E FY24E
EBIT (incl. other income) 1,485 2,707 2,374 3,945 5,811 P/E (x) (1,333.3) 64.9 87.1 44.0 27.1
Non-cash items 737 752 688 734 790 EV/EBITDA (x) 62.8 41.2 41.2 26.4 17.7
OCF before WC changes 2,222 3,459 3,062 4,679 6,602 EV/sales (x) 2.6 2.7 2.4 2.0 1.7
Incr./(decr.) in WC (4,493) (3,239) (7,503) 963 742 P/B (x) 9.2 7.8 7.3 6.4 5.3
Others including taxes 451 116 586 890 1,411 RoE (%) (0.7) 12.1 8.4 14.6 19.6
Operating cash-flow 6,264 6,582 9,979 2,825 4,450 RoCE (%) 7.5 14.7 14.3 20.4 27.1
Capex 310 403 495 695 795 ROIC (%) (0.4) 8.5 10.7 26.5 40.5
Free cash-flow 5,954 6,179 9,484 2,130 3,655 DPS (Rs per share) 2.0 - 3.0 4.0 4.0
Acquisitions - 0 - - - Dividend yield (%) 0.2 - 0.3 0.4 0.4
Dividend 432 - 344 458 458 Dividend payout (%) - - 24.2 16.3 10.1
Equity raised 3,482 105 - - - Net debt/equity (x) 0.5 0.1 (0.5) (0.5) (0.6)
Debt raised (6,560) (5,466) (600) (600) (600) Receivables (days) 186 153 90 80 70
Fin Investments 174 724 8,000 1,000 3,000 Inventory (days) 51 79 45 45 45
Misc. Items (CFI + CFF) 1,366 654 168 43 (357) Payables (days) 67 76 60 60 60
Net cash-flow 904 (560) 372 29 (47) CFO:PAT% 345 703 100 98
Systematix
KEI Industries 29 April 2022
Recalibrated focus to improve balance sheet health

INITIATING COVERAGE KEI (KEII), India’s fastest growing W&C company, is backed by a certified and wide
Sector: Consumer Electricals Rating: BUY product range (including EHV), vast distribution network and expertise in executing
large projects globally. With a keen focus on margins and cash flows, the company
is strategically scaling down its EPC business in favour of the fast-growing retail
Stock Info portfolio (35%+ CAGR over FY21-24E; ~50% of total revenues by FY24E). It is also
Sensex/Nifty 57,521/17,244 beefing up the dealer network by 10% a year to back its foray into the FMEG
Bloomberg KEII IN segment. In addition, KEII has committed ~Rs 8bn in capex for a greenfield project
Equity shares (mn) 89.9 over the next 4-5 years to meet its guidance of 18% revenue CAGR over FY21-24E.
52-wk High/Low 1,278/500 Increasing contribution from the more profitable retail segment, its FMEG foray
Face value Rs 2 and higher FCF, we believe, should drive a further re-rating in the stock. We initiate
M-Cap Rs 108 bn/ USD 1.4bn coverage on KEII with a BUY rating and price target of Rs 1,425 (19% upside from
3-m avg turnover USD 6.5mn CMP), based on 24x FY24E earnings (above historical mean).
Financial Snapshot (Rs mn) Positive outlook for the W&C industry: The ~Rs 550bn Indian W&C Industry is the
Y/E Mar FY22E FY23E FY24E largest and among the fastest growing (an estimated 12-15% CAGR over the past
Net sales 55,252 63,602 73,339
decade) within the consumer electricals space. The growth outlook remains strong
EBITDA 5,810 6,876 7,999
on i) sustained traction in infrastructure activity led by policy initiatives and private
OPM % 10.5 10.8 10.9
PAT (adj.) 3,685 4,542 5,334
capex, ii) the ‘Make in India’ push, and iii) demand from emerging sectors (renewable
EPS (Rs) 41.0 50.5 59.4 energy, electric mobility, etc). High RM prices and supply chain-related issues, while
PE (x) 29.3 23.7 20.2 impacting the unorganized sector, have helped the organized sector.
P/B (x) 5.1 4.2 3.6 Fastest growing W&C company: KEII registered a revenue CAGR of 12% over FY17-21
EV/EBITDA (x) 18.4 15.3 13.0
versus 2-8% for peers. Its certified and wide product range, strong distribution
RoE (%) 17.4 17.9 17.6
RoCE (%) 23.7 24.7 24.6
network and expertise in executing large projects in rural electrification, railways,
Net-D/E (x) (0.0) (0.1) (0.1) metro-rail, industry, and robust exports, have been the key growth enablers. It is
among the few Indian players that have the capability to manufacture EHV (extra
Shareholding Pattern (%) high voltage) cables above 220kV and among the few globally for EHV 400kV cables.
Mar’22 Dec'21 Sep'21
Sharp focus on retail sales; to improve balance sheet health: KEII is scaling down its
Promoter 38.0 38.0 38.0
- Pledged - - -
EPC business while aiming for a larger share of the more profitable and faster
FII 25.2 21.8 19.4 growing retail business. We expect its retail sales to register 35%+ CAGR over FY21-
DII 21.6 24.0 25.8 24E and account for ~50% of the total sales by FY24E (a leading consultant hired for
Others 15.2 16.2 16.8 developing strategies and policies to drive the shift). Even in EPC, it will largely focus
on projects with significant cabling requirements (25-30% in LT/ HT, 75-80% in EHV).
Stock Performance (1-year) With an expected improvement in margins and cash flows, we expect a shorter WC-
1,500 cycle and healthier balance sheet for KEII. Its foray into the large FMEG segment, we
1,300
believe, offers potential for incremental growth in the medium to long term.
1,100
900 Healthy cashflows to support large capex; initiating coverage with BUY: After a 7%
700 revenue CAGR, 11% EBITDA CAGR and 24% PAT CAGR over FY18-21, we expect KEII
500 to achieve a higher 21% revenue CAGR, 20% EBITDA CAGR and 25% PAT CAGR over
300 FY21-24E. The robust operating performance and lower EPC revenues would lead to
Apr-21
Apr-22
May-21
Nov-21
Feb-22
Jul-21
Sep-21
Aug-21
Dec-21
Jan-22
Mar-22
Jun-21
Oct-21
strong FCF generation and facilitate re-investment in growth capex. We initiate

KEII Sensex coverage on the stock with a BUY rating and target price of Rs 1,425 (19% upside
from CMP), based on 24x FY24E earnings. We have assigned a target multiple higher
Ashish Poddar than its historical mean as we see scope for further re-rating in the stock, driven by
ashishpoddar@systematixgroup.in its healthier balance sheet and strong FCF generation. Volatile RM prices and weak
+91 22 6704 8039 economic activity are the key risks to our call.
Pranay Shah
pranayshah@systematixgroup.in
+91 22 6704 8017
29 April 2022 KEI Industries
Story in charts
Exhibit 1: KEII – revenue growth trend Exhibit 2: Rising gross and EBITDA margins despite high RM costs
(Rs bn) (%)
80 35
70 30
60
25
50
20
40
15
30
10
20
5
10
0 0
Revenue Gross margin EBITDA margin
Exhibit 3: PAT growth trend Exhibit 4: Cables (EHV, LT and HT) – revenue trend
(Rs bn) (Rs bn) (%)
6 50 65
45 64
5
40
63
4 35
30 62
3 25 61
20 60
2
15
59
1 10
5 58
0 0 57
PAT Revenue % Contribution (RHS)
Exhibit 5: Wires (HW, WW and Flexible) – revenue trend Exhibit 6: EPC – revenue trend
(Rs bn) (%) (Rs bn) (%)
25 30 9 20
8 18
25
20 7 16
20 14
6
15 12
5
15 10
4
10 8
10 3
6
5 2 4
5
1 2
0 0 0 0
Revenue % Contribution (RHS) Revenue % Contribution (RHS)
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Sh ares and Stocks (India) Limited 50
Exhibit 7: SS wires – revenue trend Exhibit 8: Revenue mix – Institutional/ Retail (9MFY22)
(Rs bn) (%)
3.0 4.5
4
2.5
3.5
2.0 3
41%
2.5
1.5 Institutional
2
Retail
1.0 1.5
1 59%
0.5
0.5
0.0 0
Revenue % Contribution (RHS)
Exhibit 9: RoE and RoCE trend Exhibit 10: FCF trend

(%) (Rs bn)
35 7
30 6
5
25
4
20
3
15 2
10 1
5 0
-1
0
FY18 FY19 FY20 FY21 FY22E FY23E FY24E -2
OCF Capex FCF
Exhibit 11: Net cash trend Exhibit 12: Rising capex on the proposed greenfield plant
(Rs bn) (Rs bn)
6 3
4
2
2
0 2
-2
-4 1
-6
1
-8
-10 0
Net-cash Capex
Investment Analysis
The fastest growing W&C company; outlook remains robust
KEII, the fastest growing company in the W&C space, registered revenue CAGR of
~12% over FY17-21, much ahead of peers. The company has a globally certified and
wide product range, vast institutional customer base (1,450+), strong distribution
network (~1,700), expertise in executing large projects in rural electrification,
railways, metro-rail, industry, etc and capabilities to manufacture EHV cables up to
400kV. These factors, along with its rapid growth in housing wires, have helped KEII
achieve the stellar topline growth.
Exhibit 13: W&C – revenue and EBIT growth trend vs peers
Revenues (Rs mn) FY17 FY21 CAGR (%) EBIT margin (%) FY17 FY21 bps change
POLYCAB 56,821 76,035 7.6 POLYCAB 7.0 11.8 479
KEII 22,794 35,742 11.9 KEII 9.3 10.9 160
HAVL 26,756 31,802 4.4 HAVL 10.0 12.7 266
FNXC 21,778 23,100 1.5 FNXC 17.7 12.9 (480)
VGRD 6,399 8,260 6.6 VGRD 12.2 12.9 69
Exhibit 14: KEII has the widest product portfolio (up to 400kV cables) among peers
Flexible and
Power & Power Control &
Power cables industrial cables
Control cables Instrumentation House wires
(EHV) including specialty
(LT/HT) cables
cables
Apar Industries ✓ ✓ ✓ ✓
Finolex Cables ✓ ✓ ✓ ✓ ✓
Havells ✓ ✓ ✓ ✓ ✓
KEC International ✓ ✓ ✓ ✓ ✓
KEI Industries ✓ ✓ ✓ ✓ ✓
Polycab ✓ ✓ ✓ ✓ ✓
V-Guard ✓ ✓ ✓
Universal Cables ✓ ✓ ✓
Strong industry outlook

The W&C industry has grown rapidly at an estimated 12-15% in the past decade,
driven by government focus on development of rural as well as urban infrastructure
(railways, metros, smart cities, etc). We see strong medium to long term prospects
for the W&C sector given a pick-up in government orders as also private capex across
sectors.
After a slow start in FY22, projects are being awarded in roads & highways, tunnels,
railway, metro rail, power transmission & distribution, airports, and solar and nuclear
power sectors. Also, the Centre has extended its USD 1.5trn National Infrastructure
Pipeline (an umbrella programme integrating multi-sector infrastructure projects) to
cover more projects by 2025. Capacity expansion/ upgradation at various state-
owned oil refineries is also in progress. The Production Linked Incentive (PLI) Scheme
will encourage private players to augment their domestic manufacturing capabilities.
Smart city projects are underway while the expected pick-up in demand for real
estate will aid recovery of the construction sector.
Exhibit 15: W&C industry growth trend Exhibit 16: Sector-wise NIP – projects and outlay
(Rs bn) Number of Investment
1,200 projects (USD bn)
Transport 4,628 800
968
1,000
Social Infrastructure 1,717 251
800
600 525 550 Energy 688 482
400 346 Commercial Infrastructure 593 81
Logistics 163 51
200
Communication 30 15
0
FY14 FY18 FY21 FY26P Total 9,145 1,964
Source: Polycab RHP, Systematix Institutional Research Source: https://indiainvestmentgrid.gov.in/
Exhibit 17: W&C industry – key growth drivers
Infrastructure development Reviving housing construction

Structural demand for higher The Government's focus on rural
projects such as road, highways, and the Government's impetus
and efficient T&D infrastructure and railway electrification
railways and metro rail projects, to affordable housing and smart
to supply increasing energy programs
and dedicated freight corridor, cities
requirement of the count
among others
KEII’s strategy to capitalize on the opportunity

KEII has chalked out a multi-pronged strategy to capitalize on the large growth
opportunities on the anvil. There measures have already started paying off for the
company and the impact is already visible in its performance.
▪ Capacity expansion: KEII plans to add capacity in its existing product portfolio
through brownfield as well as greenfield expansion
▪ Retail business: Continued focus to increase the share of retail business in
overall sales mix to 50% over the next 2-3 years (vs ~30% 3-4 years ago)
▪ Distribution channel: Focus on increasing penetration by further expanding its
distribution network by 10% a year to expand rapidly in wires and foray into the
FMEG segment
▪ Overseas market: To further increase presence by expanding into existing
markets and entering new markets
▪ FMEG market: To be the next avenue of growth after 2-4 years (yet to enter)
KEII has the widest product range up to 400kV EHV cables

KEII’s product portfolio in the institutional segment covers a wide range across EHV
cables, HT and LT power cables, stainless steel wires and EPC solutions. In India, the
company serves more than 1,450 institutional customers and holds ~12% market
share. Strong prequalification credentials are a key factor that have helped it gain
steady footing in the institutional segment. Besides India, KEII also caters to the
markets in Australia, Africa, and the Middle East among others. The company plans
to further consolidate its position by enhancing its manufacturing capabilities and
tapping the lucrative EHV cables space.
Exhibit 18: A wide product portfolio in the W&C segment
EHV capabilities the key differentiator for KEII

EHV cables offer significant advantages over conventional overhead lines for sub-
transmission and distribution of power in terms of higher power density, lower
transmission losses and efficient bulk-power delivery.
KEII is one of the few players to have capabilities in EHV cables >220kV in India and
EHV 400kV cables globally. It has a technological collaboration with Switzerland-
based Brugg Kabel AG, a company with 100+ years of experience in manufacturing of
EHV cables up to 550kV. KEII’s strategic collaboration enables it to provide high-end
designs and process back-up services benchmarked to the highest global standards.
The EHV cable segment entails stringent requirements for meeting compliance
standards and securing product approvals – these factors pose as high entry barriers,
and it typically takes a new entrant at least eight years to penetrate the market.
KEII’s established credentials give it a huge competitive advantage in the space.
Exhibit 19: EHV segment – increasing share in KEII’s revenues
(Rs bn) (%)
5.0 12
4.5 10.0
8.9 10
4.0
3.5
8
3.0
5.7
2.5 4.9 6
4.5
2.0 3.9
2.9 4
1.5
1.0
2
0.5
0.0 0
FY15 FY16 FY17 FY18 FY19 FY20 FY21
Revenue % Contribution (RHS)
Strong growth in retail business; FMEG offers TAM expansion

A healthy 35%+ revenue CAGR expected in retail sales
KEII’s retail business is comprised of housing wires (~55%) and LT/ HT cables (~45%).
The segment registered a healthy ~22% CAGR over FY14-19, driven by KEII’s
investments in brand building and distribution network across regions. Notably,
revenues remained largely flat over FY19-21 due to Covid-19 disruptions. The KEI
brand has consistently been recognized as a ‘Super Brand’ in view of its strong
proposition of trust and quality, high recall and reliable customer service. With
better brand visibility and acceptability, the company hopes to narrow the ~5% gap
in pricing of its wires versus leaders (Polycab, Havells and Finolex).
Targets 50% revenue contribution: Within retail, KEII caters to the housing wires
segment, a rapidly growing space. In line with the company’s strategy to increase the
share of retail in the business mix, the segment accounted for ~41% of its revenues
in 9MFY22 from 34% in FY21. To increase this share further to 50% in the next 2-3
years, KEII has hired a leading consultant for chalking out strategies and policies to
achieve the target.
Capacities in place to support strong growth: KEII’s new housing wires facility at
Silvassa, commissioned in FY20, is currently operating at ~65% utilization. This, we
believe, leaves the company with ample headroom to ramp up production to suffice
for its growth expectations.
Benefits of retail over institutional/ B2B business: The retail business offers higher
margins and lower working capital requirement vis-à-vis other business segments. A
higher share of retail in overall sales would lower receivables days and lead to higher
cash generation for the company.
Exhibit 20: Increasing share of retail in total sales Exhibit 21: Pan-India retail sales distribution
(Rs bn) (%)
40 60 15%
35
50
30
40 37%
25 North
20 30 West
20%
15 South
20
East
10
10
5
0 0
FY14 FY16 FY18 FY20 FY21 9MFY22 FY22E FY23E FY24E
Retail sales % Contribution (RHS) 28%
Distribution reach to be increased by 10% every year

KEII has been beefing up its retail sales team to have better penetration not only in
cities but also smaller cities/ towns and rural areas. The company has added more
than 1,000 dealers and distributors since FY14 to ~1,700 currently across branches
with recruitment across functions. The distribution network is supported by 21
depots, 36 marketing offices and 580 sales & marketing professionals. Even in FY21,
a challenging period, the company inducted more than 100 people into the retail
team. The two verticals – housing wires and LT/ HT cables – will have a separate
team to ensure dedicated focus on each.
To increase the effectiveness of its retail teams, KEII is mapping out every geography
by population and positioning people accordingly. Also, the sales personnel are
mapped out on various parameters including location of the salesperson, their dealer
coverage and performance to improve market penetration. It also reviews the
promotional and below the line (BTL) activities conducted by the retail team. Getting
the products approved from architects and consultants and entry into new markets
in semi-urban and rural India are other focus areas for growing the retail sales.
Exhibit 22: Dealer count on a steady rise Exhibit 23: A&P spend at ~3% of housing wire sales
1,800 1,650 1,655 1,700 (Rs mn) (%)
1,600 300 3.5
1,400 1,284 250 3

1,200 2.5
926 200
1,000
2
800 150
650
1.5
600
100
1
400
50 0.5
200
0 0 0
FY14 FY16 FY18 FY20 FY21 9MFY22 FY16 FY17 FY18 FY19 FY20
Dealers count A&P spend % Retail sales (RHS) % HW sales (RHS)
Source: Company Source: Company, Systematix Institutional Research
Exhibit 24: Advertisements across platforms (IPL, TVC, Mumbai BEST Bus, etc) for higher visibility ??no pics
Source: Company
Improving demand outlook for wires

Rising real estate demand with increased affordability (low interest rates, tax
benefits, lower stamp duty, attractive developer schemes, etc), government schemes
for urban and rural electrification and initiatives like ‘24x7 Power for All’ are
propelling the demand for housing wires. Not only that, but there is also a
perceptible shift underway in favour of organized players, driven by market dynamics
like rising middle class incomes, greater customer involvement in electrical purchases
and growing preference for branded offerings.
FMEG foray the next growth avenue within retail
KEII is looking to widen its B2C portfolio at an opportune time by launching FMEG
products. This will help the company double its total addressable market (TAM) from
~Rs 550bn currently to more than Rs 1,000bn. It has already started building a sales
team to create awareness of the brand and engage electricians and other
influencers. For the FMEG portfolio, KEII plans to follow the outsourcing model for a
few years initially and set up in-house manufacturing once the category reaches a
critical scale.
Exports a large emerging opportunity

Exports of LT/ HT cables have been a focus area for KEII for a long time now. While
these exports have formed 12-15% of its revenues in the last few years, the share
was higher in FY20 on account of an exceptionally large order of ~Rs 5bn from
Dangote Oil Refinery in Africa executed in the year. Despite the Covid-induced
disruptions in the last two years, it has managed to largely maintain its regular export
orders arising from the key markets (Australia, Middle East and Africa).
Exhibit 25: Share of exports in KEII’s total revenues
(Rs mn) (%)
10,000 18.4 20
9,000 18
8,000 14.2 14.5 16
13.2 12.6
7,000 14
6,000 12
5,000 8.2 10
4,000 8
3,000 6
2,000 4
1,000 2
0 0
Exports % total revenue (RHS)
KEII aims to further strengthen exports by entering new markets and growing its
business in the existing geographies. To drive its customer outreach efforts and build
on global relationships, it has set up overseas marketing/ project offices in Australia,
Dubai, Nigeria, Gambia, Nepal and South Africa. Tie-ups with agents and distributors
in international markets have further strengthened its ability to engage with
customers. Physical proximity to customers also facilitates seamless approvals to
drive faster revenue accretion.
Rising demand from various end-user sectors (including oil & gas, renewable energy,
power and infrastructure sectors across key markets globally) continues to drive
exports of W&C from India. To effectively capitalize on the opportunity, KEII plans to
build a new authorized dealer and distribution network in international markets with
focus on both housing and industrial cables & wires. Business development activities
will also be stepped up once international travel resumes normalcy. While KEII has
already secured many global certificates for quality standards, it continues to bolster
its prequalification credentials to meet the stringent parameters in the international
markets and expand the customer base.
Robust capex plans to support growth targets

For the past five years, KEII has followed a practice of investing in small increments
every year to augment capacity at its existing facilities (Bhiwadi, Chopanki and
Pathredi in Rajasthan, and Rakholi and Chinchpada in Silvassa, Dadra and Nagar
Haveli). After the Rakholi facility for housing wires hit full capacity utilization, the
company set up a greenfield plant in Silvasa in 2019.
Currently, the EHV cable line is nearing optimal utilization while the capacity of LT/
HT and other cables too will reach maximum potential in the next 1-2 years. With no
scope for further capacity addition at existing locations to support its projected 18%
revenue CAGR over FY21-24E, KEII has committed ~Rs8bn over the next 4-5 years to
set up a large greenfield facility that will be commissioned in phases.
Exhibit 26: Product-wise installed capacity
Particulars Installed Capacity
EHV Cables 900 Kms
HT Cables 11,100 Kms
LT Power & other Cables 116,600 Kms
Winding, Flexibles & House Wires 1,117,000 Kms
Stainless Steel Wires 7,200 MT
Source: Company
Exhibit 27: Rising capex on the proposed greenfield plant

(Rs bn)
3
0
Capex
Financial Analysis
Strong growth in W&C; de-scaling ECP business for a leaner balance sheet
With emphasis on margins and cash flows, KEII is strategically reducing its EPC
exposure and has shifted focus to the faster growing retail business. Within EPC, the
company plans to largely focus on projects with significant cabling requirements (25-
30% in LT/ HT and 75-80% in EHV). The initiatives have the potential to lead to a
shorter WC-cycle and, therefore, an improvement in the quality of its balance sheet.
The Rs 5bn fund raise through QIP in 4QFY20 helped the company to sail through a
tough FY21 and significantly reduce its debt levels. The rising share of EHV cables,
exports and housing wires augur well for margin expansion.
Exhibit 28: Expect 21% CAGR in revenues… Exhibit 29: …with 25% CAGR in PAT over FY21-24E
(Rs bn) (Rs bn)
80 6
70
5
60
4
50
40 3
30
2
20
1
10
0 0
Revenue PAT
Exhibit 30: KEII expected to turn net cash positive next year Exhibit 31: OCF, Capex and FCF trend
(Rs bn) (Rs bn)
6 7
4 6
2 5
4
0
3
-2
2
-4
1
-6
0
-8 -1
-10 -2
Net-cash FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Exhibit 32: Dupont Analysis – a gradual expansion in RoE ahead

PAT margin (%) 4.2 4.3 5.2 6.5 6.7 7.1 7.3
Asset turnover (x) 2.3 3.0 2.6 2.0 2.3 2.2 2.2
RoE (%) 23.9 23.2 17.0 15.4 17.4 17.9 17.6

We believe in KEII’s strong earnings growth potential, supported by healthy demand
in its cable business across institutional, retail and exports verticals. With a lower
proportion of EPC in sales, we expect a shorter working capital cycle for the
company, which would further deliver healthy FCF generation.
KEII registered 7% revenue CAGR and 11% EBITDA CAGR over FY18-21 with a much
higher 24% PAT CAGR on the back of margin expansion and lower interest expenses
after debt was cut from ~Rs 8.4bn to ~Rs 2.8bn in FY21. Over FY21-24E, we expect
KEII to achieve 21% revenue CAGR, 20% EBITDA CAGR and 25% EPS CAGR on the
back of strong operating performance and additional capacity over these years.
Despite the fact that the stock has seen a significant re-rating in the last two years,
we believe KEII’s promising growth prospects should potentially drive a further re-
rating, especially in view of its improving balance sheet health. We initiate coverage
on the stock with a BUY rating and target price of Rs 1,425 (19% upside from CMP),
based on 24x FY24E earnings.
Exhibit 33: One-year forward PE band and standard deviation
30
25
20 +1SD
15 Mean
-1SD
10
0
Jul-17
Jul-18
Jul-19
Jul-20
Jul-21
Apr-17
Apr-18
Apr-19
Apr-20
Apr-21
Apr-22
Jan-18
Jan-19
Jan-20
Jan-21
Jan-22
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21
Key risks and risk mitigating measures

Volatile raw material prices
Cost of key raw materials including copper, aluminium, PVC, galvanized iron wire,
lead and XLPE form a significant ~70% of KEII’s revenues. The prices of these
materials are governed by global commodity markets which, in turn, are driven by
global supply and demand. The company procures raw material from both domestic
and overseas (UAE and Malaysia) suppliers on a purchase order basis and usually
does not enter into long-term supply contracts. KEII follows the policy to pass on any
cost increase to customers and, therefore, has managed to protect its margins even
during periods of sharp volatility in commodity prices.
Risk of foreign exchange rate fluctuations
KEII’s business operations entail import of raw materials and export of finished
goods. The company is a net user of foreign currency and any significant exchange
rate fluctuations may adversely affect its financial performance.
Subdued economic activity
KEII is heavily dependent on industrial capex and government spend on
infrastructure development including power for its business. Thus, any slowdown in
the economic activity has a large bearing on its business performance.
Defaults on payment credit extended to dealers
KEII helps its old dealers and distributors by facilitating funding from banks via
channel financing arrangements. As the funding is on recourse to KEII, the repayment
obligation lies with the company in case of any default in repayment of these loans.
Further, most of the sales to dealers and distributors are ordinarily on an open credit
basis (a 60-day cycle, without any security). To mitigate the risk of non-payments,
KEII regularly monitors the dealers’ or distributors’ ability to repay and sets limits for
lines of credit extended to them based on evaluation of their respective repayment
records and creditworthiness. It has also taken trade credit insurance to mitigate the
risk of non-payments.
Inadequate capacities or underutilization of capacities
KEII’s plants are currently running at ~70% capacity utilization across product
categories (barring EHV which is close to optimal utilization). Depending on the
industry growth trends, the company may fall short of supply if new capacities do not
keep pace with demand growth. On the other hand, a large capex planned over the
next 4-5 years may be underutilized in case of a demand slowdown and will impact
its financial performance.
Annexures
Company Background
Established in 1968 as a partnership firm, Krishna Electrical Industries’ key business was to manufacture house wiring rubber cables.
The company was incorporated in Dec-92 as KEI Industries. In 1996, it acquired Matchless which manufactured stainless steel wires.
Today, KEI has three divisions: cables & wires, stainless steel wires and turnkey projects (EPC) with good exposure to B2B and B2C
markets. Over the years, it has invested in building flexible manufacturing facilities and expanding capacities. It has a technical tie-up
with Brugg Kabel, Switzerland to manufacture extra-high-voltage (EHV) cables, above 220kV up to 400kV.
Exhibit 34: Revenue mix (FY21) Exhibit 35: Product portfolio
3%
11%
Cables (LT, HT, EHV)
Wires (housing, winding,

flexible)
22%
EPC
64% SS wires
Exhibit 36: Manufacturing plant locations
Source: Company
▪ Anil Gupta, CMD, is a recognized and accomplished expert in the Indian cables & wires industry. As a partner in the erstwhile
Krishna Electrical Industries, he became a part of the KEI Group in 1979.
▪ Archana Gupta, Director, has played a pivotal role in transforming the stainless-steel wires division. She heads the planning,
organizing and optimizing of resources function and has been instrumental in the expansion of this division.
▪ Rajeev Gupta, Executive Director (Finance), is a B.Com. (Hons.) and CA and has been associated with KEII for ~27 years.
▪ Akshit Diviaj Gupta, Director, CMD Anil Gupta’s son, has a BBA degree in management and is currently involved in sales and
marketing at KEII.
Exhibit 37: Shareholding pattern and key shareholders
Promoters 38.0 38.0 38.0 Smallcap World Fund 5.0
Free float 62.0 62.0 62.0 DSP MF 4.2
- Foreign Institutions 19.4 21.8 25.2 HDFC MF 3.0
- Domestic Institutions 25.8 24.0 21.6 Franklin MF 2.7
- Public 16.8 16.2 15.2 Massachusetts Institute 2.4

• Focus on rapidly increasing retail sales
• Revenues increased 15% YoY with growth across segments
including exports (up 98%) • Expanded Chopanki plant capacity for 400kVA EHV cables
FY17 • Various government schemes like UDAY, DDUGJY, Electricity for • Opened offices in Singapore and Nigeria
All, etc drove growth in the W&C sector; thus, expectations of
• ‘Jode Dilon Ke Taar’ ad campaign starring Irrfan Khan attracted
13% CAGR for the next few years
significant attention of viewers
• Revenues up by 23% YoY with contribution from all segments
incl. cables (25%)
• After a temporary setback faced due to demonetization and • Commissioned a Rs 0.5bn capex in LT cable at Pathredi having
implementation of GST, the Indian economy started recovering revenue potential of Rs 3bn
in 2018
FY18 • Undertaking 2nd phase of expansion for HT cables with revenue
• New opportunities opening up after GST implementation to potential of Rs 2bn
increase market share
• Reduced its holding in KEI Cables Australia from 100% to 90%
• Energy demand in India expected to accentuate in the years to
come on the back of sustained economic growth, rising
urbanization and increasing per capita energy consumption
• Expanded marketing network further by setting up a new office
• KEI achieved a 23% YoY revenue growth
in Africa
• 15% growth expected in the W&C industry
• Augmented housing wires capacity through a new unit at
• KEI sustained above-industry growth driven by focused business Chinchpada (Silvassa)
FY19
initiatives across segments
• Target to enhance productivity at all facilities
• From a strong player in B2B cables, KEI's incremental focus on
• Key sponsors of the Rajasthan Royals team in the Indian Premier
expanding retail sales (33% of total sales)
League (IPL)
• The nationwide lockdown from Mar-20 dented revenue
collections; however, KEI achieved 15.5% revenue growth
• Sector outlook bright on government focus on power and infra
sectors, supported via various policies, renewable energy push • Raised Rs 5bn through the QIP route for debt reduction, meeting
and schemes for electrification, housing development and smart working capital requirements and general corporate purposes
FY20 cities • Commissioned 1st phase of housing wire capex at Silvasa in July
• Less competition in 400kV EHV cables as only a few companies in FY20
the world with established capability to manufacture such
cables; stringent compliances and product approval process
make it difficult for new players to enter
• Planned ~Rs 7bn capex over five years to be funded from internal
• Revenues declined by ~14% mainly because of lockdown accruals for growing capacities for LT, HT and EHV cables
restrictions and a calibrated approach to reducing EPC business • Deliberately reducing its EPC portfolio given long working capital
• Sector consolidation helping large, organized players to gain cycles and a low margin profile
FY21
market share • Shifting orientation towards the retail segment to capitalize on
• Sector continues to have robust outlook shorter working capital cycles and higher margins
• Target to achieve 40-50% of business from retail in 2-3 years
Growth (%) 15.5 (14.4) 32.1 15.1 15.3 Net worth 15,072 17,781 21,196 25,378 30,263
Raw material expenses 33,822 29,097 40,364 46,403 53,437 Total debt 3,652 2,850 2,740 2,630 2,520
Gross Margin (%) 30.8 30.4 26.9 27.0 27.1 Minority interest (1) (0) (0) (0) (0)
Employee & Other exp. 10,085 8,114 9,078 10,322 11,902 DT Liability/ (Asset) 308 295 285 275 265
Finance costs 1,292 573 383 368 353 CWIP 112 71 171 271 371
PBT 3,279 3,654 4,961 6,115 7,181 Investments (Strategic) - - - - -
Effective tax rate (%) 21.8 25.2 25.7 25.7 25.7 Investments (Financial) 8 12 3,012 4,012 5,512
Associates/(Minorities) - - - - - Current Assets 24,889 22,473 25,570 28,414 32,604
Net Income 2,563 2,733 3,685 4,542 5,334 Cash 2,144 2,212 512 1,005 712
Adjusted net income 2,563 2,733 3,685 4,542 5,334 Current Liabilities 13,658 9,215 11,860 13,566 15,520
FDEPS (Rs) 28.5 30.4 41.0 50.5 59.4 Capital Deployed 19,031 20,925 24,220 28,282 33,047
FDEPS growth (%) 41.7 6.6 34.8 23.3 17.4 Contingent Liabilities 13,455 11,926 - - -
Cash Flow Ratios

EBIT (incl. other income) 4,615 4,285 5,244 6,199 7,210 P/E (x) 43.1 40.4 30.0 24.3 20.7
Incr./(decr.) in WC 4,365 2,420 443 1,127 2,226 P/B (x) 7.3 6.2 5.2 4.4 3.7
Others including taxes 947 904 1,296 1,593 1,867 RoE (%) 17.0 15.4 17.4 17.9 17.6
Operating cash-flow (130) 1,539 4,062 4,147 3,896 RoCE (%) 27.5 21.2 23.7 24.7 24.6
Capex 805 240 2,100 2,100 2,100 ROIC (%) 17.6 15.4 18.7 20.7 21.3
Free cash-flow (935) 1,299 1,962 2,047 1,796 DPS (Rs per share) 1.5 2.0 3.0 4.0 5.0
Acquisitions - - - - - Dividend yield (%) 0.1 0.2 0.2 0.3 0.4
Dividend 276 180 270 359 449 Dividend payout (%) 5.3 6.6 7.3 7.9 8.4
Equity raised 5,020 79 - - - Net debt/equity (x) 0.1 0.0 (0.0) (0.1) (0.1)
Debt raised (2,333) (567) (110) (110) (110) Receivables (days) 102 118 100 95 95
Fin Investments (781) (943) 3,000 1,000 1,500 Inventory (days) 65 67 60 60 60
Misc. Items (CFI + CFF) 1,283 567 283 84 30 Payables (days) 87 65 65 65 65
Net cash-flow 974 1,007 (1,701) 493 (293) CFO:PAT% (5) 56 110 91 73
Systematix
Finolex Cables 29 April 2022
Improving outlook supports a case for re-rating

INITIATING COVERAGE Finolex Cables’ (FNXC) business prospects are reviving with an improving outlook
Sector: Consumer Electricals Rating: BUY for the real estate sector. After lacklustre performance over FY17-21, we expect
CMP: Rs 405 Target Price: Rs 526
20% revenue CAGR, 19% EBITDA CAGR and 10% PAT CAGR for the company over
FY21-24E, driven largely by the W&C business. The OFC (optic fibre cables) business
Stock Info too is expected to look up with higher demand from the ongoing digitization drive
Sensex/Nifty 57,521/17,244 and 5G rollout. However, the large cash on FNXC’s books will suppress the RoE
Bloomberg FNXC IN unless used for acquisitions (FMEG), dividend payout or a buyback scheme. While
Equity shares (mn) 153.0 its performance has been weaker than peers in recent years, valuations of ~10x
52-wk High/Low 600/357 FY24E earnings suggest scope for a catch-up given healthy FCFs and an improving
Face value Rs 2 outlook. The ongoing family tussle for the company’s ownership will remain an
M-Cap Rs 62 bn/ USD 0.8bn overhang on its valuation though. We initiate coverage on the stock with a BUY
3-m avg turnover USD 3.6mn rating and price target of Rs 526, (30% upside), based on 14x FY24E core earnings +
Financial Snapshot (Rs mn) Rs 147 as value of its 32.4% share in Finolex Industries at a 30% holdco discount.
Y/E Mar FY22E FY23E FY24E Improving housing industry outlook a positive for wires demand: The real estate
Net sales 36,518 41,860 47,306 sector is ready to shake off the after-effects of demonetization, GST implementation,
EBITDA 4,368 5,411 6,244 RERA and NBFC crisis. A revival appears due led by stable property prices, low
OPM % 12.0 12.9 13.2 interest rates and demand for bigger houses. For FNXC, the leader in housing wires,
PAT (adj.) 4,843 5,475 6,161
the segment accounts for ~50% of revenues. With buoyancy returning in the
EPS (Rs) 31.7 35.8 40.3
segment (a tepid <5% demand CAGR over FY17-21, flat for FNXC), we expect 19%
PE (x) 12.8 11.3 10.1
P/B (x) 1.6 1.5 1.3
revenue CAGR for the company in W&C business over FY21-24E. However, we
EV/EBITDA (x) 12.2 9.4 7.7 believe tough competition will prevent recoup of the market share lost due to its
RoE (%) 12.7 12.8 12.9 stringent credit terms for channel partners. In the JV with J-Power, FNXC has been
RoCE (%) 12.0 13.3 13.7 struggling to attain scale and break even despite pumping in Rs 2.2bn since 2010.
Net-D/E (x) (0.2) (0.3) (0.3) Challenges persist in OFC business but 5G rollout likely to trigger demand: Optic
fibre cables (OFCs) has been a difficult business for FNXC given the volatility
Shareholding Pattern (%)
prevalent in the industry. After registering 16% CAGR over FY14-19, revenues in the
Promoter 35.9 35.9 35.9
communication cables segment slid 19% over FY19-21 on demand destruction and a
- Pledged - - - sharp correction in optic fibre prices. Margins in this business are much lower and
FII 9.4 9.4 9.1 volatile than in wires. However, we see a strong rebound in demand for OFCs driven
DII 15.7 16.5 16.2 by the government’s thrust on digitization and rollout of 5G in the country, driving a
Others 39.0 38.2 38.8 17% revenue CAGR for FNXC over FY21-24E. The weak financials of telecom players
and any disruption in technology are the key risks to our projected numbers.
Stock Performance (1-year)
FMEG yet to be a meaningful contributor: FNXC’s entry into FMEG has not yielded
700
the desired outcome even as the move was logical in terms of diversification and
600
leveraging its pan-India dealer network for wires. The business has not scaled up
500
even after a decade with revenues barely crossing Rs 1bn (~4% of total) in FY21. The
400 management has missed its guidance of Rs 5bn in revenues many times in the past.
300 While the industry outlook is robust, the journey for FNXC will remain tough unless it
200 turns aggressive on product launches, dealer schemes and higher A&P spends.
Apr-21
Jul-21
Aug-21
Nov-21
Jan-22
Feb-22
Sep-21
Mar-22
Apr-22
May-21
Jun-21
Oct-21
Dec-21
Re-rating potential as valuations play catch up with peers: While FNXC has
FNXC Sensex underperformed its peers, cheap valuations (~10x FY24E earnings at CMP), high cash
on books, healthy FCF status and improving demand outlook provide scope for a re-
Ashish Poddar rating. We initiate coverage on the stock with a BUY rating and price target of
ashishpoddar@systematixgroup.in Rs 526, based on 14x FY24E core earnings + Rs 147 from the value of its 32.4% share
+91 22 6704 8039
in Finolex Industries at a 30% holdco discount. Despite attractive valuations, the
Pranay Shah ongoing family tussle for the company’s ownership may continue to be an overhang
pranayshah@systematixgroup.in on the stock’s performance.
+91 22 6704 8017
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Syst ematix Shares and Stocks (India) Limited 68
29 April 2022 Finolex Cables
Story in charts
Exhibit 1: Total revenues and growth trend Exhibit 2: Gross and EBITDA margin trend
(Rs bn) (%)
50
30
45
40 25
35
20
30
25 15
20
15 10
10 5
5
0 0
Exhibit 3: PAT and growth trend Exhibit 4: Electrical W&C – revenue and EBIT margin trend
(Rs bn)
(Rs bn) (%)
7 45 18
6 40 16
35 14
5
30 CAGR: 0% 12
4 25 10
3 20 8
15 6
2
10 4
1
5 2
0 0 0
PAT Revenue EBIT margin % (RHS)
Exhibit 5: Communication cables – revenue and EBIT margin Exhibit 6: FMEG – revenue and EBIT margin trend
(Rs bn) (%) (Rs bn) (%)
6 16 3 10
14
5 3 5
12
10 2 0
4
8
3 6 2 -5
4
2 1 -10
2
0 1 -15
1
-2
0 -4 0 -20
Revenue EBIT margin % (RHS) Revenue EBIT margin % (RHS)
Systematix Research is also available on Bloomberg SSSL <Go>, Thomson & Reuters Systematix Shares and Stocks (Indi a) Limited 69
Exhibit 7: Revenue mix (FY21) Exhibit 8: A&P as % sales
4% 1% (Rs mn) (%)

12% 300 2
1
250
1
Electrical W&C 200
1
Communication cables 150 1
FMEG 1
100
Others 0
50
0
0 0
83%
A&P spend % Total sales (RHS) % B2C sales (RHS)
(%) (Rs bn)
25 5
4
20 4
3
15
3
10 2
2
5 1
1
0
FY18 FY19 FY20 FY21 FY22E FY23E FY24E 0
OCF Capex FCF
Exhibit 11: Net cash trend Exhibit 12: Net working capital cycle trend
(Rs bn) (Days)
14 120
12
100
10
80
8
60
6
40
4
2 20
0 0
FY18 FY19 FY20 FY21 FY22E FY23E FY24E Receivables Inventory Payables Net WC cycle
Net-cash FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Investment Analysis
Wire industry outlook improving on recovery in the housing sector
Growth has been subdued in the electrical wires segment (<5% CAGR over the last
five years) due to weak consumer sentiment and muted demand for housing units
post demonetization, GST, RERA and the NBFC crisis. However, the real estate
industry is expected to witness a strong revival on the back of stable property prices,
low interest rates and surge in demand for larger houses due to the Covid-19
pandemic. This will drive demand of wires (10%+ CAGR expected over FY20-26E).
Exhibit 13: W&C industry estimated to register a healthy 11% CAGR over FY20-26E
(Rs bn)
1,200
1,000
800
600
400
200
0
W&C - Market Size
Housing wires make up ~50% of FNXC’s revenues

FNXC, with a 16% share in India’s electrical wires market, is a leading W&C brand in
the country. The W&C segment contributes ~85% to its overall revenues. Within the
segment, the company has high reliance on the construction industry with ~50% of
the W&C revenues accruing mainly from housing wires. The remaining ~50% share is
accounted for by industry, agriculture, automobiles and power T&D sectors, wherein
growth has been largely sluggish.
Exhibit 14: Sector-wise revenue mix Exhibit 15: Electrical wires – 16% market share
10%
25%
10% 30%
Polycab
Construction
Finolex Cables
Auto
Havells
50% Industrial
KEI
15% Agriculture
V-Guard
Power T&D
6% 16% Others
8%
15%
15%
Strict credit policy, keener competition led to market share loss
FNXC derives ~70% of its W&C sales through dealers/ distributors on a cash-and-
carry basis – a key factor for its shorter receivables cycle (<25 days) vis-à-vis peers.
However, strict adherence to this policy in times of weak demand has led to the
company conceding market share even as peers offered extended credit periods to
channel partners to win their loyalty.
Exhibit 16: Revenue/ EBIT growth trend – peer comparison
Revenue (Rs mn) FY17 FY21 CAGR (%) EBIT margin (%) FY17 FY21 bps change
POLYCAB 56,821 76,035 7.6 POLYCAB 7.0 11.8 479
KEII 22,794 35,742 11.9 KEII 9.3 10.9 160
HAVL 26,756 31,802 4.4 HAVL 10.0 12.7 266
FNXC 21,778 23,100 1.5 FNXC 17.7 12.9 (480)
VGRD 6,399 8,260 6.6 VGRD 12.2 12.9 69
Finolex J-Power JV for EHV cables yet to be profitable

In 2007, FNXC entered into a 50:50 JV with J-Power Systems, Japan (a wholly owned
subsidiary of Sumitomo Electric Industries, Japan), under which it invested Rs 1bn to
set up an extra-high-voltage (EHV) cable plant to manufacture cables above 33kV.
Notably, the JV could obtain final certification for 400kV-EHV cables only in Dec-17 –
10 years after it was set up – and is struggling to get sizeable orders and reach
breakeven. FNXC has infused >Rs 2.2bn in the JV so far for its 49% stake and will have
to invest further until the entity breaks even (projected at revenues of ~Rs 2bn). In
contrast, peer KEI Industries too entered the EHV cable segment (a technical tie-up
with Brugg Kabel, Switzerland) about a decade ago and currently leads the segment
with ~Rs 5bn in annual revenues and healthy margins.
While the long-term outlook for Finolex J-Power JV is positive, it is an overhang on
FNXC’s consolidated financials in the short term and, on net worth erosion, has
recognized a diminution in the value of its investment of Rs 270mn in FY21.
Exhibit 17: Finolex J-Power JV performance (FNXC holds a 49% stake)
Equity infusion by
Rs mn Revenues Profit/ (Loss)
FNXC
FY17 354 (253) 196
FY18 317 (320) 159
FY19 481 (357) 189
FY20 687 (274) 434
FY21 506 (313) 245
A Rs 2bn capex planned across product categories

FNXC has committed a capex of Rs 2bn over the next 18 months for augmenting its
manufacturing capacity at Urse, Pune and Verna, Goa. The capex is targeted at
creating incremental capacity to meet the requirements of solar power and
automotive sectors, acquiring certain in-house value additions which are currently
being outsourced and a further expansion of the optic fiber line.
Expect 19% revenue CAGR in W&C business over FY21-24E
With demand in real estate and, thereby, housing wires expected to pick up, we
estimate 19% revenue CAGR for FNXC in its W&C business over FY21-24E. However,
we believe the company will find it difficult to reclaim its lost market share
considering the aggressive plans of peers. Also, we see a recovery in its EBIT margins
to ~15% by FY24E, led by the strong demand outlook. FNXC’s margins had contracted
in the last two years as, according to the company, it paid incentives to dealers
during the Covid-19 pandemic despite a shortfall in their sales targets.
Exhibit 18: Electrical Wires – revenue and margin trend
(Rs bn) (%)
45 18
40 16
35 14
30 CAGR: 0% 12
25 10
20 8
15 6
10 4
5 2
0 0
Revenue EBIT margin % (RHS)
OFC business: Challenges persist

FNXC is a leading operator in telecom cables including optic fibre cables (OFC). It was
the first private company to manufacture jelly-filled telephone cables (JFTC) in the
1980s, later replaced by the optic fibre technology. The company has OFC facilities in
Goa and Urse, Maharashtra for the manufacture of all types of communication
cables. FNXC is backward integrated and has a plant to draw its own optical fibres.
Performance in OFC segment marred by weak demand
With a 60-70% share in FNXC’s communication cable revenues, the OFC segment has
been struggling to grow for the last 2-3 years. Having registered 20%+ CAGR over
FY14-19, weak demand and poor financials of telecom operators have kept growth
capped in the segment since then. Given that ~80% of the business is B2B and driven
by government tenders and private companies like D-Link, Schneider etc, it also
entails lower EBITDA margins compared to electrical cables. Not only that, but the
business is also more working capital intensive with 30+ days of credit to private
firms and 45-90 days for government orders.
Government’s focus on digitization to drive growth…
The OFC market size is expected to witness 12% CAGR to reach USD 11.8bn by 2028.
According to industry sources, India’s consumption of OFC, at 16 optical-fibre km
(fkm), is a fraction of that in China (390m fkm) and the global average (600m fkm).
Going forward, we expect India’s fibre rollout to increase significantly as the
government continues to invest (Project BharatNet) in building networks to bridge
the digital divide. Also, network connectivity in India is abysmal and there is a dire
need to replace cables with quality OFCs as the country progresses towards 5G
network connectivity. Considering the robust economic growth and other demand
factors, overall consumption of OFCs in India is bound to grow. However, telecom
operators’ weak financials remain an area of concern.
…and financial health of FNXC
The communication cables segment, mainly OFCs, has been in doldrums for the last
2-3 years. For FNXC too, demand destruction in the wake of a sharp correction in
optic fibre prices led to a steep 19% decline compounded annually over FY19-21 (vs a
16% CAGR over FY14-19). With improving industry prospects, we expect 16%
revenue CAGR for the company over FY21-24E with EBIT margins expanding to 7.5%
by FY24E. However, weak financial position of telecom players and advent of any
new technology (like jelly-filled cables) are key risks to the sector outlook.
Exhibit 19: Communication cables – revenue and margin trend
(Rs bn) (%)
6 16
14
5 12
4 10
8
3 6
4
2 2
1 0
-2
0 -4
FMEG yet to be meaningful

FNXC entered the FMEG segment in 2011 as part of its diversification plan and to
leverage on its pan-India dealer network for W&C products. The entry was marked
by launch of lighting products with the portfolio gradually expanding to switches,
switchgears, fans, MCBs, conduits, water heaters and other appliances. While the
move was logical, the company has failed to cover much ground in its 10-year
journey in the segment and clocked just over Rs 1bn in revenues (~4% of total) in
FY21 (Polycab crossed Rs 10bn in FMEG sales in FY21; entry in FY14).
Exhibit 20: FNXC – FMEG revenue growth trend… Exhibit 21: …way behind that of Polycab
(Rs bn) (%) (Rs bn) (%)
1 4.5 12 14
4
1 10 12
3.5
1 3 10
8
2.5 8
1 6
2 6
0 1.5 4
4
1
0 2 2
0.5
0 0 0 0
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Revenue % total revenue (RHS) Revenue % total revenue (RHS)
FMEG requires aggression and high A&P spends for scale

While larger players get attracted to the FMEG segment as it is characterized by long-
term structural growth drivers, new entrants find it tough to attain scale and sustain
growth. Competitive intensity is quite high in the segment given the presence of a
host of regional brands (low entry barriers) as well as established incumbents.
FNXC, a leading brand in wires, falls short in terms of its strategy on product and
channel expansion in the FMEG space. While the segment calls for aggressive A&P
spends, FNXC committed ~0.9% of revenues (vs 2-4% by peers) in the past few years.
Thus, we remain skeptical on FNXC being a meaningful FMEG player anytime soon
despite its portfolio of innovative and stylish products and reach in tier-2 and 3 cities.
Exhibit 22: FNXC’s low A&P spend (% of FMEG revenues) restricted growth in FMEGs
(%)
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
FXNC POLYCAB
Dealer network expansion not yielding the desired outcome
FNXC’s entry into the FMEG segment banked on leveraging its vast distribution
network of electrical wires and cables. Its 5,000+ channel partners (4,000 in FY19)
and 90,000+ retailer touchpoints (30,000) are served through 28 depots pan-India.
After establishing footprint in the South and West, the company is expanding rapidly
in the North and East. Over a period, FNXC has also built a separate network for
every product line and adopted a two-tier distribution platform, wherein distributors
are allotted clearly defined territories to reach out to retailers. The company aims to
partner with 500 distributors, each covering ~300 retailers, to take the total retailer
coverage to 150,000 touchpoints. A clear policy related to working of the network,
compensation, price management and flow of information has also been outlined.
Despite all these efforts, FNXC is yet to make its mark in the segment.
Exhibit 23: FMEG – FNXC’s region-wise revenue break-up… Exhibit 24: …and dealer network (5,000)
15%
23%
32%
35%
South South
West West
20%
East East
North North
20%
25%
30%
The management has consistently missed its FMEG growth guidance

FNXC’s FMEG revenues registered 20% CAGR over the last five years, albeit on a low
base, to just cross Rs 1bn in FY21. The management has missed its guidance of
Rs 5bn sales multiple times. While the outlook for FMEG segment is robust, we
believe the journey will remain tough for FNXC unless it goes aggressive on product
launches, dealer schemes and A&P spends. Stiff competition in the segment remains
a key risk.
Exhibit 25: FMEG – revenue and margin trend
(Rs bn) (%)
3 10
3 5
2 0
2 -5
1 -10
1 -15
0 -20
Financial Analysis
After a tepid five years, we expect a bounce-back
After lacklustre performance over FY17-21 due to a sluggish real estate industry, we
expect 20% revenue CAGR, 19% EBITDA CAGR and 10% PAT CAGR for FNXC over
FY21-24E on improving industry outlook. However, we do not expect the company to
recoup the market share loss witnessed over this period as competition from leading
players remains daunting. We estimate FCF of Rs7.3bn over FY21-24E on the back of
its healthy operating performance and a tight WC cycle. However, the large cash
balance would also suppress its return ratios unless utilized for growth or returned to
shareholders.
Exhibit 26: Expect 20% CAGR in overall revenues… Exhibit 27: …and 10% CAGR in PAT over FY21-24E
(Rs bn) (Rs bn)
50 7
45
6
40
35 5
30 4
25
20 3
15 2
10
1
5
0 0
Revenue PAT
(%) (Rs bn)
25 5
4
20 4
3
15
3
10 2
2
5 1
1
0
FY18 FY19 FY20 FY21 FY22E FY23E FY24E 0
OCF Capex FCF

PAT margin (%) 9.2 10.0 10.9 8.6 7.5 8.4 8.8
Asset turnover (x) 1.1 1.1 0.9 0.8 0.9 0.9 1.0
RoE (%) 13.6 14.9 13.0 13.5 12.7 12.8 12.9
Valuation and outlook

We like FNXC for its leadership position in electrical wires, strong brand equity, pan-
India distribution network, robust balance sheet and free-cash-flow generation.
However, performance over the last few years has been a mixed bag as i) it has not
been able to replicate the success in FMEG and Finolex J-Power JV so far, and ii) its
huge cash balance, currently yielding low returns, is suppressing the RoE. With the
right initiatives on the profitability front, FNXC’s EBITDA margins expanded by
>400bps, from 10.5% to ~15%, over FY14-18, and turned the company cash-rich.
While the margin expansion, diversification into consumer-facing businesses and
~20% PAT CAGR led to a significant re-rating in the stock price in the five years to
FY18, the stock has since then been de-rated due to largely flat earnings in its core
businesses, lack of scale in FMEG and lower return ratios over FY17-21.
After registering 3% revenue CAGR, a 2% decline compounded annually in EBITDA
and 4% PAT CAGR over FY17-21, we expect 20% revenue CAGR, 19% EBITDA CAGR
and 10% PAT CAGR for FNXC over FY21-24E on the back of improving prospects in
the core C&W division. The lower PAT growth is attributable to our expectation of
falling profits in Finolex Industries.
While FNXC’s performance has been weaker than peers in the recent years, its
current valuation of ~10x FY24E earnings suggests scope for a catch-up with peers in
view of its cash-rich/ FCF status and improving business outlook. However, the
ongoing family tussle for the company’s ownership will remain an overhang on the
stock. We initiate coverage on FNXC with a BUY rating and target price of Rs 526
(30% upside from CMP), based on 14x FY24E core earnings + Rs 147 from the value
of its 32.4% share in Finolex Industries at a 30% holdco discount.
35
30
25
+1SD
20
Mean
15
10 -1SD
0
Apr-17
Jul-17
Apr-18
Jul-18
Apr-19
Jul-19
Apr-20
Jul-20
Apr-21
Jul-21
Apr-22
Jan-21
Jan-18
Oct-18
Jan-19
Jan-20
Jan-22
Oct-17
Oct-19
Oct-20
Oct-21

Demand disruption from key user sectors (cyclicality risk)
FNXC’s business depends on construction (housing, etc), industry, agriculture,
automobiles and power T&D industries, which are cyclical. Demand disruption in any
of these segments may impact its financial performance.
Mounting competition in formal and non-regulated segments
The electrical wires industry is fragmented due to low entry barriers. Brand-named
operators face competition from peers as well as the vast non-regulated sector.
Cables is a less fragmented category but is comprised of many large players having
global presence. FNXC has strong brand recall in the wires segment even as it is
struggling to scale up in EHV cables.
Sharp volatility in copper prices
Copper is the key raw material in cables & wires. Thus, producers’ margins are highly
vulnerable to volatile copper prices. While FNXC passes on any change in raw-
material prices, large swings in copper prices could still dent margins.
Slowdown of government initiatives
A slowdown in government initiatives like Housing for All, etc due to any change in
the government or policies may affect the business of the company.
Continuing losses in newer businesses
Despite investing in advertising and brand-building and establishing a new dealer
network and service centres for its FMEG business, FCXN may have to continue
burning cash till the time this business scales up. Continuing losses in Finolex J-Power
JV are also a concern.
Annexures
Company Background
Established in 1958, FNXC is India’s leading and prominent manufacturer of electrical and communication cables. Its wires and
cables are used in applications across automobiles, lighting, cable TVs, telephones and computers to industrial applications. The
company has pioneered various new products (auto cables, FRLS wires and cables, coaxial cables, LAN cables, etc) using unique
technology, which later became the industry standard. To diversify its revenue streams and become a complete electrical products
company, it forayed into FMEG products such as switches, switchgears, MCBs, LED lights, fans and water heaters, and plans to add
more products in the coming years. FNXC has 12 plants at five manufacturing locations (Roorkee, Urse, Pimpri, Verna and Ponda).
Exhibit 32: Revenue mix (FY21) Exhibit 33: Product-wise manufacturing plant locations
4% 1% Location Products manufactured

12%
Roorkee, Uttarakhand Electrical wires, switches, switchgears
Electrical W&C Electrical wires & cables, communication

Urse, Pune, Maharashtra
cables, optic fibre & cables, and lighting
Communication cables
FMEG Pimpri, Pune, Maharashtra Electrical cables
Others
Electrical cables, communication cables,
Verna, Goa
optic fibre & cables, and conduit pipes
83%
Ponda, Goa CCC rods
Technical tie-ups and backward integration

Over the years, FNXC has joined hands with globally renowned companies such as
NSW, Germany (for winding wire), Essex, USA (telephone cables and copper rods),
GE, USA (compounds), AT&T, USA (fibre-optic cables), Sumitomo, Japan (EHV power
cables) and Corning, USA (fibre) to access world-class technology and stay ahead of
the curve. Some of these partnerships still exist. The company also enjoys a
competitive cost structure due to backward integration in electrical cables (CCC rods
and PVC compounds) and communications cables (optical fibre and fibre rods). FNXC
is the only leading W&C player integrated backward till manufacturing copper rods.
▪ Deepak Chhabria, CMD, is a B.Sc. in Engineering Management from the
University of Evansville, Indiana, USA. He was instrumental in setting up nine
manufacturing plants at four places in India. Under his stewardship, the
company has achieved a leading position in all segments in which it operates.
▪ Mahesh Viswanathan, CFO, has been with the company since 2008. He is
currently responsible for all key matters at the company. Before joining FNXC, he
was at the Philips Group with Senior Director, Finance as his last role there.
Promoters 35.9 35.9 35.9 DSP MF 3.6
Free float 64.1 64.1 64.1 Templeton MF 3.5
- Foreign Institutions 9.1 9.4 9.4 Nippon MF 3.2
- Domestic Institutions 16.2 16.5 15.7 L&T MF 2.2
- Public 38.8 38.2 39.0 LGOF Fund 1.9

Year Demand scenario and outlook Plans/ Initiatives
• Healthy volume growth but a low ~4% value growth due to soft
• Ventured into fans, switchgears and water heaters; delay in
commodity prices; margins under pressure on low spread of
obtaining product certifications impacted Switchgears project
cathode and rods
• Commenced work on the “Conduit Pipe” plant with expected
• W&C industry’s long-term outlook remains positive
FY17 completion by Dec-18
• Rollout of GST expected to drive market share gains for
• Acquisition of ~40 acres land near Vadodara for expansions
organized players given narrowing of price gap
• injected Rs 196mn in Finolex J-Power JV to take total equity
• Government programmes to improve connectivity augur well for
infusion to Rs 1.2bn
communication cables segment
• Revenues grew 9% YoY; volumes in electricals up 5% and in
communication cables up 35% • Additional efforts towards expanding distribution reach and
• GST implementation and demonetization posed short-term streamlining the team at market level to expand FMEG business
challenges due to slowdown in trade • Established an extensive network of service centers for fans,
FY18 • Improving industry outlook on policy push for increasing power switchgears and water heaters
availability and accessibility • Launched its own e-commerce site
• Higher demand seen for copper-based electrical and • Principal sponsor of the ‘Kings XI’ team at the India Premier
communications cables with growing thrust on high-efficiency League (IPL)
products such as motors and transformers
• Committed Rs 2bn capex over the next 18 months for enhancing
• Revenues grew 6% YoY driven by 7% growth in wires business manufacturing capabilities at Urse, Pune for products used by
• Floods in Kerala impacted business operations solar power and automotive industries
• Wires affected due to subdued real estate market • Increasing certain value additions which were outsourced earlier
and further expansion of the optic fiber line
• National Digital Communications Policy (NDCP), 2018 a key
FY19 • To enhance retail touch points from the existing 30,000
driver for growth of communication cables
• Copper cables expected to gain considerable traction, driven by • Launched an exclusive retail store 'Finolex House' with a target
the growing impetus on high-efficiency products such as motors to set up 50 more during FY20
and transformers • Infused Rs 189mn equity in J-Power JV taking, total equity
participation up to Rs 1.53bn
• Revenues declined 7% YoY due to distress among banks and
NBFCs, struggling real estate markets, prolonged monsoons and • Capex plans announced earlier of Rs 2bn to be completed over
outbreak of COVID in India March 2020 the subsequent 12-15 months, subject to more activities
• Key product segments under pressure (electricals down 5.3%, opening up post lockdown easing
FY20 communication down 16.4%) excluding FMEG (up 24%) • Opened four more Finolex House stores in Secunderabad,
• Robust industry outlook seen driven by massive infrastructure Jamshedpur, Bengaluru and Raipur
spending and urban development schemes • Infused Rs 434mn in Finolex J-Power JV, taking the total
• GST implementation, preference for reputed brands, technology participation up to Rs 1.96bn
and quality driving a shift in favour of organized players
• Revenues declined 4% YoY; significant drop in volumes offset by • As part of the Rs 2bn capex plan, commissioned a conduit plant
higher realization on increasing RM prices at Goa; construction of electron beam-cured cables plant faced
• Exports grew by 20.2% YoY delays due to the pandemic and international travel
restrictions on experts; planning to set up a new line to make
• Government initiatives like Digital India, Smart Cities, metro
FY21 rails, rollout of 5G services, etc require densification of tinned copper and foray into instrumentation cables
transmission network; to provide boost to demand for cables • Launched a new range of decorative fans and lighting products
• Domestic demand for branded FMEG products likely to remain to strengthen the FMEG portfolio
robust due to urbanization, rural electrification programmes of • Infused Rs 245mn in Finolex J-Power JV, taking the total
the government, etc investment up to Rs 2.2bn so far
Growth (%) (6.5) (3.8) 31.9 14.6 13.0 Net worth 30,037 34,145 38,146 42,703 47,947
Raw material expenses 20,834 20,514 28,405 32,142 36,182 Total debt 3 3 4 5 6
Employee & Other exp. 4,105 3,465 3,744 4,306 4,879 DT Liability/ (Asset) 1,460 2,042 1,992 1,942 1,892
Finance costs 16 8 6 6 6 CWIP 273 257 241 226 210
PBT 4,345 4,075 4,577 5,630 6,480 Investments (Strategic) 6,089 8,453 8,653 8,853 9,053
Effective tax rate (%) 27.9 41.6 40.1 37.4 35.8 Investments (Financial) 5,120 7,259 7,259 7,259 7,259
Associates/(Minorities) 776 2,234 2,102 1,948 1,999 Current Assets 9,382 18,407 20,772 22,781 24,822
Net Income 3,910 4,615 4,843 5,475 6,161 Cash 9,339 537 1,435 3,559 6,374
FDEPS (Rs per share) 25.6 30.2 31.7 35.8 40.3 Capital Deployed 31,500 36,190 40,143 44,650 49,845
FDEPS growth (%) (4.0) 18.0 4.9 13.1 12.5 Contingent Liabilities 2,547 2,415 - - -
Cash Flow Ratios

Incr./(decr.) in WC 510 1,526 1,470 1,336 1,362 P/B (x) 2.1 1.8 1.6 1.5 1.3
Others including taxes 593 1,204 1,449 1,715 1,930 RoE (%) 13.0 13.5 12.7 12.8 12.9
Capex 323 453 1,484 984 984 ROIC (%) 19.4 18.4 15.1 15.7 16.6
Free cash-flow 2,765 691 1,329 2,586 3,230 DPS (Rs per share) 5.5 5.5 5.5 6.0 6.0
Equity raised - - - - - Net debt/equity (x) (0.5) (0.2) (0.2) (0.3) (0.3)
Debt raised (24) (0) 1 1 1 Receivables (days) 24 23 23 23 23
Fin Investments (6,597) 4,502 200 200 200 Inventory (days) 75 100 90 90 90
Misc. Items (CFI + CFF) 416 3,661 (608) (655) (702) Payables (days) 20 23 23 23 23
Net cash-flow 8,096 (8,314) 897 2,124 2,815 CFO:PAT% 79 25 58 65 68
Systematix
Crompton Greaves Consumer 29 April 2022
Segment leader with strong operating metrics

INITIATING COVERAGE Crompton Greaves Consumer (CROMPTON), leader in the fans and residential
Sector: Consumer Electricals Rating: HOLD pumps segments, maintains a keen focus on innovation, brand-building and reach.
While this helps the company further consolidate its position in core segments,
product portfolio expansion enables it to capture market share in newer categories
Stock Info (geysers a case in point, where it has become the third largest player in 4-5 years).
Sensex/Nifty 57,521/17,244 While the recently acquired Butterfly business will bring scale in kitchen
Bloomberg CROMPTON IN appliances, it may not be earnings-accretive for the next two years. We are positive
Equity shares (mn) 627.7 on CROMPTON’s prospects given its strong brand equity, product innovation skills
52-wk High/Low 492/355 and ample scope for portfolio/ network expansion. Its entry in other appliance
Face value Rs 2 categories should also allay investor concerns on product concentration. Excluding
M-Cap Rs 239 bn/ USD 3.2bn Butterfly business, we expect 13% CAGR each in revenue and PAT over FY21-24E
3-m avg turnover USD 13.4mn with ~26% RoE by FY24E. Given the significant re-rating in the last two years, we
Financial Snapshot (Rs mn) initiate coverage on CROMPTON with a HOLD rating and price target of Rs 428 (13%
Y/E Mar FY22E FY23E FY24E upside from CMP), based on 35x FY24E earnings (in line with peers). Integration of
Net sales 54,584 61,120 68,442 Butterfly business is the key monitorable in the near to medium term.
EBITDA 7,728 8,742 9,991
Premiumization in fans; improved outlook for B2C lighting: Premium fans and
OPM % 14.2 14.3 14.6
PAT (adj.) 5,725 6,713 7,682
appliances (geysers, mixer grinders, coolers and irons) continue to drive growth in
EPS (Rs) 9.1 10.7 12.2 CROMPTON’s electric consumer durables (ECD) business. After years of weak
PE (x) 41.7 35.5 31.0 growth/ margins, outlook for the B2C LED business has improved structurally on a
P/B (x) 10.8 9.4 8.1 rebound in demand. However, the B2B/ B2G lighting business has yet to recover
EV/EBITDA (x) 29.3 25.6 22.0 from the Covid-19 pandemic hit. We expect ~12% revenue CAGR each in
RoE (%) 25.9 26.4 26.2 CROMPTON’s ECD and lighting segments over FY21-24E.
RoCE (%) 35.3 37.0 37.3
Net-D/E (x) (0.6) (0.6) (0.6) Portfolio and network expansion driving growth: CROMPTON has consistently been
gaining market share in its core categories (~27% in fans and ~25% in domestic
Shareholding Pattern (%) pumps in FY21). It has taken big strides in the recent forays as well with market share
Mar’22 Dec'21 Sep'21 doubling to ~15% in geysers in the last 4-5 years. Also, the recently acquired Butterfly
Promoter 5.9 6.0 6.0 business will grow its kitchen appliances business, though it may not be earnings-
- Pledged - - - accretive for the next two years. CROMPTON’s focus on product innovation, portfolio
FII 38.0 40.2 41.5 expansion (including inorganic initiatives), premiumization, network expansion (rural
DII 44.4 43.2 42.3
and weaker regions) and digitization, we believe, will keep the momentum going.
Others 11.7 10.7 10.2
Five-dimensional growth strategy to help retain the lead: CROMPTON’s consumer-
Stock Performance (1-year) centric five-dimensional growth strategy has helped it retain leadership status in
500 fans, domestic pumps and B2C lighting in a highly competitive environment. Product
450 innovation, brand-building and channel expansion have been the key factors driving
its continued success. The strategy has been designed to deliver higher-than-industry
400
revenue growth, profits in line with revenues and conversion of profits into cash.
350
Strong operating performance; integration of Butterfly the key monitorable: A
300 strong distribution reach and lean cost structure have helped CROMPTON gain
Jan-22
Apr-21
Feb-22
Jul-21
Aug-21
Sep-21
Nov-21
Mar-22
Apr-22
May-21
Jun-21
Oct-21
Dec-21
market share in key categories and maintain a superior margin profile. Over FY21-
CROMPTON Sensex 24E, we estimate 13% revenue CAGR, 12% EBITDA CAGR and 13% PAT CAGR for the
company (vs 6%/ 11%/ 18% respectively over FY18-21) with ~15% EBITDA margin,
Ashish Poddar ~26% RoE and strong FCF. We are positive on CROMPTON in view of its strong brand,
ashishpoddar@systematixgroup.in scope for product/ reach expansion and healthy return ratios and FCFs. However,
+91 22 6704 8039
given the significant re-rating in the last two years, we initiate coverage on the stock
Pranay Shah with a HOLD rating and price target of Rs 428, based on 35x FY24E earnings.
pranayshah@systematixgroup.in Integration of Butterfly business is the key monitorable in the near to medium term.
+91 22 6704 8017
29 April 2022 Crompton Greaves Consumer
Story in charts
Exhibit 1: Revenue growth trend Exhibit 2: Gross and EBITDA margin trend
(Rs bn) (%)
80 35
70 30
60 25
50
20
40
15
30
10
20
10 5
0 0
Exhibit 3: ECD – revenue and EBIT margin trend Exhibit 4: Lighting – revenue and EBIT margin trend
(Rs bn) (%) (Rs bn) (%)
60 20 16 16
19.8 14 14
50
19.6 12 12
40
19.4 10 10
30 19.2 8 8
19 6 6
20
18.8 4 4
10
18.6 2 2
0 18.4 0 0
Revenue EBIT % (RHS) Revenue EBIT % (RHS)
(%) (Rs bn)
50 9
45 8
40
7
35
6
30
5
25
20 4
15 3
10 2
5 1
0 0
RoE % RoCE % FY19 FY20 FY21 FY22E FY23E FY24E
Investment Analysis
Healthy growth despite low focus indicates brand strength
CROMPTON, with its strong brand and vast distribution network, registered ~10%
CAGR in revenues over FY10-21, largely on par with peers. Notably, before the
demerger of CROMPTON from Crompton Greaves (the parent company) in 2015, the
division did not enjoy much focus vis-à-vis the industrial division (the latter currently
facing financial stress). With a new management taking charge post the demerger,
growth has accelerated at CROMPTON even in the face of increasing competition.
Exhibit 7: Revenue growth trend
(Rs bn)
60
50
40
30
20
10
0
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
A leader in fans, domestic pumps and lighting

CROMPTON operates in two key segments: electric consumer durables (ECD) and
lighting. The ECD business comprises ~75% of revenues and ~80% of EBIT with fans
contributing ~45% to revenues, pumps ~20% and the remaining ~10% coming from
other electrical appliances (mainly water heaters and air coolers). The company has
manufacturing plants located in Goa, Vadodara, Ahmednagar and Baddi. It is the
leader in the ~Rs 100bn fans segment with ~25% market share as of FY21 and also
the residential pumps market (~25% share). It is among the top-5 in the lighting
segment, which contributes the remaining 25% of its revenues.
Exhibit 8: ECD – revenue growth trend Exhibit 9: Lighting – revenue growth trend
(Rs bn) (Rs bn)
60 16
50 14
12
40
10
30 8
20 6
4
10
2
0 0
Revenue Revenue
Exhibit 10: A large addressable market
Est. industry Est. CAGR
Product category Key players
size (Rs bn) (FY21-26; %)
Existing
Lighting & fixtures 227 10 Philips, Surya, Crompton, Bajaj Electricals, Havells
Pumps 110 10 CRI, Crompton, Kirloskar, Texmo
Fans 99 6 Crompton, Usha, Havells, Orient, Bajaj Electricals, V-Guard
Symphony, Kenstar, Bajaj Electricals, Havells, Blue Star, Crompton, Voltas, Orient,
Air coolers 50 10
Cello, V-Guard
TTK Prestige, Preethi, Bajaj Electricals, Morphy Richards, Butterfly, Usha, Kenstar,
Mixer grinders 35 10
V-Guard, Havells
Racold, Havells, V-Guard, Bajaj Electricals, Venus, AO Smith, Crompton, Usha,
Water heaters 23 6
Orient
Total 544 9
Future opportunities
UPS 60 5 Microtek, Luminous, V-Guard, Su-Kam, Exide
Modular switches 25 8 Anchor (Panasonic), Havells, Legrand, Schneider, ABB, Siemens
Chimneys 22 10 Faber, Elica, Sunflame
Stabilizers 14 5 Microtek, Liv-guard, Bluebird, V-Guard
Irons 9 10 Bajaj Electricals, Philips, Orient, Usha, Inalsa, Havells, V-Guard
Rice cookers 6 10 Philips, Panasonic, Prestige, Preethi
Total new opportunities 136 8
Total addressable market 680 9
Source: Company, Industry
Leader in fans: CROMPTON has recorded 10-12% CAGR in fans (in line with peers)
over the last 10 years, its largest revenue category at ~45% share. The business has
expanded on the back of new launches and strong brands in the economy and mass
premium segments (SilentPro, Anti-dust, VSense, AirBuddy, etc) as also strong
growth in the premium portfolio (revenue share up to ~20% from ~10% five years
ago). Despite high competition from industry leaders (Orient, Usha, Havells, Bajaj,
etc), we believe CROMPTON is well-positioned to maintain the growth momentum
on the strength of its innovative offerings and wide distribution network.
Exhibit 11: CROMPTON has ~25% market share in fans category Exhibit 12: CROMPTON’s fans display in a retail shop
22%
25%
Crompton
Usha
Havells
3%
Orient
Bajaj
7%
V-Guard
14%
Others
14%
15%
Source: Company, Industry reports, Systematix Institutional Research Source: Company
Dominant market share in residential pumps: CROMPTON is one of the fastest
growing pump manufacturers in India, with a dominant ~25% share in the residential
segment (~75% of its pump revenues). Including agricultural pumps, it commands
~15% market share, the second highest after CRI Pumps (~24%). The highly
successful launch of Mini Crest in December 2017 for domestic use has strengthened
CROMPTON’s position in the traditionally difficult western and southern markets
otherwise dominated by local/ unorganized manufacturers. It is now developing 4-
and 5-star rated energy-efficient pumps and also evaluating the manufacture of solar
pumps. The company now plans to increase focus on tier-2 and -3 cities.
Exhibit 13: CROMPTON – a leading player in residential pumps Exhibit 14: Pump advertisement
24%
CRI Pumps
Crompton
56% V-Guard
15%
Others
5%
Source: Company, Industry reports, Systematix Institutional Research Source: Company
Exhibit 15: A leader in residential pumps
Source: Company
Consumer appliances – a small base currently but huge growth potential: Within
this segment, CROMPTON has offerings in the water heater, mixer grinder and air
cooler categories. The company has fully revamped this business and introduced new
products in the last few years. The estimated ~Rs 700bn electrical appliances
segment is highly fragmented and non-regulated, implying that product
differentiation and wide availability are key to success. While the category currently
contributes ~10% to CROMPTON’s revenues, we believe it can become a sizeable
business for the company given its strong brand, focus on innovation, vast
distribution network and product portfolio expansion.
Exhibit 16: Expanding the home appliances portfolio
Source: Company
Exhibit 17: ECD – revenue and EBIT margin trend

(Rs bn) (%)
60 20
19.8
50
19.6
40
19.4
30 19.2
19
20
18.8
10
18.6
0 18.4
Revenue EBIT % (RHS)
A leader in lighting: Last few years have been challenging for the industry, mainly in
B2B/ B2G business where CROMPTON has been a leading player, due to rapid
technology advances and significant price erosion. Besides extending its geographical
reach to smaller cities and towns over the years, its focus on B2C LED through cost
optimization and product differentiation has also yielded better growth and
profitability.
Exhibit 18: Lighting – revenue, EBIT margin trend
(Rs bn) (%)
16 16
14 14
12 12
10 10
8 8
6 6
4 4
2 2
0 0
Exhibit 19: Lighting – a wide range of products for B2B and B2C channels
Source: Company
Focus on product innovation, brand building and channel expansion

CROMPTON strives to improve its product mix by launching premium offerings in the
market, based on consumer insights. It also aims to continuously add touchpoints
(among the largest networks in the industry) to garner a higher consumer base.
Emphasis on product innovation, brand building and channel expansion would help
the company consolidate its position in the premium segment. The strategy has
already been tested in fans, wherein the new management worked to change the
brand’s positioning from being a ‘value for money’ mass brand to premium fans
through innovation and higher A&P spends.
Exhibit 20: Higher A&P spends to enhance brand visibility Exhibit 21: A strong network of consumer touchpoints
(Rs bn) (%) (Number of
1,200 3 retailers)
2,50,000
1,000 2.5
2,00,000
800 2
1,50,000
600 1.5
1,00,000
400 1
200 0.5 50,000
0 0 0
FY16 FY17 FY18 FY19 FY20 FY21 Bajaj Havells Orient Electric Crompton V-Guard
A&P spend % revenue (RHS) Electricals Consumer
Product launches: To effectively compete in the market and connect with more
customers, CROMPTON has launched innovative products with better technology,
and IoT and artificial intelligence-based products. Key launches include SilentPro
(2020) and Anti-dust (2017) fans in the premium category and Mini-Crest pumps
(2018) in the residential segment. In FY19, it launched VSense, a fan that can run at
full speed and provide excellent air delivery even at 115 volts, targeted at markets
characterized by voltage fluctuations (Uttar Pradesh, Bihar, Madhya Pradesh,
Himachal Pradesh, Odisha and Rajasthan). Another product AirBuddy was introduced
for installation in kitchens, aimed at comfort while cooking without affecting the gas
flame. Similarly, Anti Bac, an LED bulb aimed at hygiene-conscious customers, was
featured as killing germs and providing brightness. CROMPTON has also revamped its
TPW range of fans (table, pedestal and wall) with new models and colours.
Exhibit 22: Innovative launches have contributed to CROMPTON’s brand equity
The best operating metrics despite high level of outsourcing

Within the ECD space, CROMPTON enjoys the best margins among peers, supported
by its strong brand, scale benefits and efficient sourcing. A high degree of
outsourcing (~45% of ECD revenues), industry-high margins, a lean working capital
cycle and judicious capex policy have helped the company record the best return
ratios in the industry as also healthy FCF.
Exhibit 23: CROMPTON has the highest EBIT margins among peers Exhibit 24: CROMPTON’s EBIT margin trend
(%)
(%)
20.5
25
20.0
16
18.8
18.0
20 15
15
10.5
15
10.3
8.9
8.0
14
7.0
10
6.0
5.5
5.5
5.0
3.7
14
5
13
0
13
BJE
VGRD
POLYCAB
CROMPTON
HAVL
FNXC
ORIENTEL
12
FY21 FY24E EBITDA margin
Exhibit 25: Low net WC and judicious capex result in healthy FCF Exhibit 26: Most of CROMPTON’s profits convert into cash (FCF/
EBITDA)
(Rs bn) (%)
9 200
8 180
7 160
6 140
120
5
100
4
80
3 60
2 40
1 20
0 0
OCF Capex FCF Orient Electric Crompton V-Guard Havells
FY19 FY20 FY21 FY22E FY23E FY24E FY19 FY20 FY21
Exhibit 27: Lowest net WC cycle Exhibit 28: Highest RoE among peers
(Days) (%)
180 35 32
155
160
30 26 26
140 120 25
120 25 22
100 20 20
100 90 90 90 20 18 18 18
73 79 15 17 17
80 14 13
55 50 55 15 12
60 42
40 30 10
19 20
20 11 5
0
0
HAVL
BJE
POLYCAB
KEII
CROMPTON
VGRD
FNXC
ORIENTEL
CROMPTON
POLYCAB
BJE
KEII
VGRD
HAVL
FNXC
ORIENTEL
FY21 FY24E FY21 FY24E
A five-dimensional growth strategy

Under the new management, CROMPTON has set three key performance indicators
(KPIs):
▪ to grow revenues faster than the relevant market
▪ to grow profit at least in line with revenues
▪ to convert bulk of the profits to cash
Five strategic growth levers to achieve the KPIs
The management has identified five strategic levers that will help strengthen its
leadership position in the key segments and improve profitability. Besides increasing
its A&P spends and expanding the distribution reach (including in rural areas), the
company is exploring suitable growth opportunities in adjacent categories through
the organic and inorganic routes. Below is a brief outline of the strategy:
Brand excellence: CROMPTON has widened the media ambit for communication to
straddle more touchpoints while continuing to target younger consumers.
Highlighting differentiation in offerings has served to build preference for its brand
among discerning consumers.
Portfolio excellence: In line with its focus on consumer-relevant innovation, the
company has launched many innovative products across segments to become a
relevant brand in a highly competitive market.
Go-to-Market excellence: The key objective is to expand reach through new
channels while strengthening the existing ones. Technology has played a significant
part with better data and real-time assistance in decision-making.
Operational excellence: The focus is on ensuring quality while managing costs
through better sales and operational planning to improve material availability, ERP
implementation, leverage scale in purchase, etc.
Organizational excellence: The aim is to attract and retain talent through continuous
training & development programmes and attractive remuneration (ESOPs, etc), and
bring them into CROMPTON’s behavioural framework.
Exhibit 29: CROMPTON’s five-dimensional growth strategy
FIve-dimensional growth strategy
Go-To-Market Operational Organisational

Brand Excellence Portfolio Excellence
Excellence Excellence Excellence
# Continuous # Drive # Strengthening # Supply-chain # Building Capabilities

investments to Premiumisation Existing Channels Streamlining and via Key Appointments
energize the Optimisation
Crompton brand # Consumer-centric # Expanding Reach # Crompton Behaviour
Innovation Through New # Margin Expansion Framework
Channels
Source: Company
Contours of the Go-To-Market strategy for reach expansion
To ensure that the right products are available at right stores at right prices,
CROMPTON adopted a Go-To-Market (GTM) strategy in 2015 focused on: a) uniform
pricing across channels to remove channel conflict, and b) improving availability of
products by increasing direct and indirect reach across the country. Channel partner
engagement was at the core of this strategy.
One key channel identified was online sales, where CROMPTON was absent so far.
The company has been gradually driving installation of digital technologies and
databases with coverage of large distributors first and helping inventory
management at the corporate and channel levels. The network database is helping
track secondary sales, thereby improving wallet share of distributors at retail
counters.
The GTM strategy has picked up momentum in the last two years. According to the
management, regions with GTM implementation (most of West and North) have
witnessed higher growth than other markets. While the company is reducing its
dependence on the wholesale channel through a distribution-channel expansion,
wholesale will remain important – as is the industry practice.
Exhibit 30: Go-To-Market strategy
The GTM strategy

Full control over the channel to improve efficiency
Strengthen existing Expand reach in rural

Focus on new channels Have full control on
channel network with areas for agriculture
of distribution (modern retailers with the use
focus beyond Tier I & pumps and other
retail, e-commerce) of network databses
Tier II cities products
Source: Company
Exhibit 31: Display and product awareness activities
Source: Company
Butterfly acquisition to augment kitchen appliances portfolio

After scouting for acquisitions for the last few years, CROMPTON has finally struck a
deal to acquire a majority stake in South-based Butterfly Gandhimati (BGAL). The
acquisition will help CROMPTON strengthen its position in the ~Rs 100bn kitchen and
small domestic appliances categories. After consolidation, the revenue mix of
appliances would increase to ~24% from ~10% earlier.
While the deal does add to CROMPTON’s topline, it will likely be earnings-neutral for
the next two years. We are not taking BGAL’s financials into consideration for now in
our analysis and will await better clarity on future growth plans in the portfolio. We
believe a meaningful expansion in BGAL’s margins is imperative for the acquisition to
drive earnings-accretion for CROMPTON.
Key highlights of the acquisition
• CROMPTON will acquire a 55% stake in BGAL at Rs 1,403 per share, followed by
an additional 26% stake at Rs 1,434 per share via an open offer.
• The acquisition, including the 81% equity stake and certain trademarks and land
parcels, will involve a total outflow of ~Rs 22bn, to be financed through a mix of
internal accruals (~Rs 13bn cash on books) and debt.
• The deal has been done at valuations of ~2.2x EV/ Sales, ~23x EV/ EBITDA at
~Rs 25bn EV and ~45x FY22E earnings and appears to be on the higher side vis-à-
vis similar transactions by peers.
• BGAL will remain listed for now.
• Existing promoters of BGAL now hold ~9% stake in the company and will be
categorized as minority shareholders of BGAL.
Exhibit 32: BGAL’s positioning in different regions
Source: Company
BGAL’s product profile and synergy benefits
• BGAL generates 80% of its revenues from mixer grinder, wet grinder, pressure
cooker and LPG stove categories.
• With strong R&D capabilities, it manufactures 80% of products in-house.
• CROMPTON will retain the Butterfly brand.
• It has identified growth and cost optimization areas for BGAL and aims to achieve
double-digit growth with margin expansion over the next few years.
• CROMPTON will help BGAL expand the business in non-South markets while
maintaining leadership position in the South.
Exhibit 33: BGAL’s category-wise product portfolio
Product divisions Key product categories
LPG Stoves, Mixer Grinder, Electric Rice Cooker, Juicer Mixer Grinder,
Kitchen Appliances
Wet Grinder, Chimney, Induction Cooktop, Built-in Hobs
Cookers & Cookware Pressure Cookers, Non-stick cookware
Hand Blender, Hand Mixer, Pop-up Toaster, Sandwich Maker, Flasks,
Others
Electric Kettles, Tower Fan, Cooler, Manual Chopper
Source: Company
Exhibit 34: Proforma financials of the consolidated entity (CROMPTON + BGAL)
(Rs mn) CROMPTON Butterfly CROMPTON + Butterfly (proforma)
FY21 FY22E FY23E FY24E FY21 FY22E FY23E FY24E FY21 FY22E FY23E FY24E
Net sales 48,035 54,584 61,120 68,442 8,696 10,435 12,000 13,801 48,035 54,584 73,121 82,242
YoY % 6.3 13.6 12.0 12.0 20.0 15.0 15.0 13.6 34.0 12.5
ECD 37,571 43,447 48,660 54,500 8,696 10,435 12,000 13,801 37,571 43,447 60,661 68,300
YoY % 11 16 12 12
Lighting 10,464 11,137 12,460 13,942 - - - - 10,464 11,137 12,460 13,942
YoY % (7) 6 12 12
RM costs 32,672 37,381 41,737 46,738 5,061 6,522 7,440 8,487 32,672 37,381 49,177 55,225
% net sales 68.0 68.5 68.3 68.3 58.2 62.5 62.0 61.5 68.0 68.5 67.3 67.1
Gross profit 15,363 17,202 19,383 21,704 3,635 3,913 4,560 5,313 15,363 17,202 23,944 27,017
Gross margin % 32.0 31.5 31.7 31.7 41.8 37.5 38.0 38.5 32.0 31.5 32.7 32.9
Employee 3,366 3,744 4,193 4,696 770 981 1,116 1,270 3,366 3,744 5,309 5,966
% net sales 7.0 6.9 6.9 6.9 8.9 9.4 9.3 9.2 7.0 6.9 7.3 7.3
Other expenses 4,792 5,731 6,449 7,017 2,068 2,160 2,424 2,719 4,792 5,731 8,873 9,736
% net sales 10.0 10.5 10.6 10.3 23.8 20.7 20.2 19.7 10.0 10.5 12.1 11.8
EBITDA 7,205 7,728 8,742 9,991 797 772 1,020 1,325 7,205 7,728 9,762 11,316
EBITDA margin % 15.0 14.2 14.3 14.6 9.2 7.4 8.5 9.6 15.0 14.2 13.4 13.8
Depreciation 297 381 349 422 156 167 180 193 297 381 529 615
% net sales 0.6 0.7 0.6 0.6 1.8 1.6 1.5 1.4 0.6 0.7 0.7 0.7
EBIT 6,908 7,347 8,393 9,569 641 605 840 1,132 6,908 7,347 9,233 10,700
% net sales 14.4 13.5 13.7 14.0 7.4 5.8 7.0 8.2 14.4 13.5 12.6 13.0
Other income 758 648 904 984 16 16 18 21 758 648 - 160
% net sales 1.6 1.2 1.5 1.4 0.2 0.2 0.2 0.2
Finance costs 429 318 296 251 174 136 108 97 429 318 420 70
% net sales 0.9 0.6 0.5 0.4 2.0 1.3 0.9 0.7
PBT 7,236 7,677 9,002 10,302 483 485 750 1,056 7,236 7,677 8,813 10,790
% net sales 15.1 14.1 14.7 15.1 5.6 4.7 6.3 7.7 15.1 14.1 12.1 13.1
Tax 1,070 1,952 2,289 2,619 122 170 225 317 1,070 1,952 2,247 2,752
% ETR 14.8 25.4 25.4 25.4 25.3 35.0 30.0 30.0 14.8 25.4 25.5 25.5
Reported PAT 6,167 5,725 6,713 7,682 361 315 525 739 6,167 5,725 6,566 8,039
% net sales 12.8 10.5 11.0 11.2 4.2 3.0 4.4 5.4 12.8 10.5 9.0 9.8
Minority interest - - - - - - - - - - 100 140
PAT after MI 6,167 5,725 6,713 7,682 361 315 525 739 6,167 5,725 6,466 7,898
Shares O/s (mn) 628 628 628 628 18 18 18 18 628 628 628 628
EPS (Rs) 9.8 9.1 10.7 12.2 20.2 17.6 29.3 41.3 9.8 9.1 10.3 12.6
Accretion/ (Dilution) - - (4) 3
Financial Analysis
Expect growth to accelerate over FY21-24E
After 10% revenue CAGR in ECD (fans, pumps, appliances, etc) over FY18-21, we
expect sustained growth momentum in the division. Lighting division, however, saw
an 8% decline compounded annually over the period due to pricing pressure and
subdued demand from B2B/ B2G segment (though B2C recorded healthy demand).
After a modest 6% CAGR in overall revenues over FY18-21, we expect CROMPTON to
register 13% revenue CAGR over FY21-24E, with ~12% CAGR each in ECD and lighting
divisions. EBITDA margin of 15% in FY21, which remained high on low discretionary
expenses during the covid-19 pandemic, is likely to remain in the 14-15% range on
higher sales and cost saving measures. We seek better clarity on Butterfly business
(EPS-neutral for the next two years in our view) before we consolidate the same in
CROMPTON’s financials.
Exhibit 35: Revenue and growth trend Exhibit 36: PAT and growth trend
(Rs bn) (Rs bn)
80 9
70 8
60 7
6
50
5
40
4
30
3
20
2
10 1
0 0
Revenue PAT
Net working capital cycle to remain low

CROMPTON is the most efficient among its peers in terms of working capital
management, largely owing to its low inventory days (partially aided by higher
outsourcing; ~45% of ECD revenues) and higher payable days.
Exhibit 37: Lean working capital cycle on account of low inventory days
(Days)
80
70
60
50
40
30
20
10
0
Receivables Inventory Payables Net WC cycle
Healthy FCF generation with low net working capital and limited capex
CROMPTON’s lean net working capital requirement and low capex have helped it to
generate healthy free cash flows, which we see as a huge positive. Moreover, it
converts most of its EBITDA into OCF (the highest among peers).
Exhibit 38: Low net WC and limited capex result in healthy FCF generation
(Rs bn)
9
8
7
6
5
4
3
2
1
0
OCF Capex FCF
FY19 FY20 FY21 FY22E FY23E FY24E
Healthy return ratios

CROMPTON generates the best return ratios among peers led by its higher margins,
lean working capital and low capex spend. We expect a marginal improvement in
RoE (26%+) and RoCE (37%+) in the coming years.
Exhibit 39: RoE and RoCE trend
(%)
50
45
40
35
30
25
20
15
10
5
0
RoE % RoCE %

PAT margin (%) 7.9 9.0 11.0 12.8 10.5 11.0 11.2
Asset turnover (x) 2.9 3.2 2.8 2.2 2.3 2.3 2.3
RoE (%) 41.0 36.6 33.8 31.9 25.9 26.4 26.2

We like CROMPTON for its leadership status in fans, residential pumps and lighting
segments. The new management has further strengthened its market position
through a five-dimensional growth strategy, which has been delivering positive
results. The company’s industry-best operating margins, high return ratios and free-
cash-flow generation ability are other positives.
CROMPTON’s strong distribution reach and a lean cost structure have helped it gain
market share in the key categories and maintain a strong margin status through the
years. After witnessing 6% revenue CAGR, 11% EBITDA CAGR and 18% adj. PAT CAGR
over FY18-21, we expect 13% revenue CAGR, 12% EBITDA CAGR and 13% adj. PAT
CAGR for the company over FY21-24E with ~15% EBITDA margin, ~26% RoE and
strong FCF.
We are positive on CROMPTON’s prospects owing to its strong brand equity and
ability to expand its portfolio as well as reach. The strong operating performance has
allayed investor concerns regarding the high degree of product concentration (which
is now reducing with its entry into other appliance categories) and the exit of PE
investors. However, given that the stock has re-rated significantly in the last two
years, we initiate coverage on CROMPTON with a HOLD rating and price target of
Rs 428 (14% upside from CMP), based on 35x FY24E earnings (in line with peers).
Integration of Butterfly business is the key monitorable in the near to medium term.
Exhibit 41: 1-yr forward PE band and standard deviation
60
50
+1SD
40
Mean
30
-1SD
20
10
0
Jul-17
Jul-18
Jul-19
Jul-20
Jul-21
Apr-17
Apr-18
Apr-19
Apr-20
Apr-21
Apr-22
Jan-18
Jan-19
Jan-20
Jan-21
Jan-22
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21

A concentrated product portfolio
CROMPTON derives bulk of its revenues from three key product lines – fans, lighting
and pumps. Taking cognizance of the same, the company has expanded its
appliances range in the last 2-3 years. The management is also open to considering
acquisitions to expand and grow the portfolio.
Economic slowdown
A sluggish domestic economy due to global factors may have short-term negative
impact on demand. For the past couple of years, the housing sector has also
generated muted demand for electrical goods. However, there are signs of revival in
the housing sector. Availability of uninterrupted power supply is key to demand of
electrical products – hence, errant supply of electricity may hamper growth
prospects of the industry.
Commodity headwinds
With the economy opening up post lifting of the COVID-induced lockdowns, the
pent-up demand for commodities has driven a sharp rise in RM prices. Industrial
commodities, including key raw materials such as copper, steel and aluminium have
seen significant and sustained price spikes. Going forward, inflationary trends like
increasing input costs, higher commodity prices and better pricing power may
adversely impact consumer discretionary spends.
CG Power’s foray into Consumer Electricals industry
CG Power, a demerged entity of the erstwhile Crompton Greaves, has entered the
consumer electricals industry starting with fans. Given a similar name and existing
association with channel partners (both companies being part of the same group pre-
demerger), CROMPTON may face unhealthy competition from CG Power.
Annexures
Company Background
Incorporated in February 2015 after demerger of the consumer products business from the power and industrial systems businesses
of Crompton Greaves (the parent company), CROMPTON was taken over by two private equity investors (Advent and Temasek) from
the Thapar-owned Avantha Group. The PE investors hired a new management (the erstwhile MDs of P&G and Racold are currently
the MD and CEO of CROMPTON respectively) to run the business with a focused approach.
Exhibit 42: Journey and key milestones
Year Remarks
1878 Founded as “REB Crompton & Co” by Col. REB Crompton
1937 Merged with F&A Parkinson to from “Crompton Parkinson”
1947 Acquired by the Thapar group at the time of India’s Independence
1966 The group restructured to form “Crompton Greaves”
2005 One of the leading companies globally in all three segments (fans, lighting, pumps)
2015 The consumer business demerged into “Crompton Greaves Consumer”

Source: Company
CROMPTON operates in two business segments – electric consumer durables (ECD) and lighting. ECD forms ~75% of its revenues and
~80% of EBIT with ~45% contribution by fans, 20% by pumps the remaining from other electrical appliances including water heaters,
mixer grinders, air coolers, etc. It has manufacturing plants in Goa, Vadodara, Ahmednagar and Baddi.
The company leads the ~Rs 100bn Indian fans market with a ~25% market share. It is also the leader in residential pumps (~25%
market share) and among the top-5 in the lighting segment.
Exhibit 43: Revenue mix (FY21)
21%
ECD (fans, pumps, appliances

etc)
Lighting
79%
Source: Company
CROMPTON relies heavily on outsourcing with ~45% of its ECD and lighting products manufactured at third-party facilities. Its lean
cost structure yields industry-high margins and strong return ratios translate into a healthy balance sheet. The company has high
brand equity and a vast distribution network of ~200,000 retail points pan-India.
CROMPTON has been proactive in launching premium offerings based on consumer insights and constantly increasing touchpoints
to expand its customer base. The focus is on product innovation, brand-building and distribution channel expansion (currently one
of the largest in India). Since the change in management, the company has strengthened its position in premium fans (earlier
restricted to being a ‘value-for-money’ brand in the mass segment). The transformation has been achieved through product
innovation and higher A&P spends.
Exhibit 44: Comprehensive product range
Ceiling, Table, Pedestal, Wall-mounted, Ventilating,

Fans
Heavy-duty exhaust, and Industrial
Pumps Residential, Agricultural, Commercial, and Industrial
Water-heater, Air-cooler, Mixer-grinder, Iron,

Appliances
Room-heater, Power solutions
LED lamps, CFLs, Home and Infra lighting, Street

Lighting lights, High intensity discharge lamps, incandesent
lamps
Source: Company
Promoters and key management personnel

Shantanu Khosla, Managing Director, is a B. Tech. in Mechanical Engineering from
IIT, Mumbai, and an MBA from IIM, Calcutta. He joined CROMPTON in Jan-16 after
serving as MD & CEO of Procter & Gamble, India from Jul-02 to Jun-15.
Mathew Job, Chief Executive Officer, joined CROMPTON in Jan-16. An alumnus of
IIM Calcutta, he has held several key positions in the past. He was with Philips
Electronics, India, from Jun-94 to Oct-09, Grohe India as VP and MD from Nov-09 till
Jan-12 and Racold (Ariston) Thermo as MD till Sep-15.
Sandeep Batra, Chief Financial Officer, is a Chartered Accountant and Company
Secretary. Before joining CROMPTON, he was CFO of ICI India and Pidilite Industries.
He has more than 25 years of experience in the field.
Promoters 6.0 6.0 5.9 SBI MF 5.7
Free float 94.0 94.0 94.1 Birla MF 4.3
- Foreign Institutions 41.5 40.2 38.0 HDFC Life Insurance 4.0
- Domestic Institutions 42.3 43.2 44.4 Mirae MF 3.4
- Public 10.2 10.7 11.7 HDFC MF 3.3

Year Demand Scenario Plans and Initiatives
• A stable economy, inflation within bounds, a good monsoon • First full year of operations post the demerger
and rebound in consumer sentiment after the demonetization
shock were key highlights of the year • Share of LED tech from Crompton on the rise
FY17
• However, slowdown in construction sector a challenge to • Replacement of LED tech and solar power in place of existing
growth trajectory CFL tech in certain plants driving demand
• Focus on improving efficiency and efficacy and adopting

• Growth in 1Q hit by transition to GST
structural cost improvement measures
• Positive shift in consumer perception on Crompton brand
• New launches like anti-dust fans and LEDs elicited good
• A strong macroeconomic scenario response from customers
FY18 • Partial recovery in construction activity; government the key • Extensive training and awareness programmes conducted,
driver for housing growth, primarily through affordable housing especially with vendors, in the run-up to GST regime to
schemes effectively handle the transition
• Pressure on commodity input costs and interest rates with • Growth strategy chalked out based on five pillars
strengthening of US Dollar
• Scope of GTM pilot widened basis initial success
• Working on products with improved technology, and also IoT
• Robust growth was anticipated across key segments led by and Artificial Intelligence-based products
product innovation, more efficient go-to-market and geographic
expansion • Expanding addressable market in pumps by leveraging the Mini
Crest range of products
FY19 • Positive macro factors with rising GDP growth, increasing
urbanization, consumerism among the affluent segment, rising • Evaluating the Brushless DC (BLDC) Motor technology
disposable incomes and improving electrification across India to
• Incorporated two wholly owned subsidiaries – Pinnacles
drive growth
Lighting Project and Nexustar Lighting Project
• Well positioned for transition of its existing portfolio smoothly
• A sluggish global economy and cyclical issues in Indian economy
under the new BEE norms
• 4Q disrupted by extensive pan-India lockdowns due to the
• Government’s pro-solar initiatives (e.g., the PM Kusum scheme)
coronavirus pandemic, with challenges on supply as well as
FY20 prompted foray into the solar pumps business
demand side
• Took various steps towards efficient utilization of energy
• Government schemes under housing and lighting sector
resources, water conservation, waste management and
provided major impetus to industry growth
adopting renewable energy sources
• Economy took a hard blow from the COVID-19 pandemic
• Commodity inflation in 2H another challenge • To adopt a three-pronged strategy (brand awareness, best
customer and consumer service and most innovative products,
• Lighting industry expected to be the next digital disruptor, with especially around emerging or more accepted products) to
increasing adoption of Internet of Things (IoT) achieve healthy growth in the B2C segment
FY21
• Growth in Electrical Consumer Durables (ECD) segment in India • For B2B, plans to create efficient designs and foray into newer
expected to be led by a favourable demographic profile with categories such as solar and decorative products
higher disposable incomes, access to easy finance options,
increasing electrification of rural areas, rapid urbanization and • Appliances business doubled in the last three years
growth of nuclear families, and emerging consumer trends
Net revenues 45,203 48,035 54,584 61,120 68,442 Share capital 1,255 1,255 1,255 1,255 1,255
Growth (%) 0.9 6.3 13.6 12.0 12.0 Net worth 14,683 19,314 22,134 25,465 29,278
Raw material expenses 30,703 32,672 37,381 41,737 46,738 Total debt 1,797 2,988 1,988 1,488 988
Employee & Other exp. 8,508 8,158 9,475 10,642 11,713 DT Liability/ (Asset) (507) (586) (486) (386) (286)
Other income 591 758 648 904 984 Goodwill 7,794 7,794 7,794 7,794 7,794
Effective tax rate (%) 16.0 14.8 25.4 25.4 25.4 Investments (Financial) 5,408 7,697 11,697 13,697 16,697
Net Income 4,964 6,167 5,725 6,713 7,682 Cash 481 6,040 2,576 2,854 2,662
Shares outstanding 627 628 628 628 628 Working capital 796 (1,279) 5 326 675
FDEPS growth (%) 23.7 24.2 (7.2) 17.3 14.4 Contingent Liabilities 1,381 1,782 - - -
Cash Flow Ratios

Incr./(decr.) in WC 721 (1,445) 1,084 121 148 P/B (x) 16.2 12.3 10.8 9.4 8.1
Others including taxes 1,446 575 1,952 2,289 2,619 RoE (%) 33.8 31.9 25.9 26.4 26.2
Capex 494 202 480 680 680 ROIC (%) 58.0 68.3 66.0 69.3 74.5
Free cash-flow 3,615 8,101 4,112 5,551 6,443 DPS (Rs per share) - 5.5 4.6 5.4 6.2
Acquisitions - - - - - Dividend yield (%) - 1.4 1.2 1.4 1.6
Dividend 1,506 1,874 2,905 3,382 3,869 Dividend payout (%) - 56.0 50.7 50.4 50.4
Equity raised 52 73 - - - Net debt/equity (x) (0.3) (0.6) (0.6) (0.6) (0.6)
Debt raised (3,000) 1,300 (1,000) (500) (500) Receivables (days) 37.4 37.3 36.0 36.0 36.0
Fin Investments (363) 5,027 4,000 2,000 3,000 Inventory (days) 37.4 39.4 35.0 35.0 35.0
Misc. Items (CFI + CFF) 454 189 (330) (609) (733) Payables (days) 52.0 65.7 52.0 52.0 52.0
Net cash-flow (929) 2,384 (3,463) 278 (193) CFO:PAT% 82.8 155.3 80.2 92.8 92.7
Systematix
Havells 29 April 2022
Straddling the entire consumer durables range

INITIATING COVERAGE Havells (HAVL), one of India’s leading consumer durables companies, is among the
Sector: Consumer Electricals Rating: HOLD top-3 in many of its product categories on the strength of its brand pull, vast
distribution network and robust processes. The Lloyd acquisition gave it an entry
into the large home appliances segment, wherein the long-term outlook is as
Stock Info strong as in FMEG. Several corrective measures (brand repositioning, sales channel
Sensex/Nifty 57,521/17,244 re-structuring and in-house manufacturing) taken at Lloyd have placed the brand/
Bloomberg HAVL IN portfolio on the path of sustainable growth. Also, rising consumer preference for
Equity shares (mn) 626.0 quality branded products augurs well for HAVL. We expect a 17% revenue CAGR
52-wk High/Low 1,474/979 and 18% PAT CAGR for the company over FY21-24E with RoE of ~22% by FY24E and
Face value Rs 1 healthy FCF. However, its rich valuations (47x FY24E earnings at CMP) compel us to
M-Cap Rs 814 bn/ USD 10.9bn initiate coverage on the stock with a HOLD rating and price target of Rs 1,383 (6%
3-m avg turnover USD 24mn upside from here), based on 50x FY24E earnings. Strong growth/ FCF and a higher
Financial Snapshot (Rs mn) RoE are key to the company sustaining such high valuations.
Y/E Mar FY22E FY23E FY24E A well-diversified and leading consumer durables company: HAVL is among the
Net sales 131,778 149,335 168,968
most diversified (present in 21 categories) consumer durable companies in India. The
EBITDA 17,469 21,630 24,565
company has diversified its product portfolio from just FMEG to large appliances by
OPM % 13.3 14.5 14.5
PAT (adj.) 12,014 15,068 17,310
acquiring Lloyd in 2017. It has 14 manufacturing units, 39 branch offices and an all-
EPS (Rs) 19.2 24.1 27.7 India distribution network of 14,270+ dealers catering to 180,000+ retail points.
PE (x) 67.7 54.0 47.0 Top-3 in many categories; a strong brand, vast distribution network: HAVL has
P/B (x) 13.8 11.8 10.1 captured a slot among the top-3 in many FMEG product categories by leveraging its
EV/EBITDA (x) 45.5 36.4 31.7
brand pull, vast distribution network and robust processes. Its five brands (Havells,
RoE (%) 20.3 21.9 21.6
RoCE (%) 26.4 29.1 29.1
Crabtree, Standard, REO and Lloyd) cater to a diverse set of customers with a unique
Net-D/E (x) (0.3) (0.4) (0.4) product portfolio for each. Innovation and product differentiation have been at the
core of its strategy, reflected in rising R&D expenses (~1% of sales in FY21 vs 0.5% in
Shareholding Pattern (%) FY15; target of ~2% over the next few years). After establishing a strong presence in
Mar’22 Dec'21 Sep'21 urban markets, the focus now is on the fast-growing semi-urban/ rural markets.
Promoter 59.5 59.5 59.5
- Pledged - - -
Llyod on a strong footing after structural improvements: After undertaking brand
FII 24.4 26.5 26.8 repositioning initiatives like channel restructuring and in-house manufacturing over
DII 8.3 6.4 6.2 the last three years, Lloyd strives to be an aspirational consumer durables brand
Others 7.8 7.7 7.5 offering a comprehensive portfolio of room air conditioners (RACs), LEDs, washing
machines and refrigerators. The segment presents a huge opportunity for HAVL’s
Stock Performance (1-year) ‘deeper into homes’ strategy and, with its own manufacturing facilities for RACs and
1,600 washing machines, Lloyd is well placed to take advantage of this – especially after
1,500
1,400 the ban on import of gas-filled ACs. It is also strengthening its network coverage by
1,300 expanding into modern format retail stores, e-commerce and via own Lloyd Galaxy
1,200
1,100 stores to increase brand visibility.
1,000
900 Initiating coverage with a HOLD rating: With improved growth prospects across
800 FMEG segments as also in the Lloyd business, we expect 17% revenue CAGR and 18%
Apr-21
Jul-21
Nov-21
Jan-22
Feb-22
Aug-21
Sep-21
Dec-21
Mar-22
Apr-22
May-21
Jun-21
Oct-21
PAT CAGR for HAVL over FY21-24E with RoE of ~22% and healthy FCF. While we like
HAVL Sensex the company for its diversified portfolio, leadership position, strong brand and vast
distribution network, we see limited upside potential at 47x FY24E earnings at CMP.
Ashish Poddar Thus, we initiate coverage on the stock with a HOLD rating and price target of
ashishpoddar@systematixgroup.in Rs 1,383 (50x FY24E earnings, near its 5-year mean). Strong growth/ FCF and RoE are
+91 22 6704 8039
key to the company sustaining valuations at these levels.
Pranay Shah
+91 22 6704 8017
29 April 2022 Havells
Story in charts
Exhibit 1: HAVL is on a strong footing for long-term growth
Source: Company
Exhibit 2: Total revenue and growth trend Exhibit 3: Gross and EBITDA margin trend
(Rs bn) (%)
180 45
160 40
140 35
120 30
100 25
20
80
15
60
10
40
5
20
0
0 FY18 FY19 FY20 FY21 FY22E FY23E FY24E
Exhibit 4: PAT and growth trend Exhibit 5: Wires & Cables – revenue and EBIT margin trend
(Rs bn) (Rs bn) (%)
20 60 13
18
16 50 12.5
14
40 12
12
10 30 11.5
8
6 20 11
4
10 10.5
2
0 0 10
PAT Revenue EBIT % (RHS)
Exhibit 6: Lighting & Others – revenue and EBIT margin trend Exhibit 7: ECD – revenue and EBIT margin trend
(Rs bn) (%) (Rs bn) (%)
30 16 45 18
14 40 16
25
12 35 14
20 30 12
10
25 10
15 8
20 8
6
10 15 6
4
10 4
5
2 5 2
0 0 0 0
Exhibit 8: Switchgears – revenue and EBIT margin trend Exhibit 9: Lloyd – revenue and EBIT margin trend
(Rs bn) (%) (Rs bn) (%)
25 29 30 8
28
20 25 6
27
20 4
15 26
15 2
10 25
10 0
24
5
23 5 -2
0 22 0 -4
(%) (Rs bn)
32 20
30
28 15
26
10
24
22 5
20
18 0
16
-5
14
12 -10
HAVL: A leader with strong brands and vast distribution

With its all-India distribution network (39 branch offices, 14,270+ dealers and
180,000 retailers), HAVL is a leading FMEG company in India. By leveraging its strong
brand pull, vast distribution network and robust processes, it is among the top-3
players in multiple product categories. The company has 14 manufacturing plants.
HAVL’s product range in FMEG covers household, commercial and industrial electrical
needs: circuit-protection switchgears, cables & wires, motors, fans, power capacitors,
luminaires, modular switches, water heaters, coolers, air purifiers, personal
grooming & other appliances under the brands Havells, Crabtree, Standard and REO.
Exhibit 12: HAVL among the top-3 in key categories
Indicative Organized
Product Market-size (Rs bn) Market-share HAVL rank penetration Peers
Switchgears
MCB 29 18% # 1-2 High Legrand, Schneider
Modular Switches 45 12-13% #3 Medium Panasonic (Anchor), Legrand
Cable
Domestic 100 16% #3 Low FNXC, POLYCAB
Industrial 150 10-11% #3 Medium POLYCAB, KEII
LED Lighting & Fixtures 100 12-15% # 2-4 Medium Philips, Wipro, CROMPTON, BJE
ECD
Fans 75 19% #2 High CROMPTON, Usha, ORIENTEL
Water Heaters 17 19% #1 Medium Racold, AO Smith
Other Appliances 50 6% # 3-4 Medium BJE, Philips
Air Conditioner 180 11 #4 High Voltas, Daikin, Blue Star, Hitachi
Source: Company, Industry
Growth mantra – focus on brands, products and distribution

HAVL’s successful journey is attributable to its sharp focus on brands, products and
distribution network. Its business strategy has been to nurture the core businesses
while investing in new opportunities to continuously refresh its product range.
Simultaneously, it looks to enter adjacent categories to expand the addressable
market and sell through alternate channels (modern trade and online/ e-commerce)
for a wider and deeper reach among consumers.
Exhibit 13: A&P spend as % of revenues
(Rs bn) (%)
4.5 4.5
4.0 4
3.5 3.5
3.0 3
2.5 2.5
2.0 2
1.5 1.5
1.0 1
0.5 0.5
0.0 0
Exhibit 14: A vast retail network
(Number of
retailers)
2,50,000
2,00,000
1,50,000
1,00,000
50,000
BJE
VGRD
HAVL
ORIENTEL
FNXC
POLYCAB
CROMPTON
Exhibit 15: HAVL’s advertisement (OOH)
Innovation and product differentiation – the key focus areas

Havell is a well-known brand in the mass-premium category. At the core of HAVL’s
business strategy lies its proclivity to introduce innovative and differentiated
products. The company uses its capabilities in advanced data analytics and
technology to identify and fill need gaps across categories (e.g., new product
introductions in the fans, lights and personal grooming categories in the last few
years). Notably, HAVL’s investment in research and development (R&D) increased
from 0.5% of sales in FY15 to 1.1% in FY20. It has 10 R&D centres including an
innovation hub in Bengaluru with ~400 engineers. HAVL intends to further intensify
its efforts on R&D and grow the investment to ~2% of revenues (the highest
allocation among peers) in the next few years.
Exhibit 16: A consistent track record of new product introductions Exhibit 17: Rising investment in R&D
Year Key product launches (Rs bn) (%)
1985 MCB
1.2 1.2
1996 MCCB, Wires & Cables
1997 Crabtree wiring accessories 1.0 1
2003 Fan, CFL, Lighting Fixtures
2004 Domestic switchgear 0.8 0.8
2005 Premium fan
2010 Electrical water heater 0.6 0.6
2012 TPW fan, Switch, Flexible Cable
0.4 0.4
2013 Domestic appliance, Pump
2015 LED Lighting 0.2 0.2
2016 Air Cooler, Solar Street Light
2017 Personal grooming, Water purifier, AC, LED TV, Washing Machine 0.0 0
2018 Room heater FY15 FY16 FY17 FY18 FY19 FY20 FY21
2019 Air purifier R&D spend % revenue (RHS)
2020 Refrigerator
Brand positioning, channel expansion and process automation strategy

Besides its widespread retail and distribution network, HAVL showcases and sells its
entire range of electrical products under one roof at its 566 Havells Galaxy stores. In
terms of positioning, while Havells and Crabtree brands house high-quality, mass-
premium products, the brand Standard caters to the mass segment and REO to the
economy segment in tier-2 and -3 cities.
HAVL has created a separate team to focus on each distribution channel (modern
format, rural market, CPC/ CSD, e-Commerce, etc) and adopted the DMDC model
(different model for different channel) to avoid conflict with existing channels. It has
invested considerably in improving the range and quality of its marketing (efficient
services, innovative schemes and a wide product range) and distribution efforts.
The use of information technology (apps for dealers and retailers, a distribution
management system as a mini-ERP, etc) has helped HAVL gain insights about the
market and improve efficiency, profitability and market share.
Exhibit 18: Retail network – peer comparison
(No.)
250,000
200,000
150,000
100,000
50,000
0
POLYCAB
BJE
HAVL
CROMPTON
VGRD
FNXC
ORIENTEL
To push rural sales through mass brand ‘REO’
In its premium portfolio, HAVL is focused largely on metros, and tier-1 and -2 towns.
However, considering its low penetration in the high-growth rural areas and tier-3
and lower towns, it has launched cheaper products to target these markets. After
setting a strong foothold in the urban markets, HAVL is now reaching the heartland
with its focused initiative ‘Rural Vistaar’. Suitable adoptions have been done to the
product range under REO brand to make it more relevant and affordable to the
relevant market. It has onboarded 2,500 rural distributors covering 27,000 outlets.
The company expects meaningful contribution from this market in the medium term
and the shift in focus would help de-risk its dependence on urban markets (rural
sales had demonstrated higher resilience during the pandemic).
Exhibit 19: Expanding the product portfolio under REO brand
Expect 18% revenue CAGR (ex-Lloyd) over FY21-24E with stable margins
We estimate 18% revenue CAGR for HAVL (ex-Lloyd) over FY21-24E, driven by ECD
(19% CAGR), W&C (19%) and lighting, switchgears and others (~16% each). The
strong revenues, we believe, will support its EBIT margins at ~15% despite
normalization of discretionary expenses.
Exhibit 20: HAVL (ex-Lloyd) – revenue and adj. EBIT margin trend
(Rs bn) (%)
160 18
140 16
120 14
12
100
10
80
8
60
6
40 4
20 2
0 0
Exhibit 21: HAVL – segment-wise growth and EBIT margin profile
FY18 FY19 FY20 FY21 FY22E FY23E FY24E FY18-21 FY21-24E
Segment revenues (Rs bn) CAGR (%)
Switchgears 14 16 13 15 18 20 23 1 16
Wires & Cables 26 32 30 32 43 48 54 7 19
Lighting 12 13 10 11 13 15 17 (2) 16
ECD 16 21 20 24 30 35 40 15 19
Others - - 5 6 7 9 10 15
HAVL (excl. Lloyd) 67 82 78 87 112 126 143 9 18
Adj. EBIT margin % Change (bps)
Switchgears 24.8 25.0 24.3 27.7 28.0 28.1 28.2 288 52
Wires & Cables 12.0 11.5 11.1 12.7 11.5 11.6 11.7 70 (104)
Lighting 14.3 13.3 14.4 18.8 19.0 19.1 19.2 455 42
ECD 12.2 11.5 14.3 17.0 14.0 14.1 14.2 481 (279)
Others (5.1) 4.9 6.9 7.1 7.3 487 246
HAVL (excl. Lloyd) 11.3 10.4 13.6 16.6 15.4 15.5 15.6 528 (97)
Exhibit 22: A wide range of products in consumer electricals…
Exhibit 23: …and expanding the portfolio in large appliances under Lloyd brand
Exhibit 24: New launches and marketing activities
Llyod: Well-placed to become a leader in white goods

HAVL entered the large home-appliances business in May-17 by acquiring Lloyd
Electric’s consumer durables business (brand, distribution network and employees)
for Rs 16bn. This gave HAVL access to the Rs 700bn white goods and electronics
industry, which is expected to register a 12-15% CAGR over the medium term. From
room air-conditioners (RAC) and LED TVs, Lloyd has also entered the washing
machine and refrigerator segments in the last 1-2 years.
Since the acquisition, HAVL has undertaken several steps to grow the business:
1) imbuing HAVL culture into Lloyd
2) repositioning Lloyd as a mass-premium brand
3) overhauling the distribution channel
4) in-house manufacturing, and
5) expanding the product range
All these measures, as well as intense competition (from domestic and global giants),
have impacted Lloyd’s sales and profitability in the interim. The performance is now
well on track with industry leading growth in RAC, and we expect margins to follow
suit in the coming years.
Exhibit 25: Large home-appliances – key categories to record a ~15% CAGR
Penetration: Washing Machine 12%, Refrigerator33%, Room AC~5%, Colour TV 65%
Rs bn
CAGR 12% CAGR 11%

100 245 458
CAGR 12% CAGR 15%

66
163 376
CAGR 9% CAGR 10%

97 189 336
CAGR 12%
CAGR 9%
39 95 159
FY11 FY19 FY25E

Washing Machine Refrigerator Room AC Colour TV
Imbuing HAVL core culture in Lloyd

HAVL’s continued success rests on its focus on brand, products and distribution,
which it has replicated in Lloyd. Its business strategy has been to nurture core
businesses, invest in new business opportunities (products, channels, etc) and
become a top-3 player with premium positioning.
Lloyd – repositioned as a mass-premium brand
In sharp contrast to HAVL’s positioning as a strong premium player across FMEG
categories, Lloyd was positioned as a mass-economy brand targeting the price-
sensitive consumers and competing with Videocon, Haier, Onida and Electrolux in
RAC, and with Sansui, Onida and Intex in LED TVs.
Since acquiring Lloyd, HAVL has taken several steps to reposition it as a mass-
premium brand on the back of brand building initiatives (inducted Deepika Padukone
and Ranveer Singh as brand ambassadors to appeal to the young, versatile and
modern couples), overhauling its distribution channel and improving quality through
in-house manufacturing.
Exhibit 26: Lloyd – moving to a mass-premium positioning
Source: Company
RAC prices now largely on par with Voltas and Blue Star’s: To improve its brand
perception, Lloyd has largely aligned its prices to those of Voltas and Blue Star by
narrowing the price differential to <5% currently. Lloyd is now focusing on providing
a technology-rich portfolio (like Grande ACs, U-LED TVs and IoT-ready products).
Complete overhaul of distribution channel
Before acquisition, Lloyd was more of an economy-mass brand with stronger
operations in tier-2 and -3 towns, ~10,000 display-points and 600+ service centres
across India. Most of its sales were handled by a few large dealers who sold products
in volume at huge discounts. For this reason, Lloyd was perceived more as a discount
player than a brand commanding any pricing power. It also had limited presence in
modern retail stores and online formats.
Over the years, HAVL has undertaken several initiatives to increase Lloyd’s product
visibility and distribution reach, including:
▪ Reduced dependence on dealers encouraging discounting without much attention
to the brand and appointed new dealers/ distributors to fit the HAVL culture.
▪ Focused on building long-term relations with dealers via brand building initiatives
and helping them expand their business by selling HAVL’s other products.
▪ Broadened reach in modern retail stores in metros and tier-1 towns (~30% of
industry sales). Lloyds’ products are now available at leading national and regional
stores such as Reliance Digital, Tata Croma, Vivek’s, Sargam, Vijay Sales, etc. Entry
into large retail chains helps premiumize the brand and increase customer reach.
▪ Lloyd has also made concerted efforts towards strengthening its presence on e-
Commerce channel.
▪ In line with HAVL Galaxy stores, Lloyd is expanding its EBOs – Lloyd Galaxy. Of the
94 existing stores, half of them were added in the last 2-3 years.
The renewed focus on distribution set-up and in-house manufacturing have helped
improve Lloyd’s product quality and increase product availability (in ~80% of the
retail market; modern trade and online sales ~20% of sales currently).
In-house manufacturing, in line with HAVL’s strategy
Contrary to HAVL’s focus on in-house manufacturing (~90% in FMEG), Lloyd was
heavily dependent on imports from China (~80%) at the time of its acquisition and,
thereby, exposed to currency fluctuations and customs duties. Due to a weaker
brand and intense competition, Lloyd was unable to pass on any of these costs,
which ate into its margins. To address these concerns and for better control over
quality, Lloyd invested ~Rs 5bn to set up an automated (robotics) and integrated
0.6mn-units RAC plant (expandable to 0.9mn-units) at Neemrana (Rajasthan). It has
also started commercial production of its own patented design semi-automatic
0.3mn-units washing machine plant at Ghiloth (Rajasthan) from Nov-21. To cater to
aspirational growth in both domestic and export markets, Lloyd has decided to set up
its second AC manufacturing facility in Sri City, Andhra Pradesh.
With improved trade confidence, Lloyd also entered the refrigerator segment in 2020
with a wide range of models, both for Direct Cool and Frost-free segments. The
products are currently outsourced from the domestic market. The category is the
biggest sub-segment of the home appliances with market size of 12.5mn units
(~Rs 200bn) and sold by 5-6 large players.
Strong outlook – we expect 15% revenue CAGR and 35% EBIT CAGR over FY21-24E
With the structural improvements undertaken in the last two years, Lloyd has now
become an aspirational brand with a vast product portfolio and wider network
coverage. With own manufacturing facilities for RACs and washing machines, Lloyd is
well placed to take advantage of the opportunity created by prohibition on import of
gas-filled ACs. After a weak FY20, Lloyd’s performance improved in FY21, and we
expect the business to witness further improvement from here.
Exhibit 27: Lloyd – revenue and EBIT margin trend
(Rs bn) (%)
30 8
25 6
20 4
15 2
10 0
5 -2
0 -4
In-house production leads to better supply chain management

HAVL has continuously invested in building in-house capacities (90% of its
production), unlike its FMEG peers that rely heavily on outsourcing or assembling
parts. In the last five years, the company has spent ~Rs 16bn on capacity expansion
(excluding ~Rs 12bn for the Lloyd acquisition). HVAL currently has 14 manufacturing
plants in India, at Haridwar, Baddi, Noida, Sahibabad, Faridabad, Alwar, Ghiloth and
Neemrana. It has commissioned a 0.3mn-units washing machine plant at Ghiloth
(Rajasthan) in Nov-21. A second RAC manufacturing plant in Sri City (AP) is being
planned to take advantage of the demand in both domestic and export markets.
Although HAVL is unlikely to go for any large acquisition, smaller acquisitions in
categories to complete its portfolio (like in home appliances) or improve market
access cannot be ruled out. We estimate a Rs 3.5bn annual capex outlay at HAVL
over the next few years.
Exhibit 28: Capex trend – smaller acquisitions may be in the offing
(Rs bn)
6
0
Capex
Exhibit 29: Outsourcing mix – HAVL the least dependent on third-party sourcing
(%)
90 80
80 70
70
60 50 50 50
50 40
40
30
20
10 5
0
POLYCAB
BJE
CROMPTON
VGRD
HAVL
FNXC
ORIENTEL
Financial Analysis
We see strong growth over FY21-24E
HAVL registered a strong 14% revenue CAGR, 18% EBITDA CAGR and 21% PAT CAGR
over FY17-21, aided by ECDs and Lloyd acquisition. We expect the growth
momentum to sustain over FY21-24E with 17% CAGR in revenues, 16% CAGR in
EBITDA and 18% CAGR in PAT, driven by healthy growth and margin expansion across
categories. Rising consumer preference for branded products could drive market
share gains for a leading company like HAVL. After a weak FY20, performance in
Lloyd business has revived in FY21, which we expect to continue growing.
Exhibit 30: HVCL – revenue growth trend Exhibit 31: PAT growth trend
(Rs bn) (Rs bn)
180 20
160 18
140 16
14
120
12
100
10
80
8
60 6
40 4
20 2
0 0
Revenue PAT
Working capital cycle – to remain low and stable

HAVL has a lean working capital cycle on the back of low receivables given its strong
brand and the credit discipline it has maintained over the years. After a temporary
increase as of end-FY21 due to Covid-19 related nationwide lockdowns, its net WC
cycle is expected to normalize FY22 onwards. Lloyd’s high exposure to seasonal
products such as RACs poses the risk of high inventory at the financial year-end.
Exhibit 32: Net working capital cycle likely to normalize
(Days)
100
90
80
70
60
50
40
30
20
10
0
Healthy FCF generation despite sustained high capex
HAVL has continuously invested in building in-house capacities, unlike peers that rely
heavily on outsourcing or assembling operations. In the last five years, HAVL has
incurred a capex of ~Rs 16bn (excluding Rs 12bn for Lloyd acquisition) across product
categories. Despite this, it has generated healthy free cashflows, which we expect
will accelerate in the coming years on higher profits and controlled working capital.
Exhibit 33: Strong free cash generation ahead
(Rs bn)
20
15
10
-5
-10
OCF Capex FCF
Exhibit 34: Return ratios on an uptrend

(%)
32
30
28
26
24
22
20
18
16
14
12
RoE % RoCE %

PAT margin (%) 8.3 7.8 7.8 10.0 9.1 10.1 10.2
Asset turnover (x) 2.0 2.2 2.1 1.8 2.0 2.0 1.9
RoE (%) 18.1 18.8 17.1 20.2 20.3 21.9 21.6

We like HAVL for its leadership position in FMEG. By leveraging its strong brand pull,
mass-premium product range, vast distribution network and robust processes, the
company has emerged among the top-3 in many of the FMEG product categories.
Among peers, HAVL enjoys the highest margins in many product categories and
generates healthy FCF despite high capex (unlike most peers, the company has opted
for in-house production).
HAVL witnessed strong growth over FY17-21 (14% revenue CAGR, 18% EBITDA CAGR
and 21% PAT CAGR), led by ECDs and Lloyd acquisition. Over FY21-24E, we expect
further recovery across business segments including Lloyd to drive a 17% revenue
CAGR, 16% EBITDA CAGR and 18% PAT CAGR for the company with RoE of ~22% and
healthy FCFs (key to sustaining a high valuation).
However, despite HAVL’s healthy long-term prospects, we initiate coverage on the
stock with a HOLD rating due to its rich valuations. We assign a target price of
Rs 1,383 (6% upside from CMP), based on 50x FY24E earnings (near its 5-year mean).
Strong growth and FCF, and a higher RoE are key to the stock sustaining valuation at
such high levels.
Exhibit 36: 1-year forward PE band and standard deviation
80
70
60 +1SD
50
Mean
40 -1SD
30
20
10
0
Jul-17
Jul-18
Jul-19
Jul-20
Jul-21
Apr-17
Apr-18
Apr-19
Apr-20
Apr-21
Apr-22
Jan-18
Jan-19
Jan-20
Jan-21
Jan-22
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21

Volatility in raw material prices and foreign currency
Copper, aluminium and polymers are key raw materials for W&C and other electrical
goods and comprise ~65% of revenues from these products for HAVL. Thus, any
material volatility in raw material prices would lead to operating margin fluctuations
for the company and pose a key risk to our estimates. HAVL, being the market
leader, has always been proactive in taking price hikes as and when required to
maintain its margin profile.
Slowdown in government’s infra push, private capex
The government’s infra push has been a key growth driver for industrial products
such as cables and switchgears. Hence, any slowdown in government spending on
infra and private capex could significantly dampen HAVL’s growth prospects.
However, a well-diversified portfolio with ~75% of revenues from B2C products acts
as a cushion for the company.
Weak real estate activity
Demand for new housing has been subdued for the last couple of years, which has
impacted demand for electric wires. While there are signs of revival in housing
demand, a reversal can impact the growth outlook of wires. HAVL has a strong dealer
network in W&C and, therefore, will continue to grow faster than the industry.
Hyper-competition in the marketplace
The presence of many large players as well as a host of fragmented regional players
makes the consumer electricals industry highly competitive. With reduced barriers of
entry from the increasing pervasiveness of digital commerce channels and
emergence of large Original Equipment Manufacturers (OEMs) and Original Design
Manufacturers (ODMs), many companies are venturing into the consumer electricals
space. Increased competition could lead to irrational price behaviour by some
market participants. While a price war could have a negative impact, we believe
HAVL will be the least impacted given its leadership position, strong brand equity and
a vast distribution network.
Annexures
Company Background
A well-diversified and leading consumer durables company, HAVL has 14 manufacturing units, 39 branch offices and an all-India
network of 14,270+ dealers catering to 180,000+ retail points. The company has joined the ranks of top-3 in many of the product
categories (21 currently) by leveraging its strong brand pull and vast distribution network.
Exhibit 37: HAVL – leader in the ECD segment Exhibit 38: Journey and key milestones
(Rs bn) Year Remarks
Revenue (FY21)
60 1958 Commenced business in Delhi
49 48
50 1971 Acquired ‘Havells’ brand
40 1983 Havells India Limited was incorporated

33
30 1993 Got listed on stock exchanges
20 2003 Launched fans & lighting; set up plants for switchgears, fans & CFLs
20
10 8 2007 Acquired the global business of ‘Sylvania’
10
1 2015 Divestment of Sylvania; focus on domestic expansion
0
2017 Acquisition of ‘Llyod’ consumer durables business
BJE
POLYCAB
HAVL
CROMPTON
VGRD
FNXC
ORIENTEL
2019 Commissioned an in-house AC plant at Ghiloth (Rajasthan)
2021 Launched Refrigerators business; set up a Washing Machines capacity

Source: Company, Systematix Institutional Research Source: Company
From being an FMEG company, HAVL has broadened its portfolio to large appliances by acquiring Lloyd: HAVL currently has a wide
range of products including Industrial and Domestic Circuit Protection Switchgears, Cables, Motors, Pumps, Solar Products, Fans,
Power Capacitors, LED Lamps and Luminaries for Domestic, Commercial and Industrial applications, Modular Switches, Water
Heaters, Coolers and Domestic Appliances, Personal Grooming, Air Purifiers, Water Purifiers, Air Conditioners, Televisions, Washing
Machines and Refrigerators covering the entire range of household, commercial and industrial electrical needs. Its prestigious
brands include Havells, Crabtree, Standard and REO in FMEG and Lloyd in large home-appliances.
Exhibit 39: Revenue mix (FY21) Exhibit 40: HAVL offers a complete range of consumer durables
Domestic Switchgears, Industrial Switchgears, Switches,

16% 14% Switchgears
Automation
Switchgear Cable Power Cables, Flexible Cables

6%
Cables & wires
Lighting Lighting &
Lighting Strips, Street Light, Solar Light, LED
ECD Fixtures
31% Others Electrical
Fans, Water Heaters, Small Domestic Appliances (Mixer
23%
Lloyd Consumer
Grinders etc), Water Purifier, Personal Grooming
Durables
Lloyd Air Conditioners, LED TVs, Washing Machine,
10% Consumers Refrigerator
Manufacturing locations. HAVL’s manufacturing facilities are located at Faridabad in Haryana, Alwar, Ghiloth and Neemrana in
Rajasthan, Haridwar in Uttarakhand, Sahibabad in Uttar Pradesh and Baddi in Himachal Pradesh. The R&D facilities are located at
Noida (Uttar Pradesh) and Bangalore (innovation hub).
Exhibit 41: Manufacturing locations
Source: Company
Exhibit 42: Manufacturing plant in Ghiloth, Rajasthan
Source: Company
Anil Rai Gupta, Promoter, CMD and CEO, has played a key role in transforming HAVL from a family-driven domestic brand to a
globally recognised consumer durables company. He is an MBA from Wake Forest University, North Carolina, USA.
Ameet Kumar Gupta, Whole-time director, has been with the QRG group for more than two decades and, along with being the
CMD, handles business development at HAVL. He is also responsible for product introduction and development and setting up
manufacturing plants for the group. He has a BE degree from DU and an MBA from Wake Forest University.
Rajesh Kumar Gupta, Group CFO, has been with the group for more than three decades and has played a key role in establishing the
organizational culture, systems and processes at HAVL.
Promoters 59.5 59.5 59.5 Nalanda India 5.3
Free float 40.5 40.5 40.5 LIC 3.8
- Foreign Institutions 26.8 26.5 24.4 Government Pension Fund 2.0
- Domestic Institutions 6.2 6.4 8.3 Smallcap World Fund 1.8
- Public 7.5 7.7 7.8 Mirae MF 1.2

Year Demand Scenario, outlook and concerns Acquisitions and JVs Plans and initiatives
• Good growth expectations for the Indian
• Acquisition of consumer durables • Entry into large appliances business
Consumer Electricals industry owing to
business of Lloyd Electric marked entry through Lloyd's acquisition
government's focus on electrification,
into ACs, LED TVs and washing machines
infrastructure and housing and consumer • Launched personal-grooming products
aspirations for better standards of living • Divested its 50:50 JV in China, the
• Entered solar products and projects
remaining 20% stake in Feilo Exim,
FY17 • Havells to immensely benefit from its segment
remainder 20% stake of FML Feilo Malta
wide distribution base • Set up a new switchgear plant in
and 100% stake in Havells Sylvania
• However, growth overhang due to rising Thailand Guwahati, Assam
competitive intensity, slowdown in • Enhanced lamps manufacturing capacity
• Increased stake in Promptec Renewable
construction activity and unavailability of 3x to 1.5mn-units
Energy to 68.92%
regular and quality power
• Revenues grew 33% YoY; PAT up 17% • Setting up of AC plants for Lloyd in
• Completed acquisition of Lloyd business
• To develop online dealer portal "Havells Rajasthan; tied up with Hyundai Electric,
FY18 • Divested many of its global subsidiaries
mKonnect" and "eSampark" for better South Korea for technology transfer for
as part of business consolidation Magnetic Contactor
engagement with channel partners
• Commissioned its first AC plant

• Revenues up 24% YoY; PAT grew 11% • Increased stake in Promptec Renewable • Became the first FMEG company in India
• A gradual improvement in the economic Energy to 100% offering doorstep service via its initiative
environment post the transitional impact • Merged four wholly-owned subsidiaries ‘Havells Connect’ across the country
FY19 of GST implementation (Havells Global, Standard Electrical, Lloyd • Expanded its brand shops and presence
• Positive developments under rural Consumer and Promptec Renewable) in newer channels like organized retail
housing likely to trigger the latent with Havells India as part of group and e-Commerce
demand restructuring • Set target to expand footprint in semi-
urban and rural markets
• The year started with weak demand due
to a slowdown in real estate, and • Expansion of distribution network with
industrial and infrastructure segments sharper focus on semi-urban and rural
along with liquidity squeeze, and ended markets
FY20 with the COVID-19 outbreak • None
• Tie-ups with multi-brand outlets,
• Growth hit in Lloyd portfolio due to an regional retailers and modern formats
industry-wide disruption in LED panels, • Invested ~Rs 70mn in renewable energy
increase in custom duty and a weak INR
• Gained market share across categories
along with increased distribution
penetration and Rural Vistaar
• Target to strengthen credentials in • Lloyd entered refrigerators category – a
product development, emerging Rs 200bn market with 12.5mn units
consumer trends and serving through • Jiangsu Havells Sylvania, a 50:50 JV in • Lloyd setting up facility to manufacture
FY21 omni-channel network China, undergoing liquidation process own patented design semi-automatic
• Upbeat on secular growth potential of machines in Ghiloth, Rajasthan with a
India and Havells capacity of 0.3mn-units p.a.
• To expand direct to consumer (D2C)
online business by incepting own O2O
(online to offline) model
Net revenues 94,403 1,04,573 1,31,778 1,49,335 1,68,968 Share capital 626 626 626 626 626
Growth (%) (6) 11 26 13 13 Net worth 43,116 51,763 59,082 68,830 80,193
Raw material expenses 58,332 64,897 86,327 95,993 1,08,513 Total debt - 3,937 3,737 3,537 3,337
Employee & Other exp. 25,784 23,958 27,982 31,711 35,890 DT Liability/ (Asset) 2,865 3,391 3,411 3,431 3,451
Depreciation 2,180 2,489 2,574 2,733 2,893 Net Intangible assets 14,533 14,333 14,133 13,933 13,733
Other income 1,134 1,874 1,655 1,751 2,039 Goodwill - - - - -
Finance costs 197 727 444 447 506 CWIP 828 863 913 963 1,013
Effective tax rate (%) 18.7 27.3 25.4 25.4 25.4 Investments (Financial) - - 10,000 15,000 25,000
Net Income 7,356 10,443 12,014 15,068 17,310 Cash 11,325 16,528 13,494 15,372 13,785
Shares outstanding 626 626 626 626 626 Working capital (307) 8,261 7,458 9,331 11,444
FDEPS growth (%) (6.6) 42.0 15.0 25.4 14.9 Contingent Liabilities 846 710 - - -
Cash Flow Ratios

Non-cash items 2,180 2,489 2,574 2,733 2,893 EV/EBITDA (x) 78.0 51.0 45.5 36.4 31.7
Incr./(decr.) in WC 198 7,700 (1,003) 1,672 1,913 P/B (x) 18.9 15.7 13.8 11.8 10.1
Others including taxes 2,414 2,031 3,766 4,806 5,570 RoE (%) 17.1 20.2 20.3 21.9 21.6
Capex 3,609 2,499 3,550 3,550 3,550 ROIC (%) 21.9 27.0 28.2 34.2 37.0
Free cash-flow 4,658 4,104 11,156 11,602 13,533 DPS (Rs per share) 4.0 6.5 7.5 8.5 9.5
Dividend 6,413 1,878 4,695 5,321 5,947 Dividend payout (%) 34.0 39.0 39.1 35.3 34.4
Debt raised (937) 4,137 (200) (200) (200) Receivables (days) 9.7 19.8 18.0 18.0 18.0
Fin Investments 2,509 7,296 10,000 5,000 10,000 Inventory (days) 72.4 91.4 80.0 80.0 80.0
Misc. Items (CFI + CFF) (590) (1,704) (705) (797) (1,027) Payables (days) 54.7 55.7 55.7 55.7 55.7
Net cash-flow (4,369) 869 (3,034) 1,878 (1,587) CFO:PAT% 112.4 63.2 122.4 100.6 98.7
Systematix
Polycab 29 April 2022
On a long growth runway

INITIATING COVERAGE The leader in the Indian wires and cables (W&C) industry, Polycab’s (POLYCAB)
Sector: Consumer Electricals Rating: HOLD entry in FMEG has been successful with the company emerging as a prominent B2C
brand. A vast and backward-integrated manufacturing base, wide distribution
network and enthusiastic promoters supported by a professional management
Stock Info team have helped it grow faster than the industry. Going forward, rising infra
Sensex/Nifty 57,521/17,244 spends, export opportunities and expansion to adjacent categories would drive its
Bloomberg POLYCAB IN B2B portfolio. In FMEG, we estimate 25%+ revenue CAGR as also margin expansion
Equity shares (mn) 149.1 for POLYCAB. Project Leap (to achieve Rs 200bn+ in revenues by FY26E), we
52-wk High/Low 2,745/1,431 believe, sets the stage for holistic growth for the company. However, the stock
Face value Rs 10 price has run up significantly (4x since its listing in 2019) and we see limited room
M-Cap Rs 376 bn/ USD 5.0bn for further re-rating in the near term. We initiate coverage on POLYCAB with a
3-m avg turnover USD 10.4mn HOLD rating and an SOTP-based price target of Rs 2,649 (5% upside from CMP),
Financial Snapshot (Rs mn) based on 32x P/E for W&C (Rs 2,454) and 35x P/E for FMEG (Rs 195) on FY24E
Y/E Mar FY22E FY23E FY24E earnings.
Net sales 117,302 133,513 152,164 Leader in wires & cables industry; strong positioning in FMEG: After a decade of
EBITDA 11,477 14,559 18,114 strong 12-15% CAGR, POLYCAB’s W&C business is set to witness continued traction
OPM % 9.8 10.9 11.9 with: a) a step-up in infrastructure activity, b) policy reforms (Production Linked
PAT (adj.) 7,585 10,104 12,792
Incentives scheme, etc), and c) demand from fast-growing emerging sectors like
EPS (adj.) (Rs) 50.9 67.8 85.8
renewable energy, electric mobility, etc. We expect 20% CAGR in its W&C business
PE (x) 49.5 37.2 29.4
P/B (x) 7.1 6.3 5.4
over FY21-24E, driven by higher exports and further market share gains (a leading
EV/EBITDA (x) 32.0 24.9 19.7 20-22% share within organized in FY21). Notably, organized W&C companies have
RoE (%) 14.3 16.8 18.3 been growing at the cost of unorganized players as the latter face operational
RoCE (%) 19.8 23.5 25.8 challenges (high RM prices and supply chain-related issues). The company serves its
Net-D/E (x) (0.2) (0.2) (0.3) pan-India network of 4,100+ distributors/ dealers and 165,000+ retail outlets
through its 23 backward-integrated facilities at seven locations.
Shareholding Pattern (%)
A highly successful foray into FMEG; POLYCAB growing faster than peers: Launched
Promoter 68.1 68.1 68.4
in FY14, POLYCAB’s FMEG business has seen ~37% revenue CAGR (albeit on a small
- Pledged - - - base) for the last five years to cross Rs 10bn in FY21. With its diverse, innovative and
FII 5.8 6.4 6.9 growing product portfolio (fans, lighting, switches, switchgears, small appliances,
DII 9.2 8.7 8.8 etc), higher A&P expenditure to enhance brand visibility, engagement of influencers
Others 17.0 16.8 16.0 (electricians, small contractors, etc) and stewarded by an experienced management
team, we estimate 25%+ revenue CAGR and margin expansion in the FMEG business.
Stock Performance (1-year)
Project Leap – a multiyear transformational journey: POLYCAB, under an initiative
3,000
Project Leap, has charted the path to achieving all-round growth. The management
2,600
aims to achieve Rs 200bn in revenues (18% CAGR over FY21-26E) and 12% EBITDA
2,200
margin by FY26E. In the B2B portfolio, the focus will be to capitalize on the rising
1,800 infra spends, export opportunities and expansion to adjacent/ emerging categories.
1,400 Strong traction is also expected in the B2C portfolio in both wires and FMEG as also
1,000 from new sales channels (online and e-commerce).
Apr-21
Jul-21
Aug-21
Sep-21
Nov-21
Jan-22
Feb-22
Dec-21
Mar-22
Apr-22
May-21
Jun-21
Oct-21
Healthy growth outlook but largely priced in: We like POLYCAB for its long-term
POLYCAB Sensex prospects in W&C, strong growth in FMEG and healthy balance sheet. With
continued traction across businesses and channels, we expect 20% revenue CAGR
Ashish Poddar and 14% PAT CAGR over FY21-24E with healthy FCFs. However, after a sharp 3x
ashishpoddar@systematixgroup.in returns in the stock price over the last three years since its listing, current valuations
+91 22 6704 8039
appear to be factoring in the positives in the near term. We initiate coverage on the
Pranay Shah stock with a HOLD rating and an SOTP-based target price of Rs 2,649. Volatile RM
pranayshah@systematixgroup.in prices and increasing competition are the key risks to our estimates.
+91 22 6704 8017
29 April 2022 Polycab
Story in charts
(Rs bn) (%)
160 30
140 25
120
20
100
80 15
60 10
40
5
20
0
Exhibit 3: W&C – revenue and EBIT margin trend Exhibit 4: FMEG – revenue and EBIT margin trend
(Rs bn) (%) (Rs bn) (%)
140 14 25 8
120 12 7
20
100 10 6
15 5
80 8
4
60 6
10 3
40 4
2
5
20 2 1
0 0 0 0
Exhibit 5: PAT and growth trend Exhibit 6: Project Leap – a multi-year transformational journey
(Rs bn)
14
12
10
0
PAT
(%) (Rs bn)
35 14
30 12
25 10
20 8
6
15
4
10
2
5
0
0
OCF Capex FCF
FY18 FY19 FY20 FY21 FY22E FY23E FY24E -2
Exhibit 9: Polycab Galleria, Arena and Shoppee
Investment Analysis
Healthy market share gains in W&C over FY19-21
Wires & cables contribute 79% to POLYCAB’s (largest manufacturer of W&C in India)
revenues. The company’s share stands at an estimated 20-22% within the organized
space and 13-14% in the overall market with significant gains accruing in the last few
years. POLYCAB is ~2x in size the second largest player (KEII) and manufactures
various types of cables used across applications. The company serves its pan-India
distribution network through 23 backward-integrated facilities at seven locations.
Exhibit 10: W&C revenues – POLYCAB ~2x the second largest peer Exhibit 11: Market share gains in W&C over FY19-21
(Rs bn) (%)
FY21
80 76 25
21
70
20 18
60
15 14
50 12
40 36
32 10
30 23
5
20
8
10 0
0 Organised Total
POLYCAB KEII HAVL FNXC VGRD FY19 FY21
A strong pan-India distribution network key growth enabler

POLYCAB’s pan-India distribution network comprises >4,100 authorized dealers and
distributors (~50% for W&C products with long-standing relationships and huge
turnover for a majority of them). The network is serviced through 52 warehouses &
depots, and four regional and 16 local offices. Of late, the company has expanded
aggressively in tier-2 and 3 cities. It has a wide network of 165,000+ retail outlets
housing its B2C products while cables are supplied largely (80%+) through
distributors and directly to customers, including EPC and government companies.
Exhibit 12: A pan-India distribution network to support the diverse customer base and multiple product categories
Sales & marketing

4,100+ total ~3,000 FMEG
165,000+ retail through 4 regional
authorized dealers & dealers and
outlets offices & 16 local
distributers distributors
offices pan-India
By Product By Geography
20% 28% 52% 22% 30% 27% 21%
Common Wires & Cables FMEG West South North East
Source: Company
Exports another focus area
After establishing strong presence in the domestic market, POLYCAB has set sights on
the international markets for sustaining the growth momentum. It has export
presence in 55+ countries and bagged many large orders in Africa and the Middle
East in the last few years, leading to export revenues of Rs 11bn in FY20 (~12.4% of
revenues) from Rs 3.4bn in FY16 (~6% of revenues). POLYCAB has set up subsidiaries
in USA and Australia to grow faster in these markets. In future also, the company
aims to maintain export contribution at above 10% of revenues.
Exhibit 13: Exports to be maintained at 10%+ of total revenues
(Rs mn) (%)
12,000 14
12.4
10,000 12
10
8,000 8.4
8
6,000 5.9 6.3
5.1 6
4,000
3.1 4
2,000 2
0 0
Exports % total revenue (RHS)
Regular capacity addition ahead of demand the mainstay of growth strategy

On the strength of its huge capacity, POLYCAB has been well positioned to win large
orders and commit to lower turnaround times. In the last five years, the company
has invested ~Rs 13bn to augment its W&C and FMEG capacities. For backward
integration, it invested in a copper-rod plant in a joint venture which was recently
sold off to Hindalco but with a tolling agreement. POLYCAB will continue with its
strategy of adding capacity regularly and ahead of demand for all its products.
Exhibit 14: Regular capex driving growth
(Rs bn)
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Capex
Government’s housing programme and infra-push to drive W&C sector
According to industry sources, the W&C segment in India is expected to clock ~15%
CAGR over FY18-23 with rising construction activity in the residential segment and
government measures in power and infrastructure as the key drivers. Rural
electrification, investments in transmission & distribution for modernization and
greater efficiency, increasing demand from renewable power sector (particularly
solar and wind energy), infrastructure development (e.g., Smart Cities) and demand
for cables from commercial establishments and public utilities (metro-rail, airports,
hospitals, educational institutions, etc) are expected to continue driving growth in
the W&C segment in the medium to long term.
We expect 20% revenue CAGR in W&C over FY21-24E
After registering ~5% revenue CAGR in W&C over FY18-21, we estimate a strong 20%
CAGR for POLYCAB over FY21-24E, driven by the domestic as well as export markets
in both wires and cables. After a 220bps improvement over FY18-21, we see W&C
EBIT margin shrinking YoY from 12.5% to ~9.5% in FY22 due to lower gross margins
after the sharp rise in copper prices and given POLYCAB’s priority to gain market
share. However, we estimate a gradual recovery in EBIT margins to 11.5% by FY24E.
Exhibit 15: W&C business – revenue and EBIT margin trend
(Rs bn) (%)
140 14
120 12
100 10
80 8
60 6
40 4
20 2
0 0
Getting stronger in FMEG

Increasing contribution of FMEG in POLYCAB’s revenues
Beginning with a few products (switches, fans, lighting, etc) in FY14, POLYCAB’s
FMEG revenues crossed Rs 10bn, forming 12% of the total revenues, in FY21. The
rapid scale-up was achieved by quickly diversifying the portfolio as also leveraging its
strong brand and distribution reach. The company now sells a wide range of FMEG
products covering fans, LED lighting & luminaires, switches, switchgears, water
heaters, solar products, agro pumps, conduits and accessories. While some of the
products are outsourced from third-party manufacturers, POLYCAB’s strategy is to
have in-house manufacturing once the category attains critical scale.
The company has also recently acquired Silvan Innovation Labs, an ‘IoT’ (internet-of-
things) based home and office automation solutions provider, to expand the
potential addressable market in FMEG. It is also focused on providing quality after-
sales services for all its products. The division’s contribution to POLYCAB’s revenues
is expected to grow further in the coming years.
Exhibit 16: FMEG a fast-growing division for POLYCAB with increasing contribution
(Rs bn) (%)
12 14
11.6
10 12
9.5
10
8 8.1
7.0 8
6 5.6
6
4 3.5
2.6 4
2 2
0 0
FMEG revenue % share in total (RHS)
Exhibit 17: Product Portfolio
Source: Company
Investment in branding and marketing to enhance brand visibility
To grow in the consumer electricals business and position itself as a large B2C brand,
POLYCAB has continuously amped up its branding and marketing investments in the
segment from Rs 427mn in FY15 to Rs 1,087mn in FY20. The investment in the Indian
Premier League (IPL) since 2016 has improved its brand visibility among households.
For high impact, the company also roped in actors Paresh Rawal since 2014 for wires,
R Madhavan since 2018 for fans and Ayushmann Khurrana in 2019 for switchgears
initially and now for all products. At the retail store level, it has focused on increasing
visibility through signages and displays.
Exhibit 18: A&P spend as % revenues Exhibit 19: Latest advertisement
(Rs bn) (%)
1,200 4
3.5
1,000
3
800
2.5
600 2
1.5
400
1
200
0.5
0 0
A&P spend % total sales (RHS) % FMEG & wires sales (RHS)
A multi-format retail approach. POLYCAB has set up multi-format retail stores to

deepen its connect with direct customers in the FMEG market as well as retailers
from upcountry. These stores are currently in Mumbai, Pune, Trivandrum,
Visakhapatnam, Indore, Ahmedabad, Cochin, Surat, Hyderabad and Patna with plans
to cover more cities. The Experience Centres – ‘Polycab Galleria’ – are large-format
stores located at electric market hubs to showcase all its products and innovations.
Exhibit 20: Polycab Galleria, Arena and Shoppee
Source: Company
Engaging influencer categories and improving efficiency. Besides advertising,
POLYCAB has also invested in influencer categories through various programmes and
activities. It introduced Project Josh in 2015, aimed at increasing market share in
FMEG by adding retailers and distributors in a planned manner. A CRM programme,
Bandhan, was launched in 2017 to better understand the end-customers through
data collected from retailers and electricians using technology for a more effective
allocation of resources, targeted marketing and launch of new products.
Strengthening its distribution network in FMEG
POLYCAB entered the FMEG business by leveraging its existing dealer and distributor
network. However, in a short span of time, the company also added many channel
partners exclusively for FMEG. Of the current base of 4,100+ dealers and distributors,
~3,000 are selling FMEG products to 165,000+ retail outlets with the highest
exposure in South (30%) and North (27%) markets. The company is banking on its
strong brand and quality, product innovation capabilities, wide availability and after-
sales service to drive its FMEG business to a meaningful scale.
Expect ~25% revenue CAGR and 150bps expansion in EBIT margin over FY21-24E
After a strong 29% CAGR over FY18-21, we expect 25% CAGR in POLYCAB’s FMEG
revenues over FY21-24E. The growth will primarily be driven by its expanding
portfolio, distribution network, and increasing consumer confidence in the brand
following relentless advertising and focus on product quality. With scale, we expect
EBIT margin to increase to ~7% by FY24E with further scope for expansion given the
significant gap with Crompton, Havells, etc.
Exhibit 21: FMEG business – revenue and EBIT margin trend
(Rs bn) (%)
25 8
7
20
6
15 5
4
10 3
2
5
1
0 0
‘Project Leap’ a multi-year transformational journey

POLYCAB has created an efficiently functional platform over the past decade through
diversification of portfolio, robust manufacturing capabilities, a strong IT backbone
and strong brand positioning. Leveraging its competencies to the fullest, POLYCAB
has emerged as a growth leader in the industry. To chart its growth path hereon, it
has embarked on a multi-year transformational journey under ‘Project Leap’ with an
aim to cross Rs 200bn in revenues by FY26. Under the programme, the company
proposes to sustain its industry leading growth, cement its market leadership in W&C
and build a robust new age consumer electricals business.
Exhibit 22: Project Leap – strategy to achieve Rs 200bn revenues by FY26
Source: Company
A stronger leadership team: From a promoter-driven family business, POLYCAB has

strengthened its leadership team over the past few years. It has inducted a good
blend of entrepreneurial and professional management personnel to take the
company to the next level. These professionals have prior experience in leading
companies such as Bajaj, Crompton, Havells, Orient, Panasonic, SRBC & Co, Tata
Group, Unilever, Vedanta, etc and come with extensive relationships and deep
business understanding.
Exhibit 23: POLYCAB’s leadership team
(Left recently)
(Left recently)
Source: Company
Healthy FCF with an improving operational performance

Along with profitable growth, POLYCAB continuously strives to shorten its working
capital cycle through channel financing and better inventory management. The
company generates healthy free cash flows, which has driven a significant re-rating
in the stock since its listing in 2019. Despite strong growth on a high base, the
company needs to commit to only a modest capex in the medium term given the low
utilization at its plants as it regularly adds capacity ahead of demand. We estimate
FCF of >Rs 15bn for POLYCAB over FY22-24E.
For a better working capital cycle, the company aims to:
▪ reduce debtor days by increasing channel financing (60-70% currently in W&C
and 30-40% in FMEG)
▪ keep sufficient inventories of raw material and finished goods to quickly supply
goods to customers while not carrying undue levels
▪ repay interest-bearing payables at the earliest to reduce finance costs, despite a
slight decrease in payable days
Exhibit 24: Healthy FCF on strong operating performance
(Rs bn)
14
12
10
0
OCF Capex FCF
-2
Financial Analysis
Expect healthy growth ahead
After reporting revenue CAGR of 9%, EBITDA CAGR of 17% and PAT CAGR of 34%
over FY18-21, we expect POLYCAB to register 20% revenue CAGR, 17% EBITDA CAGR
and 14% PAT CAGR over FY21-24E. While we expect strong performance across
divisions, we expect gross margins in the W&C business to be capped due to copper
prices prevailing at higher levels. We expect margins to gradually improve as copper
prices stabilize. The FMEG business is expected to continue reporting strong growth
(25% CAGR) with a 150bps improvement in EBIT margin over the period.
Exhibit 25: Total revenues and growth trend Exhibit 26: PAT and growth trend
(Rs bn) (Rs bn)
160 14
140 12
120
10
100
8
80
6
60
40 4
20 2
0 0
Revenue PAT
Working capital cycle to shrink further on various measures taken

POLYCAB’s net WC cycle has reduced from ~100days in FY18 to ~90days in FY21 on
tightening of receivables days. We expect the cycle to contract further to <80 days by
FY24E on the back of various measures undertaken including increasing channel
financing and better inventory management.
Exhibit 27: WC cycle tightening on lower receivables
(Days)
120
100
80
60
40
20
0
Healthy cash levels to restrict return ratios
POLYCAB has built capacities ahead of demand and invested heavily in capex over
the last few years. It has been generating meaningful FCF since FY18, which we
believe will only improve in the years to come on the back of strong growth, a
shorter WC cycle and modest capex. While large cash accumulation is expected over
the next few years, it will restrict the expansion in its return ratios unless paid back
to investors through higher dividends/ buybacks or used for inorganic growth.
Exhibit 28: Net cash levels Exhibit 29: RoE and RoCE trend
(Rs bn) (%)
25 35
20 30
15 25
10 20
5 15
0 10
-5 5
-10 0
Net-cash RoE % RoCE %

PAT margin (%) 5.3 6.3 8.8 9.7 6.5 7.6 8.4
Asset turnover (x) 2.2 2.6 2.2 1.8 2.1 2.1 2.1
RoE (%) 15.3 17.6 19.8 18.0 14.3 16.8 18.3

After capturing the top slot in the wires & cables space, POLYCAB entered the FMEG
segment in FY14 and scaled up quite fast in a relatively shorter period of time. We
like the company for its large and pan-India manufacturing base, distribution reach, a
professional management driving the business, strong promoter family and focus on
cash flows. Given all these factors and its efforts to reposition itself as a consumer
company, the stock has significantly re-rated since its listing.
With sustained traction across divisions, we expect a 20% CAGR in revenues, 17%
CAGR in EBITDA and 14% CAGR in PAT for the company over FY21-24E with RoE of
~18% and continued healthy FCF generation. ‘Project Leap’ provides comfort on the
long-term sustainable growth path of the company.
In line with POLYCAB’s improving performance over the last few years, the stock
price has risen over 4x since its listing about three years ago. While we are sanguine
about the long-term prospects, we believe there is limited potential for re-rating
from here. We initiate coverage on the stock with a HOLD rating and an SoTP-based
price target of Rs 2,649 (5% upside from here), based on 32x FY24E earnings for the
W&C business (Rs 2,454) and 35x FY24E earnings for FMEG (Rs 195).
45
40
35
+1SD
30
25
Mean
20
15
-1SD
10
5
0
Apr-19
Jul-20
Jul-21
Apr-22
Jun-19
Aug-19
Dec-19
May-20
Nov-20
May-21
Dec-21
Mar-20
Sep-20
Jan-21
Mar-21
Sep-21
Feb-22
Oct-19

Volatility in raw material prices and foreign currency
Cost of key raw materials including copper, aluminium, PVC, galvanized iron wire,
lead and XLPE form a significant ~70% of POLYCAB’s revenues. Therefore, any
significant volatility in raw material prices would lead to operating margin
fluctuations and pose a key risk to our estimates. The company’s metal procurement
contracts come with embedded derivatives, which provides it an opportunity to
finalize the purchase price at a future date, termed as provisional pricing. This helps
in linking the costs to realizations through revisions in the price list and acts as a
natural hedge against copper and foreign exchange volatility. POLYCAB also uses
forward contracts or price escalation clauses as a hedge in large institutional orders.
A slowdown in government’s infra push
The Centre’s initiatives in the infrastructure sector have been a key growth driver for
the W&C industry over the past few years. Hence, a slowdown in government
spending on infra could significantly impact POLYCAB’s growth, especially given its
huge front-ended investments in capacity and branding. The rising share of B2C sales
though would support any slowdown in the industrial segment.
Weak real estate activity
Demand for new housing has been subdued for the past couple of years, translating
into muted demand for electric wires. While there are signs of revival in the housing
sector, any reversal can supress growth outlook of wires. POLYCAB has the strongest
dealer network in W&C and should continue to grow faster than the industry.
Failure in new businesses
POLYCAB has always been active on exploring new products in the W&C segment for
new applications. It also plans to expand its product portfolio in the FMEG segment.
While the company has been known for its prudent decision making in terms of
diversification, any failed new launches will impact its overall profitability.
Annexures
Company Background
POLYCAB is India’s largest manufacturer of wires & cables (W&C) with a 20-22% share in the organized market. It has 23 facilities
with backward integration at seven locations to serve its pan-India distribution network of 4,100+ dealers and distributors and
165,000+ retail outlets. After claiming the leadership mantle in W&C, POLYCAB entered the FMEG segment in FY14 and scaled up
rapidly (~37% CAGR over five years) to cross Rs 10bn in revenues in FY21. While it now offers a wide range of products in this
portfolio including fans, LED lighting & luminaires, switches, switchgears, small appliances like geysers, solar products & conduits
and accessories, there is ample scope to expand it further. The company has strengthened its leadership team over the last few
years to achieve its vision of Rs 200bn+ revenues by FY26 (implied CAGR of 18%).
Exhibit 32: Segment-wise revenue mix (FY21) Exhibit 33: Revenue mix – B2B/ B2C
9%
12%
40%
Cables & Wires
B2B
FMEG
B2C
EPC + Copper rods
60%
79%
Exhibit 34: Journey and key milestones

Year Remarks
1964 - 96 Promoters established the business; set up a manufacturing plant at Halol
1996 Company incorporated on 10 Jan 1996

Set up a facility for PVC insulated power cables, house wires, telephone cables, optical fibre cables, switch board cables and
1998
quad cables at Daman
2006 Crossed Rs 10bn in revenues
2009 Investment of Rs 4bn by IFC
2011 Crossed Rs 31bn in revenues
2013 Forayed into the switches segment
2014 Diversified into fans and LED lighting; set up manufacturing facility for MCBs at Nashik, Maharashtra
2016 Manufacturing of ceiling fans at Roorkee, Uttarakhand; JV with Trafigura for copper rod manufacturing (Ryker)
2017 JV with Techno Electromech for manufacturing of LED lighting products
2019 Listing on BSE and NSE on 16 April 2019; Commenced manufacturing of water heaters; set up Polycab Knowledge Centre
Bought out the remaining 50% stake in Ryker; launched the new IOT-based brand Hohm and also Project Udaan. Rejuvenated
2020
focus on export markets
2021 Launched Project Shikhar and Polycab Expert Programme; Initiated a transformation initiative ‘Project Leap’
Source: Company
POLYCAB manufactures various types of cables to be used for different applications. Its diverse customer base includes retailers,
distributors, dealers, government corporations as well as private companies in power, oil & gas, construction, IT parks,
infrastructure, metal and non-metal, cement, agriculture and real estate sectors.
Exhibit 35: Market leader in wires & cables with a diverse portfolio
Source: Company
Manufacturing facilities
POLYCAB has 23 backward-integrated manufacturing plants at seven locations in Gujarat, Maharashtra, Uttarakhand and Daman &
Diu. The company follows a strategy of capacity addition ahead of demand, which helps it maintain market share.
Exhibit 36: Plant locations and capacities
Source: Company; Note: * annual capacities as at end-FY21
Inder T Jaisinghani, Promoter, Chairman and Managing Director since 2014, has been in sales, marketing, production and other
support services, and has played a major role in POLYCAB attaining the leadership slot.
Bharat A Jaisinghani, Whole-Time Director from the promoter group, is responsible for the FMEG business. He has a Master’s
degree in Operations Management from The University of Manchester.
Nikhil Jaisinghani, Whole-Time Director from the promoter group, is responsible for the LDC (cables) business. He has an MBA from
The Kellogg School of Management, Northwestern University, Illinois, USA.
Gandharv Tongia, CFO, joined POLYCAB in July 2018 as Deputy CFO and was elevated to the CFO position w.e.f. 31 May 2020. A
Chartered Accountant by profession, he has >16 years of work experience in auditing and consulting at S R B C and CO LLP, S.R.
Batliboi & Associates LLP and A.F. Ferguson & Co.
Promoters 68.4 68.1 68.1 DSP MF 1.5
Free float 31.6 31.9 31.9 Canara Robeco MF 1.2
- Foreign Institutions 6.9 6.4 5.8 T. Rowe Price 0.9
- Domestic Institutions 8.8 8.7 9.2 Tata MF 0.7
- Public 16.0 16.8 17.0 Birla MF 0.7

• Revenue growth of 18% YoY
• Investment in IPL since 2016 provided a huge lift to brand’s
visibility in households • Listing on BSE and NSE
• Achieved 12% share of wires & cables market • Inaugurated its first Polycab Experience Centre
• Industry expected to witness ~15% CAGR for the next five years
FY19 • FMEG growing rapidly, albeit on a low base
with an increase in share of organized players
• Polycab to continue with the strategy of adding capacity ahead of
• Rise in consumer spending, government initiatives in power and demand
infrastructure, impetus from heavy industry and public
enterprises and power transmission & distribution (T&D) seen as
key demand drivers
• Business hit due to a challenging operating environment marked
by liquidity constraints, muted investments, weak consumption, • Wire rods producing plant, Ryker, which started as a 50:50 JV
volatile commodity prices and Covid-19 outbreak with Trafigura in 2016, became a wholly owned subsidiary and
• Continuous investments in various infrastructure segments and commenced production in 1Q
FY20 other end-user industries seen as demand drivers for a healthy • Incorporated a subsidiary in USA to expand business in the
double-digit growth rate in cables & wires for the next five years geography
• Polycab looks to replicate its project management skills across • Incorporated Polycab Electricals and Electronics (PEEPL) to
large digital infrastructure projects including Smart Cities, enhance manufacturing capabilities
Surveillance, BharatNet and Digital Village
• Project Leap – embarked on a 5-year transformational journey to
cross Rs 200bn in sales with significant market share
improvement across B2B and B2C categories
• Consumer and market sentiment improved in the second half;
Polycab's net sales grew 1% YoY, also supported by distribution • Flagged off a strategic cost optimization initiative – Project
expansion, portfolio augmentation and higher realizations Udaan; benefit to be visible in next two years
• Demand likely to recover gradually, driven by numerous • Initiated Project Shikhar to strengthen engagement with pre-
FY21 government initiatives such as National Infrastructure Pipeline identified influencers, i.e., Retailers, Electricians and Small
(NIP), Production Linked Incentives schemes, focus on indigenous contractors; identified 300 high potential cities across India to
manufacturing, higher budgetary allocation for capital expand retail reach
expenditure, renewable energy push, digital infrastructure push, • Incorporated a subsidiary in Australia to expand business there
and liquidity infusion • Received certification for cables for electric vehicle (EV)
applications
• Liquidated Polycab Wires Italy SRL
Net revenues 88,300 88,741 1,17,302 1,33,513 1,52,164 Share capital 1,489 1,491 1,491 1,491 1,491
Growth (%) 10.6 0.5 32.2 13.8 14.0 Net worth 38,364 47,539 52,888 60,009 69,819
Raw material expenses 63,686 65,749 90,903 1,02,104 1,14,998 Total debt 1,221 1,926 1,626 1,626 1,626
Gross Margin (%) 27.9 25.9 22.5 23.5 24.4 Minority interest 150 188 207 228 251
Employee & Other exp. 13,263 11,580 14,922 16,850 19,052 DT Liability/ (Asset) 175 418 408 398 388
Depreciation 1,609 1,837 2,027 2,226 2,426 Net Intangible assets 17 94 99 104 109
Other income 928 1,262 951 1,467 1,648 Goodwill - - - - -
Finance costs 495 509 295 426 425 CWIP 2,412 991 791 591 391
PBT 10,174 10,328 10,107 13,374 16,911 Investments (Strategic) 255 118 118 118 118
Effective tax rate (%) 24.0 16.9 24.1 24.0 24.0 Investments (Financial) 400 6,231 9,731 13,731 19,731
Associates/(Minorities) (140) (40) (90) (60) (60) Current Assets 39,516 38,798 49,480 54,463 59,987
Net Income 7,591 8,538 7,585 10,104 12,792 Cash 2,813 5,313 124 532 1,659
FDEPS growth (%) 44.1 12.3 (11.2) 33.2 26.6 Contingent Liabilities 3,477 1,457 - - -
Cash Flow Ratios

Non-cash items 1,609 1,866 2,027 2,226 2,426 EV/EBITDA (x) 32.9 32.1 32.0 24.9 19.7
Incr./(decr.) in WC 6,221 (2,457) 5,473 2,051 2,221 P/B (x) 9.8 7.9 7.1 6.3 5.4
Others including taxes 3,015 2,408 2,434 3,212 4,061 RoE (%) 19.8 18.0 14.3 16.8 18.3
Capex 2,901 1,870 2,800 2,800 2,800 ROIC (%) 23.6 22.7 18.1 21.7 25.9
Free cash-flow (458) 10,512 270 6,396 8,932 DPS (Rs per share) 7.0 10.0 15.0 20.0 20.0
Dividend 1,793 - 2,237 2,982 2,982 Dividend payout (%) 13.7 17.5 29.5 29.5 23.3
Equity raised 4,000 - - - - Net debt/equity (x) (0.1) (0.2) (0.2) (0.2) (0.3)
Debt raised (1,194) (1,075) (300) - - Receivables (days) 66.1 64.3 62.3 60.3 58.3
Fin Investments (33) 8,351 3,500 4,000 6,000 Inventory (days) 79.6 81.8 79.8 77.8 75.8
Misc. Items (CFI + CFF) 657 430 (577) (994) (1,178) Payables (days) 56.0 55.4 55.4 55.4 55.4
Net cash-flow (69) 656 (5,189) 408 1,128 CFO:PAT% 32.2 145.0 40.5 91.0 91.7
Systematix
V-Guard 29 April 2022
Non-South markets key to performance

INITIATING COVERAGE V-Guard (VGRD), initially into voltage stabilizers, has diversified its portfolio to a
Sector: Consumer Electricals Rating: HOLD wide range of light electrical products over the last decade. Already a leader in
South India, it is now fortifying its pan-India footprint. While growth has remained
muted in the last few years, robust traction in the non-South regions (~42% of
Stock Info revenues and ~60% of distribution reach) offers significant potential for growth.
Sensex/Nifty 57,521/17,244 We estimate 17% revenue CAGR, 14% EBITDA CAGR and 15% PAT CAGR for VGRD
Bloomberg VGRD IN over FY21-24E, led by growth across product categories and stable margins as RM
Equity shares (mn) 430.2 cost pressure gets offset by operating leverage benefits. While we like the
52-wk High/Low 279/183 company for its pan-India aspiration, cash-rich status and healthy FCF, we believe
Face value Rs 1 the stock trades close to its fair valuations at ~30x FY24E earnings. We initiate
M-Cap Rs 92 bn/ USD 1.4bn coverage on VGRD with a HOLD rating and price target of Rs 225 (5% upside from
3-m avg turnover USD 4.8mn CMP), based on 32x FY24E earnings (~10% discount to comparable peers due to a
Financial Snapshot (Rs mn) relatively weaker brand in markets outside the South and operating parameters).
Y/E Mar FY22E FY23E FY24E A well-diversified consumer appliances company: VGRD is a Kochi-based company
Net sales 34,769 39,157 44,102
founded in 1977 to manufacture and market voltage stabilizers. It has since then
EBITDA 3,270 3,946 4,579
established a strong brand in the South and aggressively diversified to become a
OPM % 9.4 10.1 10.4
PAT (adj.) 2,017 2,569 3,042
multi-product company including voltage stabilizers, digital UPS systems & batteries,
EPS (Rs) 4.7 6.0 7.1 pumps, housing wires, switchgears, modular switches, electric water heaters, fans,
PE (x) 45.9 36.0 30.4 solar water heaters, air coolers and various kitchen appliances.
P/B (x) 6.8 6.0 5.2 The leader in the South, with pan-India aspirations: To cut its dependence on the
EV/EBITDA (x) 27.3 22.4 19.1
southern markets, VGRD started aggressively expanding into other parts of India a
RoE (%) 14.9 16.7 17.2
RoCE (%) 21.4 24.0 25.0
decade ago. It envisages adding 3,000-5,000 retailers annually pan-India, with a
Net-D/E (x) (0.2) (0.3) (0.3) higher proportion in non-South regions, over the next five years. The strategy gives it
significant potential for revenue growth and operating leverage to expand on its
Shareholding Pattern (%) existing investments. The non-South market currently accounts for ~60% of the
Mar’22 Dec'21 Sep'21 distribution strength but only ~42% of revenues (target of 50% in 3-4 years). New
Promoter 55.9 56.0 56.1 channels (~10% of sales from modern trade and e-commerce), deeper penetration in
- Pledged - - - rural/ non-South regions and new categories are the company’s key focus areas.
FII 12.7 14.3 14.3
DII 17.3 16.0 15.7 Capex intensity to rise on in-house manufacturing: VGRD has consistently been
Others 14.1 13.7 14.0 adding capacity to reduce its dependence on outsourcing. With the rising capex
intensity (from ~Rs 500mn to >Rs 1,000mn annually), it plans to enhance in-house
Stock Performance (1-year) manufacturing to 60% in the coming years from ~50% currently. It has 11
310 manufacturing facilities at Coimbatore and Perundurai (Tamil Nadu), Kashipur and
270 Roorkee (Uttarakhand), Kala Amb (Himachal Pradesh) and Sikkim.
230 We expect recovery across divisions; Initiating coverage with HOLD: We expect 17%
190
revenue CAGR and 15% PAT CAGR for VGRD over FY21-24E (5% and 14% respectively
over FY18-21), driven by a demand rebound across product categories as also stable
150
margins on cost controls and operating leverage benefits. Despite the rising capex, a
Sep-21
Feb-22
Nov-21
Apr-21
Jul-21
Aug-21
Jan-22
Mar-22
Apr-22
May-21
Jun-21
Oct-21
Dec-21
tight control on working capital should keep FCF generation at healthy levels. While
VGRD Sensex we are positive on VGRD’s pan-India aspirations, cash-rich status and healthy FCF, we
find the stock fairly priced at current valuations (~30x FY24E earnings). We initiate
Ashish Poddar coverage on VGRD with a HOLD recommendation and price target of Rs 225 (5%
ashishpoddar@systematixgroup.in upside from CMP), based on 32x FY24E earnings – ~10% discount to comparable
+91 22 6704 8039
peers given VGRD’s relatively weaker brand in non-South markets and lower margins
Pranay Shah in electricals and ECD.
+91 22 6704 8017
29 April 2022 V-Guard (VGRD)
Story in charts
Exhibit 1: Revenue mix (FY21) Exhibit 2: Revenue mix trend
(%)
120
27% 28%
100
24 25 26 27 27
80
Electronics
60 31 31 30 30 28
Electricals
ECD 40
20 45 44 44 42 45
0
FY17 FY18 FY19 FY20 FY21
45%
Electricals Electronics ECD
(Rs bn) (%)
50
40
45
35
40
35 30
30 25
25 20
20 15
15
10
10
5
5
0 0
Exhibit 5: PAT and growth trend Exhibit 6: Electronics – revenue and EBIT trend
(Rs bn)
(Rs bn) (%)
4
12 20
3 18
10
16
3
14
8
2 12
6 10
2
8
4
1 6
4
1 2
2
0 0 0
PAT Revenue EBIT % (RHS)
Exhibit 7: Electricals – revenue and EBIT trend Exhibit 8: ECD – revenue and EBIT trend
(Rs bn) (%) (Rs bn) (%)
25 9 16 7
14 6
20 8.5
12
5
15 8 10
4
8
10 7.5 3
6
2
4
5 7
2 1
0 6.5 0 0
Exhibit 9: Growing faster in non-South markets Exhibit 10: Rising focus on in-house manufacturing
(%) (%)
100 100
90
30.0
90
33.0
33.0
35.0
37.0
39.0
40.5
41.2
41.5
80 80
50
55
57
57
58
70
60
60
60
70
60 60
50 50
40 40
70.0
67.0
67.0
65.0
63.0
61.0
59.5
58.8
58.5
30 30
50
45
43
43
42
40
40
40
20 20
10 10
0 0
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 9MFY22 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
South Non-South In-house Outsourced
(%) (Rs bn)
28 3
26
3
24
22 2
20
2
18
16 1
14
1
12
10 0
Investment Analysis
Reliance on summer products, South markets limiting growth
Starting with voltage stabilizers, VGRD has over the years grown its product portfolio
to cover three business segments – electricals, electronics and appliances. The
portfolio now comprises a wide range of products including digital UPS systems &
batteries, pumps, housing wires, switchgears, modular switches, electric water
heaters, fans, solar water heaters, air coolers and various kitchen appliances).
However, the portfolio is tilted towards summer products and dominated by South
India markets so far (~58% of revenues in FY21). Despite an aggressive branding
campaign launched in FY18, VGRD has lagged peers in terms of performance, more
so as the southern markets have not grown so well in the recent past. Notably, the
company’s EBIT margins in electronics division are at healthy levels of ~18% while
margins in the electricals (~9%) and ECD (~6%) divisions are lower than of peers given
its frontloaded investments in distribution and marketing and a relatively weaker
brand image in non-South markets.
Exhibit 13: Revenue growth (FY16-21) Exhibit 14: EBITDA margin (FY21)
(%) (%)
12 16
10 14
8 12
6 10
8
4
6
2
4
0 2
-2 0
POLYCAB
ORIENTEL
KEII
BJE
FNXC
HAVL
CROMPTON
VGRD
ORIENTEL
KEII
POLYCAB
VGRD
BJE
HAVL
CROMPTON
FNXC
Exhibit 15: VGRD’s addressable market size, market share and growth outlook
Industry VGRD’s share
Est. industry Est. share of
Product category growth rate in organized Key players
size (Rs bn) organized (%)
(%) (%)
Electronics
Stabilizers 18 7-8% 55-60% 42-45% Microtek, Livguard, Bluebird
DUPS & Battery 120 8-10% 65-70% 4-6% Luminous, Microtek, Exide
Electricals
Housewires 170 8-10% 62-65% 6-8% Polycab, Finolex, Havells
Switchgears * 35 8-10% 75-80% 3-5% Havells, Legrand, Schneider
Modular Switches 65 8-10% 70-75% ** Anchor, Legrand, Havells
Pumps * 35 5-8% 60-65% 8-10% Crompton, Kirloskar, CRI
Appliances
Water Heaters 26 10-12% 65-70% 14-16% Havells, Bajaj, Crompton, Racold
Electric Fans 95 8-10% 75-80% 3-5% Crompton, Usha, Havells, Orient, Bajaj
Solar Water Heaters 6 6-8% 60-65% 14-16% Sudarshan Saur, Supreme Solar
Air Coolers 50 15-20% 30-35% ** Symphony, Bajaj, Voltas
Kitchen Appliances (Mixer Mixer Grinders - Bajaj, Preethi, Prestige
Grinders, Gas Stoves, Gas Stoves - Stovekraft, Sunflame, Butterfly
140 8-10% 65-75% **
Water Purifiers, Other Water Purifiers - Eureka Forbes, Kent RO, HUL
small kitchen appliances) Pureit
Total addressable market 760 8-10%
Source: Company; Note: * Market estimate of VGRD’s active product segment only, ** Recent entry/ growth plan under activation
Electronics segment highly dependent on summer season
VGRD’s electronics division, with a revenue share of ~30% in the mix, is comprised of
voltage stabilizers, digital UPS systems and batteries. VGRD is a strong brand in the
South and competes with Microtek, Luminous, Livguard, etc. Importantly, demand of
these products is closely linked to demand for summer appliances (air conditioners,
refrigerators, etc) and the quality of electricity supply in a particular region.
In the last few years, demand for air cooling products has remained muted due to
unfavourable (less intense) summers and lockdowns during the peak season. While
we see demand returning in the current season, an improving supply and quality of
electricity is structurally limiting growth in the product category.
Exhibit 16: Electronics – revenue and margin trend Exhibit 17: Advertisement
(Rs bn) (%)
12 20
18
10
16
14
8
12
6 10
8
4
6
4
2
2
0 0
Improving outlook of wires to accelerate growth in electricals segment

VGRD’s electricals division accounts for ~43% of its overall revenues and the portfolio
spans products like housing wires, pumps, switchgears, modular switches, etc. In
these categories, it competes with many leading brands such as Polycab, Havells,
Finolex, Crompton and CRI to name a few. After many years of sluggishness, outlook
of housing wires and pumps is improving on the back of a revival in demand for
housing units.
Exhibit 18: Electricals – revenue and margin trend Exhibit 19: Advertisement
(Rs bn) (%)
25 9
20 8.5
15 8
10 7.5
5 7
0 6.5
ECD expected to sustain the growth momentum
VGRD’s ECD division contributes ~27% to its revenues with offerings including
electric water heaters, fans, solar water heaters, air coolers and various kitchen
appliances. Here, the company competes with leading brands such as Havells,
Crompton, Bajaj, Orient and Racold among others. Despite tough competition, the
space offers a healthy growth opportunity for industry participants due to low
penetration levels and a shift happening in consumer preference towards branded
products. We expect the growth momentum to be sustained in view of favourable
macro factors.
Exhibit 20: ECD – revenue and margin trend
(Rs bn) (%)
16 7
14 6
12
5
10
4
8
3
6
2
4
2 1
0 0
Exhibit 21: New launches and advertisements
Source: Company
Expansion in non-South markets to drive growth and margins

VGRD, traditionally a dominant player with a strong brand in the South, has been
working to expand its footprint pan-India in the last 10 years. The share of non-South
markets in its revenues has increased significantly from 5% in FY08 to ~42% in FY21,
attributable in some measure to muted growth in southern markets over the last few
years. The company continues to invest heavily into its target of expanding outlet
coverage in the non-South geographies and becoming a dominant pan-India player.
Exhibit 22: Revenue growth trend in southern markets Exhibit 23: Revenue growth trend in non-South markets
(Rs bn) (Rs bn)
30 20
18
25
16
20 14
12
15 10
8
10
6
5 4
2
0 0
Revenue Revenue
Over the last decade, VGRD has added a higher number of retail touchpoints in non-
South regions (~60% of distribution strength and ~42% of sales) than in its stronghold
southern markets. With expanding operations in the faster growing non-South
regions, we see significant potential for growth/ margin expansion for the company
over the next 3-5 years.
Exhibit 24: Non-South markets growing faster and offer growth potential
(%)
100
90
30.0
33.0
33.0
35.0
37.0
39.0
40.5
41.2
41.5
80
70
60
50
40
70.0
67.0
67.0
65.0
63.0
61.0
59.5
58.8
58.5
30
20
10
0
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 9MFY22
South Non-South
Source: Company
Financial Analysis
We expect 17% revenue CAGR over FY21-24E, led by ECD
Unfavourable summers in southern India and a prolonged Covid-19 pandemic have
restricted growth for VGRD to a revenue CAGR of 5% with a 3% CAGR in electronics,
6% in electricals and 10% in ECD over FY17-21. With a hot summer expected this
year, normalcy returning on the Covid front and increasing contribution from non-
South markets, we expect growth to accelerate and estimate a healthy 17% revenue
CAGR (electronics 11%, electricals 17% and ECD 25%) for VGRD over FY21-24E.
Exhibit 25: Revenue and growth trend Exhibit 26: ECD the fastest growing segment
(Rs bn)
50
Revenue mix (%) CAGR %
45
40
35 FY21 FY24E FY17-21 FY21-24E
30
25
Electronics 28.1 23.9 3.4 10.7
20
15
10 Electricals 44.6 44.3 6.3 16.8
5
0
FY18 FY19 FY20 FY21 FY22E FY23E FY24E ECD 27.3 31.8 9.7 24.8
Revenue
Expect stable margins in a healthy range

VGRD’s EBITDA margins remained in an 8-10% band over FY17-20 and subsequently
improved to 11.5% in FY21 on the back of cost savings on account of low spend on
advertising, travelling and other discretionary expenses during the pandemic. Over
FY21-24, we expect the company to clock margins at ~10% on account of rising RM
costs and higher discretionary expenses. However, robust traction in non-South
regions (~60% of distribution strength and ~42% of sales) offers significant potential
for growth/ margin expansion over the next 3-5 years. Thus, we have built in a
gradual expansion in margins in the coming years.
Exhibit 27: PAT growth trend Exhibit 28: Gross and EBITDA margin trend
(Rs bn) (%)
4 40
3 35
3 30
25
2
20
2
15
1 10
1 5
0 0
PAT Gross margin EBITDA margin
Return ratios to improve; healthy FCFs to continue despite rising capex
In the coming years, we expect return ratio to improve for VGRD on the back of a
moderate expansion in margins. The company is also looking to increase its capex
intensity from ~Rs 500m a year in the past few years to >Rs 1,000m annually over
next few years – in line with its focus to enhance in-house manufacturing. Despite
this, it is expected to generate healthy FCFs on a tight working capital cycle.
Exhibit 29: RoE and RoCE trend Exhibit 30: Healthy FCFs despite rising capex intensity
(%) (Rs bn)
28 3
26
3
24
22 2
20
2
18
16 1
14
1
12
10 0

PAT margin (%) 5.8 6.5 7.5 7.4 5.8 6.6 6.9
Asset turnover (x) 3.1 2.8 2.4 2.1 2.5 2.5 2.4
RoE (%) 17.9 18.6 18.8 16.6 14.9 16.7 17.2

VGRD, a Kochi-based company founded in 1977, started its journey with voltage
stabilizers and is now a well-diversified consumer appliances company offering a
wide range of light electrical products such as digital UPS systems & batteries,
pumps, housing wires, switchgears, modular switches, electric water heaters, fans,
solar water heaters, air coolers and various kitchen appliances. The leader in the
South, VGRD is widening its footprint in non-South as well. New channels (modern
trade, e-commerce, ~10% of sales), deeper penetration in rural/ non-South regions,
in-house manufacturing and new categories are VGRD’s key focus areas.
We expect 17% revenue CAGR, 14% EBITDA CAGR and 15% PAT CAGR for the
company over FY21-24E (5%, 18% and 14% respectively over FY18-21), led by strong
growth across categories and stable margins amid pressure from higher RM costs.
Despite rising capex, we expect VGRD to maintain high FCF through tight working
capital management.
While we like VGRD for its strong position in southern India, its strategy to expand
pan-India, cash-rich status and healthy FCF generation, we believe the stock is fairly
valued at current valuations of ~30x FY24E earnings. We initiate coverage on VGRD
with a HOLD rating and target price of Rs 225 (5% upside from CMP), based on 32x
FY24E earnings. We have assigned ~10% lower target valuation to VGRD than larger
peers due to its weak performance historically and downside risk to margins.
Exhibit 32: PE band and standard-deviation (1-year forward)
70
65
60
55
+1SD
50 Mean
45
40 -1SD
35
30
25
20
Jul-17
Jul-18
Jul-19
Jul-20
Jul-21
Apr-20
Apr-17
Apr-18
Apr-19
Apr-21
Apr-22
Jan-18
Jan-19
Jan-20
Jan-21
Jan-22
Oct-17
Oct-18
Oct-19
Oct-20
Oct-21

Economic slowdown
A sluggish domestic economy due to global factors may have short-term negative
impact on demand. For the past couple of years, the housing sector has also
generated muted demand for electrical goods. However, there are signs of revival in
the housing sector. Availability of uninterrupted power supply is key to demand of
electrical products – hence, errant supply of electricity may hamper growth
prospects for the industry.
Commodity headwinds
With the economy opening up post lifting of the COVID-induced lockdowns, the
pent-up demand for commodities has driven a sharp rise in their prices. Industrial
commodities, including key raw materials such as copper, steel and aluminium have
seen significant and sustained price spikes. Going forward, inflationary trends like
increasing input costs, higher commodity prices and better pricing power may
adversely impact demand in the consumer discretionary spends.
Hyper-competition in the marketplace
The consumer electricals industry has traditionally been competitive due to the
presence of many large players as well as fragmented regional players. In times of a
slowdown, the market becomes hyper-competitive with new entrants eating into the
share of incumbents through aggressive pricing and other trade practices. VGRD
claims to have a strong innovation pipeline of differentiated products, which will help
it protect its market share. Also, it continuously strives to enhance its distribution
reach and focus on emerging channels as well.
Annexures
Company Background
A well-diversified light electricals company
VGRD is a Kochi-based company founded in 1977 to manufacture and market voltage stabilizers. It has since then established a
strong brand name and aggressively diversified to become a multi-product company catering to the light electricals sector including
voltage stabilizers, digital UPS systems & batteries, pumps, housing wires, switchgears, modular switches, electric water heaters,
fans, solar water heaters, air coolers and various kitchen appliances.
Exhibit 33: Revenue mix trend Exhibit 34: A wide product portfolio
(%)
100
90 24 25 26 27 27
80
70
60 31 31 30 30 28
50
40
30
20 45 44 44 42 45
10
0
FY17 FY18 FY19 FY20 FY21
Electricals Electronics ECD
Focus on in-house manufacturing

VGRD outsources ~50% of its product portfolio while keeping a strict control on design and quality aspects. For the remaining 50%, it
has manufacturing facilities in Coimbatore in Tamil Nadu, Kashipur and Roorkee in Uttarakhand, Kala Amb in Himachal Pradesh and
Sikkim. The share of in-house manufacturing has been gradually rising as it achieves the requisite scale in specific product categories.
From 43% in FY14, in-house manufacturing has increased to 50% and is likely to go up to 60% with planned capex.
Exhibit 35: Manufacturing and sourcing capability Exhibit 36: Rising focus on in-house manufacturing
Product No. of Units Location (%)
Own mfg facilities 100
Wires & Cables 2 Coimbatore, Kashipur 90
Pumps & Motors 1 Coimbatore 80
50
55
57
57
58
60
60
60
Fans 2 Kala Amb (HP), Haridwar 70

Water Heater 2 Kala Amb (HP), Sikkim 60
Solar Water Heater 1 Coimbatore 50
Solar Inverter 1 Coimbatore 40
Stabilizers 2 Sikkim 30
50
45
43
43
42
40
40
40
Outsourced facilities 20
Stabilizers 57 Across India 10
Pumps 18 Across India 0
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21
Fans 11 Across India
In-house Outsourced
UPS 9 Across India
▪ Kochouseph Chittilappilly, Promoter and Chairman Emeritus, founded VGRD in 1977 after starting his career in 1973 at Telics, a
Thiruvananthapuram-based electronics company manufacturing voltage stabilizers and emergency lamps, in the capacity of a
supervisor. He has great interest in social service in the areas of healthcare, education and development of social infrastructure.
▪ Mithun Chittilappilly, Managing Director, is a post-graduate in Management from University of Melbourne, Australia. He joined
VGRD as Executive Director in 2006 and became the Managing Director in April 2012.
▪ Ramachandran Venkataraman, COO, is a leading management professional with >30 years of cross-functional experience across
bluechips like HUL and LG Electronics. He was appointed as a whole-time Director of the company in June 2013 and subsequently
designated as Director & Chief Operating Officer. His primary mandate entails building and enhancing business competitiveness
and capabilities required to secure leading market position by putting together a strategic framework for the organization.
▪ Sudarshan Kasturi, CFO, joined VGRD in 2017 after a long stint at Unilever where his latest role was as Director (Finance) at
Unilever Nigeria Plc. He is a chemical engineer from BITS Pilani and an MBA from IIM Bangalore.
Promoters 56.1 56.0 55.9 SBI MF 8.5
Free float 44.0 44.0 44.1 Nalanda India 6.2
- Foreign Institutions 14.3 14.3 12.7 Kotak MF 5.1
- Domestic Institutions 15.7 16.0 17.3 Birla MF 1.3
- Public 14.0 13.7 14.1 HDFC Life 1.3
Exhibit 38: Company overview

§ Electronics – Stabilizers, UPS, Solar Inverter; Electricals – Wires, Pumps, Switchgears, Modular
A comprehensive portfolio catering to the Switches; ECD – Fans, Water Heaters, Kitchen Appliances, Air Coolers
mass consumption market
§ Household consumption market to continue growing at a fast clip in the long term
§ A network of 31 branches spread pan-India

Invested in a strong distribution network
§ Network of 40,000+ retailers
§ Aggressive ad spends and sales promotions have created a strong equity and brand recall
Strong Brand Equity
§ Strong established player in South India with leadership in the Voltage Stabilizer segment
§ Significant investments committed towards aggressive expansion in non-South markets

Expanding towards a pan-India presence
§ Increased capacities for house-wiring cables and solar water heaters
§ Follows an asset light model by outsourcing ~50% of its products from a range of vendors
§ Tie-ups with SSIs/ self-help groups spread across southern India

Mix of in-house and outsourcing production
model provides flexibility § Own manufacturing locations – 11 facilities in Coimbatore, Perundurai, Kashipur, Kala Amb (HP),
Sikkim and Haridwar
§ Blended manufacturing policy helps optimize capex and working capital requirements
§ Leadership position in its flagship product, voltage stabilizers, with >51% market share
Increasing market share across product lines § Successfully gained market share in all its product categories
§ Rapidly gaining market share in non-South markets

Source: Company
Annual report analysis (FY17-21)

Exhibit 39: Company overview
• Acquisition of a 74% stake in Guts Electromech, a Hyderabad-
• Relatively weaker consumer discretionary spends due to slow based company engaged in the manufacture and marketing of
construction activity (especially in 2H after demonetization),
various kinds of domestic switchgears and circuit breakers
political uncertainty and a Cyclone
• Launched India's first IoT-enabled premium water heater 'Verano'
• Expansion into non-South markets, shift of demand to the
FY17 organized sector, hotter weather conditions, deeper penetration • Invested Rs 125mn in a new manufacturing unit for stabilizers at
into tier-2 & -3 cities that still have less reliable power availability Sikkim facility
and growing demand for LED tech providing impetus to demand
• Coimbatore plant commenced production in May-17
• Target of 15% revenue CAGR over the next few years
• A 1:10 stock-split and 2:5 bonus issue announced
• Government thrust on housing and rural electrification, ample • Acquired 74% equity shares of Guts Electro-Mech, engaged in
headroom for growth available in terms of geographical reach manufacturing and selling of switchgears, circuit breakers, relays,
and product portfolio, increasing disposable incomes, GST and current transformers and similar electromechanical products
shortening replacement cycles key demand drivers
FY18 • Plans to add 3,000-5,000 retailers pan-India every year over the
• Increasing number of households, higher rural penetration, next five years with higher addition in non-South markets
increasing electrification, technological innovations such as IoT-
enabled appliances, higher disposable incomes, etc major drivers • New categories – kitchen appliances, switches & switchgears and
of volume growth air coolers to provide significant growth opportunities
• With rising volumes and attaining of requisite scale, the company

• Water heaters, fans and wires businesses recorded 12% growth sees merit in increasing inhouse manufacture to 60% in the next
• Rising income levels, growing aspirations of the middle class, few years
FY19 rapid urbanization, better outlook for housing sector, • Focus on premiumization of product portfolio
electrification and improving affordability expected to drive
better penetration and product premiumization • Envisages adding 4,000-5,000 retail points with majority of the
addition in non-South markets
• Impacted by the lockdowns, revenue down 3.3% YoY with muted

growth in fans category; higher penetration in non-South markets • National Electronics Policy 2019 approval presents the
a key positive opportunity of several incentives like interest subvention and
credit guarantee, 100% foreign direct investment in electronics
FY20 • Weak consumer demand for a major part of the year, tight hardware manufacturing and various other incentive packages
liquidity conditions and reduced discretionary spending
• India’s transition towards a formal economic structure expected
• The South region saw another year of seasonal weakness on to benefit organized players and lead to demand recovery
account of floods
• Acquired an 18.8% stake in Gegadyne Energy Lab, a start-up

• Tight liquidity conditions and low discretionary spending by
developing fast-charging battery technology
consumers leading to cyclical weakness affecting demand
• Retailer addition plan on track (3,000-5,000 every year in the
FY21 • Sharply lower demand during 1H due to nationwide lockdowns;
medium term with more additions in non-South regions)
however, a strong rebound in 2H drove 8.7% YoY revenue growth
• Opened a new unit for production of premium ceiling fans, in line
• Gross margins under pressure due to higher input prices
with focus on expanding inhouse manufacturing capabilities
Growth (%) (3.5) 8.7 27.8 12.6 12.6 Net worth 9,955 12,113 13,528 15,408 17,676
Raw material expenses 16,618 18,525 23,925 26,722 30,008 Total debt 500 676 576 476 376
Gross Margin (%) 33.6 31.9 31.2 31.8 32.0 Minority interest 36 47 57 67 77
PBT 2,496 2,881 2,810 3,576 4,231 Investments (Strategic) 3 3 3 3 3
Effective tax rate (%) 24.6 29.9 27.9 27.9 27.9 Investments (Financial) 360 - 3,000 4,000 5,000
Net Income 1,871 2,008 2,017 2,569 3,042 Cash 1,116 2,812 776 672 402
FDEPS growth (%) 11.9 7.3 0.4 27.4 18.4 Contingent Liabilities 2,242 2,996 - - -
Cash Flow Ratios

Incr./(decr.) in WC 522 413 (239) 95 647 P/B (x) 9.3 7.6 6.8 6.0 5.2
Others including taxes 788 737 798 1,011 1,194 RoE (%) 18.8 16.6 14.9 16.7 17.2
Capex 850 648 1,052 1,311 1,379 ROIC (%) 22.6 21.1 19.8 23.7 25.3
Free cash-flow 557 1,574 1,624 1,493 1,323 DPS (Rs per share) 0.9 1.2 1.4 1.6 1.8
Debt raised (30) (52) (100) (100) (100) Receivables (days) 47.3 52.1 45.0 45.0 45.0
Fin Investments 393 (919) 3,000 1,000 1,000 Inventory (days) 69.8 84.7 55.0 50.0 50.0
Misc. Items (CFI + CFF) (100) (88) (42) (191) (282) Payables (days) 44.5 63.7 45.0 45.0 45.0
Net cash-flow (619) 2,573 (2,036) (104) (270) CFO:PAT% 75.2 110.6 132.7 109.2 88.8
Systematix
Orient Electric 29 April 2022
Premiumization driving growth

INITIATING COVERAGE Orient Electric (ORIENTEL), the leader in fans, is growing rapidly in new categories
Sector: Consumer Electricals Rating: HOLD (lighting, appliances and switchgears) as well. A renewed focus on innovative new
launches and portfolio premiumization have helped the company reposition itself as a
vibrant and new-age brand. Higher A&P spends at ~4% of sales have enhanced brand
Stock Info visibility while its wide distribution network has supported entry in new categories.
Sensex/Nifty 57,521/17,244 The company aspires to expand margins despite the RM cost headwind, aided by
Bloomberg ORIENTEL IN operating leverage and premiumization. We expect 17% revenue CAGR, 14% EBITDA
Equity shares (mn) 212.2 CAGR and 14% PAT CAGR for ORIENTEL over FY21-24E with growth across categories
52-wk High/Low 392/268 and stable margins. We expect RoE to sustain at ~25% and healthy FCF generation to
Face value Rs 1 continue. While we like ORIENTEL’s business, current valuations at 38x FY24E earnings
M-Cap Rs 68 bn/ USD 0.9bn adequately capture the growth prospects. We initiate coverage on the stock with a
3-m avg turnover USD 2.4mn HOLD rating and price target of Rs 302 (6% downside from CMP), based on 36x FY24E
Financial Snapshot (Rs mn) earnings (in line with peers vs its 42x 5-year mean). Increasing competitive intensity is a
Y/E Mar FY22E FY23E FY24E key risk to our earnings estimates.
Net sales 25,681 28,762 32,214
New entity, new identity…: Since its incorporation in 2017, ORIENTEL has managed to
EBITDA 2,291 2,738 3,228
capture leading market share (~15% in fans) in its core category and make significant
OPM % 8.9 9.5 10.0
PAT (adj.) 1,244 1,511 1,781
inroads in new product categories (geysers, air coolers, kitchen appliances, etc). The
EPS (adj.) (Rs) 5.9 7.1 8.4 future growth runway also appears long with many untapped categories and the
PE (x) 54.6 44.9 38.1 company’s ability to make its mark through relevant offerings.
P/B (x) 12.9 11.1 9.5 …premiumization and innovation the key growth pillars: Emphasis on premiumization,
EV/EBITDA (x) 28.9 24.2 20.4
innovation, brand visibility through A&P spends and channel augmentation have served
RoE (%) 23.6 24.6 24.8
RoCE (%) 35.0 33.4 32.3
ORIENTEL well. From being an economy/ mass-market brand for many decades, it is now
Net-D/E (x) (0.3) (0.3) (0.3) repositioned as a leader in premium fans with a technology-driven portfolio. A&P spends
(~4% of sales) have been scaled up to increase brand visibility and awareness around the
Shareholding Pattern (%) innovative launches. The company aims to further raise the contribution from premium/
Mar’22 Dec'21 Sep'21 decorative fans from ~25% currently (vs 10-15% for industry). A similar strategy is being
Promoter 38.5 38.5 38.5 adopted in other product categories.
- Pledged - - -
FII 8.3 9.0 8.7 Higher capex/ investment in R&D to support growth: ORIENTEL has manufacturing
DII 26.3 24.9 23.8 facilities in Kolkata, Faridabad and Noida. It now plans to invest Rs 1.7bn for a new facility
Others 26.9 27.6 29.0 in Hyderabad, which will be ready by end-FY23. Starting with fans, other products will
also be manufactured at this location. Also, a planned new R&D centre at Faridabad will
Stock Performance (1-year) consolidate operations, improve efficiency and help in faster decision-making.
430
Initiating coverage on ORIENTEL with HOLD rating: With headroom to grow further via
390
innovative launches in existing categories and entry in new businesses, we expect 17%
350
revenue CAGR for ORIENTEL over FY21-24E. Also, we expect EBITDA margins to remain
310
stable at ~10% (with 14% CAGR in EBITDA and PAT each) as cost headwinds get offset by
270
operational efficiencies. Despite the rising capex, we expect RoE at a healthy ~25% and
230
strong FCF. While we like ORIENTEL for premiumization of its portfolio, strong network,
Sep-21
Feb-22
Nov-21
Apr-21
Jul-21
Aug-21
Jan-22
Mar-22
Apr-22
May-21
Jun-21
Oct-21
Dec-21
margin expansion, tight WC and FCF, we find the current stock valuations of 38x FY24E
ORIENTEL Sensex earnings reasonably building in the potential growth. We initiate coverage on the stock
with a HOLD rating and target price of Rs 302, based on 36x FY24E earnings (the 5-year
Ashish Poddar mean at 42x). Increasing competition is a key risk to our growth/ margin estimates.
ashishpoddar@systematixgroup.in
+91 22 6704 8039
Pranay Shah
+91 22 6704 8017
29 April 2022 Orient Electric
Story in charts
(Rs bn) (%)
30 40
35
25
30
20 25
15 20
15
10
10
5 5
0
Exhibit 3: Electric Consumer Durables (ECD) – revenue and EBIT trend Exhibit 4: Lighting and switchgears (L&S) – revenue and EBIT trend
(Rs bn) (%) (%)
(Rs bn)
30 16
9 16
14
25 8 14
12 7 12
20
10 6
10
15 8 5
8
4
6 6
10 3
4 4
2
5
2 1 2
0 0 0 0
(%) (Rs bn)
44 5
4
39
4
34 3
3
29 2
24 2
1
19 1
0
14
-1 OCF Capex FCF
Investment Analysis
Renewed focus on business with an able management team
ORIENTEL has undertaken several measures to strengthen the business and achieve
its objective of becoming a one-stop-shop for lifestyle electrical solutions and an
innovative manufacturer of premium products.
The hiving off has helped re-align its focus
In view of the unrelated nature of businesses under Orient Paper, the promoters
decided to demerge the consumer business into a separate entity – Orient Electric –
in 2017. The main objective was to make ORIENTEL a one-stop-shop for lifestyle
electrical solutions by launching disruptive products in existing and new categories.
Even prior to that, ORIENTEL had started strengthening its leadership team. Hiring
started with the current MD, Rakesh Khanna, who subsequently hired SBU heads
with established credentials and relevant industry experience across verticals.
Since the hiving off, ORIENTEL has achieved many milestones, captured leading
market share in its core product categories (fans and lighting) and successfully
broken into new categories (geysers, air coolers, kitchen appliances, etc) with focus
on product innovation, A&P spends and channel expansion.
Exhibit 7: An experienced team at the helm
Educational Age Experience With Orient
Name Designation Previous employment
qualification (years) (years) since
Jumbo Electronic-Head,
Rakesh Khanna MD & CEO BE - Mechanical, MBA 58 35 01-Dec-14
Sony & IT Products, UAE
Saibal Sengupta CFO B. Com., CA 58 24 02-Apr-18 Usha International - CFO
SBU Head (Fans & LeEco Technology - COO &
Atul Jain BE - Mechanical, MBA 54 31 04-Jul-17
International Business) Head of India Operations
SBU Head (Lighting,
Crompton Greaves - GM
Puneet Dhawan Switchgear & Wiring B. Tech. (Agri), MBA 53 30 09-Sep-13
Sales (Consumer Business)
Accessories)
Srihari Madhava
SVP - Innovation B. Tech. (ECE) 49 27 19-Mar-18 Phillips Lighting
Rao
B. Tech. (Mechanical),
Salil Kapoor Business Head - Appliances 52 31 10-Dec-19 Voltas (COO)
MBA (Sales & Marketing)
VP & Head - Manufacturing -
Arvind Kumar Singh B. Tech. (Mechanical) 55 32 02-May-16 Hero Cycles
Fans
Source: Company
Exhibit 8: Revenues and growth trend

(Rs bn) (%)
30 10.8 12
25 8.5 8.6 8.9 10

7.6
20 8
15 6
10 4
5 2
0 0
FY18 FY19 FY20 FY21 FY22E
Revenue EBITDA margin %
A leader in fans, expanding into newer categories

Since it was taken over by the CK Birla group in 1954, ORIENTEL has maintained its
leading position in fans in India. It is also India’s largest manufacturer and exporter of
fans to more than 40 countries. In the last 10 years, it has expanded the range of
product offerings by entering lighting (2008), home appliances (2011; geysers, air
coolers, kitchen appliances, etc) and switchgears (2015). In 2018, it tied up with the
De’Longhi Group, Italy, to market appliances (mostly premium) under three brands –
De’Longhi, Kenwood, Braun – by utilising its vast and expanding distribution network.
ORIENTEL’s high reliance on assembling most of its products has helped it break into
new categories without committing much capex. We believe the company has the
ability to become a leader in the new categories as well.
Exhibit 9: Products, market share and key competitors
Product Revenue mix Category launch Market size Orient's market
Key competitors
category (FY21; %) (year) (Rs bn) share (%)
Fans 68 1954 100 14 Crompton, Havells, Usha, Bajaj Electricals
Philips, Havells, Surya, Bajaj Elec, Wipro,
Lighting 19 2008 220 2
Crompton, Syska
Appliances 9 2011 120 2 Philips, Havells, Preethi, Racold
Switchgears 4 2015 23 3 Havells, Legrand, Schneider, GM
Source: Company, Industry sources
Growth in fans driven by a richer mix: Despite single-digit volume growth in the
industry (which is nearly saturated) in the last few years, premiumization has driven
value growth in fans for some of the leaders (Havells, Crompton and ORIENTEL). We
expect the trend to sustain and ORIENTEL to grow ahead of the industry.
Lighting – luminaires and fixtures to support growth: ORIENTEL has grown well over
FY14-20 (~16% CAGR), mainly driven by lamps – a low-price and low-margin
category. The company is also a preferred LED lighting supplier to Energy Efficient
Services Ltd (EESL). However, it bids only for select tenders given the cut-throat price
competition. Going forward, we believe growth for ORIENTEL will be driven by
luminaires and fixtures where it has low presence (~50% of lighting revenues vs 70%+
for peers). It has already launched many new products such as LED battens/ tubes in
this segment and strengthened its team for B2B sales.
Appliances/ Switchgears – strong growth ahead: Appliances and switchgears
account for ~12% of consolidated revenues. Given the huge industry size and the
management’s target of gaining market share, we believe growth in these two
verticals will be strong over the next few years. ORIENTEL is now a meaningful player
in air cooler and water heater categories and has also expanded its switchgears
portfolio. To expand its range of offerings, it will keep adding products.
Premiumization and innovation, the core thrust areas
The new management has identified premiumization and innovation as the core
factors in meeting its goals. From being an economy/ mass-market brand, ORIENTEL
has repositioned itself as a leader in premium fans by launching many technology-
driven products. Though the market for premium fans (Rs 4,000+ per unit) is
currently small (~5% of the industry), it is expected to grow at a fast clip over the
next few years. The management intends to increase the combined revenue share
from premium and decorative fans (~25% currently) in the next few years.
Exhibit 10: Key launches in the last few years – portfolio undergoing premiumization
Product category Category-wise launches
i-Series and Aeroslim (an IoT-enabled fan), Aerostorm (low sound) Aerolite (power saving), etc under Aero series; Orient
Fans
Bladeless (fan with no blades); Orient Monroe (compact fan for smaller spaces); Wind Pro (5-blade fan for higher air delivery)
Emergency LED lights, 5-star BEE rating 9W LED bulb; EyeLuv, India’s First LED lights with Flicker Control technology; a new range
Lighting
of LED battens (18W tricolor Moodlight, 24W Sunlight for high brightness and 20W Pearl LED for low glare)
India’s first IoT and voice-enabled air cooler; a new range of coolers with DenseNest technology in cooling pads, anti-mosquito
Air Cooler
breeding and anti-bacteria feature; outdoor metal coolers in modular and assembled versions to cater to tier-2 and -3 cities
18 new models including Glassline (features whirlflow technology providing 20% more hot water supply), Enamour (a distinctive
Water Heater design, corrosion free titanium enamel tank and digital temperature display) and Aura Plus (powerful heating element to instantly
provide hot water on demand)
Switchgear India’s first Triple Layer Safety in switches
Source: Company
Exhibit 11: Advertisements of smart products – M S Dhoni as the brand icon
Source: Company
Focus on distribution network and branding to drive growth

ORIENTEL has a wide network of >5,000 dealers/ distributors catering to 125,000+
retail outlets in India. In the last few years, the company has focused more on the
western region where it is in a relatively weaker position. For higher transparency,
ORIENTEL has worked on uniform pricing for its master distributors across states.
The distribution channel is serviced by four manufacturing plants in the central and
eastern regions, 44 branch offices and warehouses and >450 service centres across
India. It has consolidated its regional warehouses into a mother depot for more
efficient deliveries and to save on logistics costs.
ORIENTEL is now a leading brand in e-commerce and is further strengthening its B2B
team in lighting and switchgears verticals. Also, it is the largest exporter of fans to
>40 countries (though facing political uncertainty in West Asia and Africa).
Exhibit 12: Retail touchpoints – a wide distribution footprint
(Nos.)
2,50,000
2,00,000
1,50,000
1,00,000
50,000
M S Dhoni is the brand ambassador
0
BJE
VGRD
HAVL
ORIENTEL
FNXC
POLYCAB
CROMPTON
Setting up a greenfield plant

ORIENTEL is setting up a manufacturing plant in South India to strengthen its position
in the southern and western markets. The company will invest Rs 1.7bn in its
Hyderabad plant, which will be ready for commissioning by end-FY23. Starting with
fans, the plant will also be used for manufacturing other product lines. The new R&D
centre at Faridabad will help consolidate operations, improve efficiency and faster
decision-making.
Building financial efficiency
Along with high growth, the management has set a target of achieving financial
efficiency through better working capital management, implementation of IT
infrastructure and an efficient supply chain as a priority. It aims to manage working
capital efficiently by reducing receivables and inventories while increasing the
quantum of channel and vendor financing. The rollout of Sales Force Automation,
and business intelligence and DMS software would help in product traceability and
demand forecasting. This, along with warehouse consolidation, has resulted in better
inventory management for the company. While considerable progress has been seen
in these areas, we see enough headroom for further improvement.
High investment in advertising & promotion (A&P) spends
ORIENTEL spends ~4% of its revenues on A&P, among the highest in the industry. It
has inducted MS Dhoni as the brand ambassador. The huge investments have helped
the company increase its brand visibility and reposition itself as a serious, young and
energetic company with a portfolio of innovative products. After the hefty A&P
commitment of the last few years, we see ORIENTEL maintaining the annual spend in
absolute terms but curtailing it as a proportion of revenues. This, we believe, will
lead to a margin expansion for the company.
Exhibit 13: A&P spend to be rationalized in the coming years
(Rs mn) (%)
900 5
800 4.5
700 4
3.5
600
3
500
2.5
400
2
300
1.5
200 1
100 0.5
0 0
FY18 FY19 FY20 FY21
Our estimates build in 17% revenue CAGR and 14% PAT CAGR over FY21-24E
Premiumization and innovation have been the key themes for ORIENTEL after its
demerger from the parent – already reflected in its recent financial performance.
Over FY21-24E, we expect 17% CAGR in the company’s revenues (8% over FY18-21)
with 16% and 17% CAGR in ECD (fans and appliances) and lighting & switchgears
respectively. The growth is attributable to a stronger brand equity in its core
operations (fans and lights) and entry into new businesses. While EBIDTA margins
stood at 10.8% in FY21 on lower discretionary expenses, we expect margins to
sustain in the 9-10% range over the next two years (despite the RM cost pressure
and heightened competition) with scope for further expansion on the back of
operating leverage and higher efficiency.
Exhibit 14: ECD – revenues and growth trend Exhibit 15: Lighting & Switchgears – revenues and growth trend
(Rs bn) (Rs bn)
30 9
8
25
7
20 6
5
15
4
10 3
2
5
1
0 0
Revenue Revenue
Financial Analysis
Multiple levers for all-round growth
After an 8% CAGR in ORIENTEL’s revenues over FY18-21, we expect the growth rate
to be sustained with 16% CAGR over FY21-24E, driven by both ECD and L&S
segments. However, we see its gross margins (~28% currently) and EBITDA margins
(~10%) lagging the 30-35% and 12-15% range respectively for peers.
To re-establish its position as the leader in fans, gain further ground in premium fans,
diversify into related categories and make itself future ready, ORIENTEL has made
hefty investments in brand building, channel expansion, and systems and processes.
We expect the full benefits of these efforts to start accruing in the coming period.
After committing significantly higher spends on A&P (~4% of revenues) over the last
few years, we expect the spend to taper in terms of percent of revenues even as it
remains high in absolute terms. Also, we believe cost-savings from Sanchay and
other programmes will be reinvested into the business to improve systems and
processes as also dealer reach.
Exhibit 16: Revenues and growth trend Exhibit 17: PAT and growth trend
(Rs bn) (Rs bn)
30 2
2
25 2
1
20
1
15 1
1
10 1
0
5
0
0 0
Revenue PAT
Exhibit 18: Gross and EBITDA margin trend Exhibit 19: ECD and L&S – EBIT margin trend
(%) (%)
40 16
35 14
30 12
25 10
20 8
15 6
10 4
5 2
0 0
Gross margin EBITDA margin ECD L&S
RoE to remain healthy on margin expansion and tight WC management
Despite its low margins, ORIENTEL enjoys a healthy RoE (~26% in FY21) on account of
its high turnover ratio with higher reliance on outsourcing. While capex intensity is
set to increase in the coming years in line with the company’s increasing focus on in-
house manufacturing, we expect RoE to remain healthy at ~25%, supported by an
expected margin expansion.
Also, ORIENTEL aims to reduce its working capital cycle by lowering debtors (via
channel financing) and fewer inventory days (warehouse consolidation, etc). This will
keep the balance sheet lean, aid return ratios and will drive healthy FCFs.
Exhibit 20: RoE and RoCE trend Exhibit 21: Net working capital cycle trend
(%) (Days)
44 100
90
39
80
34 70
60
29 50
40
24
30
19 20
10
14 0
FY18 FY19 FY20 FY21 FY22E FY23E FY24E Receivables Inventory Payables Net WC cycle
Exhibit 22: OCF, Capex and FCF trend

(Rs bn)
5
4
4
3
3
2
2
1
1
0
OCF Capex FCF
-1

PAT margin (%) 4.0 3.7 3.8 5.9 4.8 5.3 5.5
Asset turnover (x) 3.7 4.3 4.5 4.3 4.3 3.9 3.6
RoE (%) 24.3 22.6 21.9 26.3 23.6 24.6 24.8

ORIENTEL is the leader in the fans and lighting segment while clocking strong growth
in newer categories (appliances, switchgears, etc) as well. The new management’s
renewed focus since 2015 has helped the company reposition itself as a serious,
young and energetic brand offering premium and innovative products. With higher
brand visibility on high A&P spends and a wide distribution network, it would look to
enter new categories as part of its growth strategy.
Having registered an 8% revenue CAGR, 17% EBITDA CAGR and 23% PAT CAGR over
FY18-21, we estimate 17% revenue CAGR, 14% EBITDA CAGR and 14% PAT CAGR for
ORIENTEL over FY21-24E on the back of growth across product categories and stable
margins. We also expect it to maintain RoE at a healthy ~25% and strong FCF.
While ORIENTEL promises a strong growth profile, an efficient WC cycle and healthy
free cash flows, we find the stock fairly valued at current valuations of 38x FY24E
earnings. Thus, we initiate coverage on ORIENTEL with a HOLD rating and price target
of Rs 302 (6% downside from CMP), based on 36x FY24E earnings (vs 42x its 5-year
mean). Increasing competition is a key risk to our growth and margin estimates.
Exhibit 24: 1-year forward PE band and standard deviation
65
60
55
50 +1SD
45
Mean
40
35 -1SD
30
25
20
Jul-21
Jul-20
Aug-18
Aug-19
May-18
Nov-18
May-19
Apr-20
Apr-21
Apr-22
Oct-19
Feb-19
Jan-20
Jan-21
Jan-22
Oct-20
Oct-21

Raw material price volatility
With the economy opening up post lifting of the COVID-induced lockdowns, the pent-up
demand for commodities has driven a sharp rise in RM prices. Industrial commodities,
including key raw materials such as copper, steel and aluminium, have seen significant
and sustained price spikes. Any marked volatility in raw material prices may eat into
the company’s profitability and earnings if it is unable to take adequate price hikes.
Raw material costs comprise ~70% of ORIENTEL’s revenues.
High dependence on summer-relevant products
ORIENTEL’s ECD division largely comprises summer-relevant products – fans and
coolers. Therefore, a cooler summer may affect performance of the company.
Economic slowdown
A sluggish domestic economy due to global factors may have a short-term negative
impact on demand. For the past couple of years, the housing sector has also generated
muted demand for electrical goods. While there are signs of revival in the housing sector,
errant supply of electricity may hamper growth prospects of the industry. Availability of
uninterrupted power supply is key to demand of electrical products.
Hyper-competition in the market
The consumer electricals industry has traditionally been competitive due to the
presence of many large players as well as fragmented regional players.
With reduced entry barriers on increasing pervasiveness of digital commerce
channels and the emergence of large Original Equipment Manufacturers (OEMs) and
Original Design Manufacturers (ODMs), many companies are venturing into the
consumer electricals space. Increased competition may result in irrational price
behaviour from some market participants and may hamper growth in the industry.
Annexures
Company Background
Orient Electric (ORIENTEL) was established in 2017 after demerger of the consumer electricals business of Orient Paper considering
the different nature of businesses under one company. The main objective was to make ORIENTEL a one-stop-shop for lifestyle
electrical solutions by introducing disruptive products in existing and new categories. The company was listed on the stock
exchanges on 14 May 2018.
Since being taken over by the CK Birla group in 1954, ORIENTEL has maintained its leading position in fans in India. It is also the
largest exporter of fans to more than 40 countries. In the last 10 years, it has entered the lighting (in 2008), home appliances (2011;
geysers, air coolers, kitchen appliances, etc) and switchgears (2015) segments.
In 2018, the company tied up with the De’Longhi Group of Italy to market appliances (mostly premium) under three brands –
De’Longhi, Kenwood and Braun – through its extensive and growing distribution network. A high reliance on procuring components
for most of its products from third-party and assembling them in-house has helped it enter new categories without much capex. We
believe ORIENTEL has capabilities to become a leader in the new categories as well.
Exhibit 25: The journey so far
Year Remarks
1940 Established in Kolkata
1954 Inducted into the CK Birla Group; renamed as Orient Fans
1990 Developed and patented the revolutionary PSPO technology
2008 Entered lighting business with CFL, FTL and GLS
2011 Entered home appliances business with coolers, water heaters and kitchen appliances
2014 Started manufacturing LED Lighting with complete backward integration
2015 Entered switchgears business
2017 Orient Electric demerges from Orient Paper Ltd; Aero series fan launched
2018 Orient Electric listed on Stock Exchanges
2019 Certified as ‘Great Place to Work’
2020 Entered the coveted Fortune India 500 list for the first time
Source: Company
Exhibit 26: Revenue mix (FY21)
26%
ECD (fans, appliances)

Lighting & switchgear
74%
Source: Company
Manufacturing footprint: ORIENTEL has manufacturing facilities in Kolkata, Faridabad and Noida, and is India’s largest manufacturer
and exporter of fans.
Exhibit 27: Manufacturing capacity – a balanced portfolio
~55% of ORIENTEL’s production is in-house. It outsources the remaining
Five manufacturing plants in Kolkata, Faridabad, Noida and Guwahati
Largest manufacturer of fans in India: installed capacity of 12.5mn units
Second-largest manufacturer of LED lamps in India; installed capacity of 40mn units
One of the largest LED bulb manufacturers with streetlight manufacturing capacity of 3.3mn units
Manufacturing capacity of 6.5mn switchgear poles
Has a DSRI-approved R&D lab

Source: Company
Promoters, key management personnel

Chandra Kant Birla, Chairman and Non-Executive Director, is also the chairman of several companies of the CK Birla Group, which
has interests in automobiles, technology, infrastructure, building products, healthcare and education.
Rakesh Khanna, Managing Director and CEO, has a B.E. (Mechanical) degree from Thapar Institute and is an MBA in marketing from
the University of Mumbai. He has more than 30 years’ work experience in India and abroad in consumer durables, consumer
electronics, electricals and lighting industries. He was formerly with Jumbo Electronics and Sony.
Saibal Sengupta, Chief Financial Officer, is a chartered accountant with 24 years of experience. He was formerly with Usha
International and Dabur.
Promoters 38.5 38.5 38.5 Nippon MF 6.4
Free float 61.5 61.5 61.5 Mirae MF 5.5
- Foreign Institutions 8.7 9.0 8.3 Kotak MF 3.2
- Domestic Institutions 23.8 24.9 26.3 ICICI Pru MF 2.6
- Public 29.0 27.6 26.9 Axis MF 2.4
Annual report analysis (FY18-21)

Year Demand Scenario and outlook Plans and Initiatives
• Gained market share in all product categories by expanding
market reach
• Channel destocking due to GST transition resulted in low primary
sales in 1H • Listed on BSE and NSE on 14 May 2018
• Sluggish growth in construction and real estate sectors and • First brand in India to get a 3-star rating from BEE for LED bulbs
FY18 erratic weather conditions had a negative impact on demand; • Focus on improving design and quality of products and service
however, subdued consumer inflation and increase in consumer • Launched 'Sanchay' – a structured cost reduction programme
income aided demand
• Focus on Smart Fan development, TPW BLDC Motor Fan Series
• Traction in LED luminaires sustained
• Industry outlook positive; further boost to growth seen from
deeper distribution
• 4Q impacted due to an extended cold wave and delayed onset of

• Augmented streetlight manufacturing capacity to 10,000 units/
summer season in several parts of the country
day; ventured into 10 more states, taking presence to 17 states
• Focus on launching new-age products, expand international
• A strategic marketing alliance with De’Longhi Group to expand
footprint and strengthen domestic distribution network and B2B
FY19 presence in premium small appliances business under De’Longhi,
business, optimize costs and enhance premium portfolio
Braun and Kenwood brands
• Upbeat prospects on India’s sustained economic growth, higher
• First Indian lighting brand to be awarded a 5-Star rating from BEE
personal incomes, superior lifestyle aspirations, wider and
for LED bulbs
deeper national electricity access and government initiatives
• Commissioned a branch office in Dubai
• Good performance in the first three quarters • Geared to introduce a gamut of smart, energy efficient, IoT-
enabled and consumer-centric products
• Fans grew faster than industry despite sectoral headwinds in
4QFY20 from an extended winter and the pandemic outbreak • Increased engagement with architects, designers and builders to
FY20
enhance share in B2B segment and façade lighting, and plug
• ECD business, largely season-dependent and sold from March to distribution gaps in the B2C segment
June, hit hard on account of the Covid-19 lockdowns
• A greenfield project planned in South to strengthen its position
as the largest manufacturer and exporter of fans in India
• Factories mostly remained shut during 1Q due to lockdown;
however, strong demand in the remaining quarters made up for
the shortfall (ECD sales in FY22 closer to FY21 level)
• Lighting and switchgears recorded marginal contraction due to
heating up of price-led competition
• Favourable outlook on account of a modest rebound in real • During lockdowns, Orient continued to engage with channel
estate segment, renewed government focus on infrastructure partners via virtual meetings (executed a 60-day programme
FY21 spending and resurgence of private institutional demand with 100+ meetings across 5,000+ partners pan-India)
• Industry also likely to see a multi-year demand expansion cycle • Working on improving its margin profile through a mix of
on account of replacement demand from institutional and localization, commodity substitution and premiumization
government entities
• A massive shift expected towards energy-efficient fans (akin to
LED adoption in the lighting industry)
• Likely introduction of energy efficiency norms from 2022 to
improve unit price realizations
FINANCIALS (STANDALONE)
Growth (%) 10.6 -1.4 26.3 12.0 12.0 Net worth 3,594 4,557 5,270 6,145 7,183
Raw material expenses 14,094 14,209 18,803 20,945 23,362 Total debt 947 153 653 1,153 1,653
Effective tax rate (%) 31.2 26.0 25.4 25.4 25.4 Investments (Financial) - - 2,000 2,500 3,000
Net Income 786 1,198 1,244 1,511 1,781 Cash 75 2,576 305 329 608
Adjusted net income 786 1,198 1,244 1,511 1,781 Current Liabilities 5,064 6,914 5,994 6,551 7,168
Shares outstanding 212 212 212 212 212 Working capital 2,463 162 1,114 1,348 1,611
FDEPS growth (%) 13.4 52.3 3.9 21.5 17.9 Contingent Liabilities 165 178 - - -
Cash Flow Ratios @ Rs2,368

Incr./(decr.) in WC 577 (2,172) 943 223 254 P/B (x) 18.9 14.9 12.9 11.1 9.5
Others including taxes 328 375 451 542 634 RoE (%) 21.9 26.3 23.6 24.6 24.8
Operating cash-flow 1,292 4,273 897 1,973 2,340 RoCE (%) 31.7 39.5 35.0 33.4 32.3
Capex 526 359 1,002 1,202 1,202 ROIC (%) 18.6 36.3 43.3 37.4 36.7
Free cash-flow 766 3,914 (105) 771 1,138 DPS (Rs per share) 1.2 2.0 2.5 3.0 3.5
Dividend 294 265 530 637 743 Dividend payout (%) 31 35 43 42 42
Equity raised - - - - - Net debt/equity (x) 0.2 (0.5) (0.3) (0.3) (0.3)
Debt raised (476) (961) 500 500 500 Receivables (days) 69 69 45 45 45
Fin Investments (5) (1) 2,000 500 500 Inventory (days) 51 45 45 45 45
Misc. Items (CFI + CFF) 245 1,358 135 111 116 Payables (days) 59 93 60 60 60
Net cash-flow (245) 1,330 (2,270) 23 279 CFO:PAT% 164 357 72 131 131
Institutional Equities Team

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Shubhranshu Mishra NBFCs & Diversified Financials +91-22-6704 8024 shubhranshumishra@systematixgroup.in
Girija Shankar Ray Cement, Building Materials, Paints +91-22-6704 8098 girijaray@systematixgroup.in
Hena Vora NBFCs & Diversified Financials +91-22-6704 8045 henavora@systematixgroup.in
Nikhil Shah Banking, Insurance +91-22-6704 8091 nikhilshah@systematixgroup.in
Poorvi Banka Auto, Auto Ancillaries +91-22-6704 8063 poorvibanka@systematixgroup.in
Pranay Shah Consumer Durables, Building Materials, Small & Midcaps +91-22-6704 8017 pranayshah@systematixgroup.in
Shweta Dikshit Metals & Mining +91-22-6704 8042 shwetadikshit@systematixgroup.in
Varun Gajaria Midcaps +91-22-6704 8081 varungajaria@systematixgroup.in
Equity Sales & Trading
Name Desk-Phone E-mail
Vipul Sanghvi Director and Head - Sales +91-22-6704 8062 vipulsanghvi@systematixgroup.in
Ashok Kumar Agarwal Sales +91-22-6704 8058 ashokagarwal@systematixgroup.in
Jigar Kamdar Sales +91-22-6704 8060 jigarkamdar@systematixgroup.in
Nirbhay Kumar Singh Sales +91-22-6704 8061 nirbhaysingh@systematixgroup.in
Sidharth Agrawal Sales +91-22-6704 8090 sidharthagrawal@systematixgroup.in
Rahul Khandelwal Sales +91-22-6704 8003 rahul@systematixgroup.in
Pawan Sharma Director and Head - Sales Trading +91-22-6704 8067 pawansharma@systematixgroup.in
Mukesh Chaturvedi Vice President and Co Head - Sales Trading +91-22-6704 8074 mukeshchaturvedi@systematixgroup.in
Vinod Bhuwad Sales Trading +91-22-6704 8051 vinodbhuwad@systematixgroup.in
Rashmi Solanki Sales Trading +91-22-6704 8097 rashmisolanki@systematixgroup.in
Karan Damani Sales Trading +91-22-6704 8053 karandamani@systematixgroup.in
Vipul Chheda Dealer +91-22-6704 8087 vipulchheda@systematixgroup.in
Paras Shah Dealer +91-22-6704 8047 parasshah@systematixgroup.in
Suketu Vyas Dealer +91-22-6704 8050 suketuvyas@systematixgroup.in
Rahul Singh Dealer +91-22-6704 8054 rahulsingh@systematixgroup.in
Corporate Access
Audrey Leolyn Mendonca Assistant Vice President +91-22-6704 8088 audreymendonca@systematixgroup.in
Production
Mrunali Pagdhare Production +91-22-6704 8057 mrunalip@systematixgroup.in
Vijayendra Achrekar Production +91-22-6704 8089 vijayendraachrekar@systematixgroup.in
Operations
Sachin Malusare Vice President +91-22-6704 8055 sachinmalusare@systematixgroup.in
Jignesh Mistry Manager +91-22-6704 8049 jigneshmistry@systematixgroup.in
Ravikiran Dasaka Manager +91-22-6704 8019 ravikiran@systematixgroup.in
DISCLOSURES/APPENDIX
I. ANALYST CERTIFICATION
I, Ashish Poddar, Pranay Shah; hereby certify that (1) views expressed in this research report accurately reflect my/our personal views about any or all of the subject securities or issuers
referred to in this research report, (2) no part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research
report by Systematix Shares and Stocks (India) Limited (SSSIL) or its group/associate companies, (3) reasonable care is taken to achieve and maintain independence and objectivity in
making any recommendations.
Disclosure of Interest Statement Update

Analyst holding in the stock No
Served as an officer, director or employee No
II. ISSUER SPECIFIC REGULATORY DISCLOSURES, unless specifically mentioned in point no. 9 below:
1. The research analyst(s), SSSIL, associates or relatives do not have any financial interest in the company(ies) covered in this report.
2. The research analyst(s), SSSIL, associates or relatives collectively do not hold more than 1% of the securities of the company(ies) covered in this report as of the end of the
month immediately preceding the distribution of the research report.
3. The research analyst(s), SSSIL, associates or relatives did not have any other material conflict of interest at the time of publication of this research report.
4. The research analyst, SSSIL and its associates have not received compensation for investment banking or merchant banking or brokerage services or any other products or
services from the company(ies) covered in this report in the past twelve months.
5. The research analyst, SSSIL or its associates have not managed or co-managed a private or public offering of securities for the company(ies) covered in this report in the previous
twelve months.
6. SSSIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party in connection with this research
report.
7. The research analyst has not served as an officer, director or employee of the company(ies) covered in this research report.
8. The research analyst and SSSIL have not been engaged in market making activity for the company(ies) covered in this research report.
9. Details of SSSIL, research analyst and its associates pertaining to the companies covered in this research report:
Sr. Yes /
Particulars
No. No.
1 Whether compensation was received from the company(ies) covered in the research report in the past 12 months for investment banking transaction by SSSIL. No
2 Whether research analyst, SSSIL or its associates and relatives collectively hold more than 1% of the company(ies) covered in the research report. No
Whether compensation has been received by SSSIL or its associates from the company(ies) covered in the research report.
3 No
Whether SSSIL or its affiliates have managed or co-managed a private or public offering of securities for the company(ies) covered in the research report in the
4 No
previous twelve months.
Whether research analyst, SSSIL or associates have received compensation for investment banking or merchant banking or brokerage services or any other
5 No
products or services from the company(ies) covered in the research report in the last twelve months.
10. There is no material disciplinary action taken by any regulatory authority that impacts the equity research analysis activities.
STOCK RATINGS
BUY (B): The stock's total return is expected to exceed 15% over the next 12 months.
HOLD (H): The stock's total return is expected to be within -15% to +15% over the next 12 months.
SELL (S): The stock's total return is expected to give negative returns of more than 15% over the next 12 months.
NOT RATED (NR): The analyst has no recommendation on the stock under review.
INDUSTRY VIEWS
ATTRACTIVE (AT): Fundamentals/valuations of the sector are expected to be attractive over the next 12-18 months.
NEUTRAL (NL): Fundamentals/valuations of the sector are expected to neither improve nor deteriorate over the next 12-18 months.
CAUTIOUS (CS): Fundamentals/valuations of the sector are expected to deteriorate over the next 12-18 months.
III. DISCLAIMER
The information and opinions contained herein have been compiled or arrived at based on the information obtained in good faith from sources believed to be reliable. Such information
has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy completeness or correctness.
This document is for information purposes only. This report is based on information that we consider reliable; we do not represent that it is accurate or complete and one should exercise
due caution while acting on it. Description of any company(ies) or its/their securities mentioned herein are not complete and this document is not and should not be construed as an
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a loss of original capital may occur. All opinions, projections and estimates constitute the judgment of the author as on the date of the report and these, plus any other information
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India Consumer Electricals - Sector Report - 29-04-2022 - Systematix

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A sustainable growth story

India Consumer Electricals Systematix

A sustainable growth story xx December 2021

appliances). A push for housing construction, better availability of electricity in rural

Story in charts – Industry segments and growth outlook

250 227 250

Story in charts – Companies (peer comparison)

% Total sales % B2C sales (FMEG & wire)

Exhibit 21: Product portfolios of key manufacturers

Structural demand drivers remain in place

Source: GoI, Industry reports Source: GoI, Industry reports

Underpenetration in key categories, especially in lower tier and rural regions:

100% CAGR ~21% CAGR ~22%

Economy Base Premium

Source: Polycab RHP, Systematix Institutional Research

Government initiatives providing additional growth impetus

Sector Number of Investment

Key trends shaping the consumer electricals industry

Positioning of leaders in various categories of the consumer electricals industry:

Wires & Cables (W&C): Industry dynamics and outlook

800 Social Infrastructure 1,717 251

Source: Polycab annual report, Systematix Institutional Research Source: https://indiainvestmentgrid.gov.in/

Exhibit 32: Category-wise growth factors and key players

~Rs 550bn ~45% 7% 12%+ 10-15% (ECD division)

Fans: Industry dynamics and outlook

5% 100% CAGR ~21% CAGR ~22%

Economy Base Premium

~Rs 100bn ~8% 7% 6% 10-15% (ECD division)

Lighting: Industry dynamics, outlook

Exhibit 40: Lighting – trends, demand drivers and outlook

Rs 227bn ~19% 7% 10% 10-15% (ECD division)

Switchgears: Industry dynamics and outlook

Exhibit 42: Switchgears – trends, demand drivers and outlook

Rs 210bn ~17% 6% 10% 15-20%

Key players ABB, Havells, Legrand, Schneider, Siemens, Polycab, etc

Switches: Industry dynamics and outlook

Source: Polycab annual report, Systematix Institutional Research

Exhibit 44: Switches – trends, demand drivers and outlook

Rs 50bn ~4% 8% 10% 9-18% (ECD division)

Water-heaters: Industry dynamics and outlook

Exhibit 46: Water heaters – trends, demand drivers and outlook

Rs 23bn ~2% 10% 6% 9-18% (ECD division)

• Rising disposable incomes and demand for energy-efficient products

KEI Industries (BUY, TP: Rs 1,425; 19% upside potential)

Finolex Cables (BUY, TP: Rs 526; 30% upside potential)

Havells (HOLD, TP: Rs 1,383; 6% upside potential)

Polycab (HOLD, TP: Rs 2,649; 5% upside potential)

Orient Electric (HOLD, TP: Rs 302; 6% downside potential)

Finolex Cables FNXC IN 405 62 Buy 526 30 13 16 22 11 13 10 13 13

Bajaj Electricals BJE IN 1,080 124 Buy 1,286 19 32 46 63 29 87 27 8 20

KEI Industries KEII IN 1,200 108 Buy 1,425 19 24 16 20 12 29 20 17 18

Polycab POLYCAB IN 2,520 376 Hold 2,649 5 31 23 33 13 50 29 14 18

V-Guard VGRD IN 215 92 Hold 225 5 32 48 56 40 46 30 15 17

Orient Electric ORIENTEL IN 320 68 Hold 302 (6) 36 42 49 34 55 38 24 25

Exhibit 48: Peer comparison

Finolex Cables 31.7 35.8 40.3 3 1 7 20 19 10 15 17 12 14

Bajaj Electricals 12.4 24.5 39.8 (0) 3 12 12 27 34 11 41 14 27

KEI Industries 41.0 50.5 59.4 12 13 34 21 20 25 19 21 24 25

Crompton 9.1 10.7 12.2 6 11 24 13 12 8 66 74 35 37

Havells 19.2 24.1 27.7 7 16 (4) 17 16 18 28 37 26 29

Polycab 50.9 67.8 85.8 11 18 36 20 17 14 18 26 20 26

V-Guard 4.7 6.0 7.1 8 11 12 17 14 15 20 25 21 25