Crompton targets 15% growth with new star-rated fans portfolio

On January 1, ceiling fans came under revised energy efficiency norms, with star ratings linked to their power consumption. This made ceiling fans costlier. As stocks of no-star rated fans are liquidated in the transition to star-rated fans, Crompton Greaves Consumer Electricals is educating Indians about the switch.

Mathew Job, executive director of Crompton Greaves Consumer Electricals, told Moneycontrol in an interview that the increased cost can be recouped in two months from the savings generated by using a one-star rated fan.

“If you switch from a no-star rated fan to a one-star rated fan, you have to shell out Rs 150 more. But, you will save Rs 850 on electricity bill every year, so you got the amount back in barely two months,” he said.

Edited excerpts:

How do you compete with unorganised players that sell fans at cheaper rates?

Luckily, the unorganised segment is very small. The top six players have almost 85 percent of the market. The rest 15 percent of the market is mostly made up by smaller companies. Local, unbranded players are very few. So we don’t think that is a big threat as all the small-scale activities have really come down over time. And all players will play by the rules.

What kind of advertising and promotional spending are you looking at for consumer education?
Earlier, A&P spending on fans was 2 percent of sales. Now, it will go up to 3 percent. Typically, in a normal year, we only have one television commercial running for fans. But this time, in April-June, we will actually have to have one addressing the entry-level, one-star segment and another one for the premium five-star rated fans.

Will this affect the bottom line significantly?
We will be able to grow the top line faster and that will give us scale. We are anticipating a 15 percent top line growth in the fans segment with the rollout of the new energy-efficient products.

What is your revenue split right now and is it going to change?
Fans currently contribute to 40 percent of our turnover. I don’t think this will change. Rather, three years down the line, this number might go lower because other categories are growing substantially faster.

Once we have Butterfly Gandhimathi Appliances integrated in our portfolio fully, the kitchen appliances segment will become the bigger one, or at least it will be on par with fans. So the contribution will go down, although the growth will continue to be strong.

The company’s goal is to grow 15 percent every year and that will help double the turnover in five years.

Commodity prices have hit margins. When do you see them going back to normal levels?a

We had not seen such intense and sustained commodity inflation in the last 25 years. Copper, aluminium, steel, plastic – everything has soared. We thought prices were softening, but there has been an uptick in the last two months.

Maybe 12 months from now, things should start to normalise. Gross margins will go back to 30 percent while operating margin will be back to 13-15 percent.

How much of commodity price inflation has been passed on to customers? And by how much will costs go up because of the new star-rated fans?Raw material inflation has been about 25-30 percent and we have passed on 18-20 percent to consumers. So we have passed roughly two-thirds of the cost increase and the rest has been mitigated by cost reduction, redesigning the products, changing the mix, and of course, by taking some hit on the margin.

With the new star-rated fans, our costs have gone up by another 15 percent but we are passing on only 5 percent. The energy efficiency norms will be revised every two years and we will have to keep upgrading the products. For that, we will have to work on the backend and bring down costs as low as possible.

You don’t see this impacting demand in an inflationary environment?
In earlier price hikes, consumers were not getting any value add. It was simply a passthrough of raw material inflation. Now, they get to save on electricity bills by shelling out only Rs 100 more. So I don’t think the new energy norms will impact demand.

What are your capex plans for the next few years?
As of today, 35 percent of what we sell, we make in-house and 65 percent is outsourced. Five years from now, this will reverse. This means that I need to build capacity in the factories. But our business is not really heavy on capital expenditure. I would say that in the next five years, capex should not be more than Rs 300-400 crore across categories.

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