Surpassing all expectations
Crompton posted a robust 2QFY21, beating our as well as the street’s expectations. ECD growth of 18% was primarily driven by volume growth (not led by channel filling and pent-up demand). It was heartening to know that order frequency by trade partner has increased and reflects healthy retail demand. Crompton saw healthy market share gains across segments. Lighting margin recovery was strong with a price hike, product mix and cost control. BC lighting saw 9% YoY volume growth while B-B (ex B-G) was flat. Owing to quicker recovery in B-C, market share gain, success on non-fan portfolio and margin recovery in lighting, we increase EPS estimate by 20/18/14% for FY21/22/23. We value Crompton at 37x (earlier 35x) P/E on Sep-22E EPS and derive a target price of Rs 350. Maintain ADD.
* ECD led beat in revenue: Revenue grew by 11% YoY (+4% in 2QFY20 and - 47% in 1QFY21) vs expectation of 5% YoY growth. In 18% growth in ECD (HSIE 9%), fan, pump and geysers clocked 23/18/43% growth. E-comm gained salience for the company with 72% YoY growth and Crompton expanded its presence in the channel. The company gained market share across ECD. Lighting revenue declined by 7% YoY (HSIE -8%), with healthy recovery in B-C lighting. B-B lighting also recovered except B-G.
* Robust margins: GM was healthy with an expansion of 101bps YoY (+330bps in 2QFY20 and -13bps in 1QFY21) vs an expectation of +25bps YoY expansion. Lighting/ECD saw EBIT margin expansion of 512/182bps YoY. Employee/Other expenses decline by 2/3% YoY. EBITDA margin saw an expansion of 347bps YoY to 15.5% (+10bps in 2QFY20 and -39bps in 1QFY21). EBITDA grew by 44% YoY (HSIE 9%). PBT clocked 45% YoY growth while PAT grew by 23% YoY due to lower tax in the base quarter.
* Concall takeaways: (1) Distribution network normalised and all factories are now fully operational; (2) channel inventory has remained stable, but company level inventory is lower; (3) residential pumps saw 24% YoY volume growth; (4) super-premium fans saw 300% YoY growth; (5) the company believes double-digit lighting margins are sustainable.
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