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Positive outlook maintained on non‐pumps growth and Butterfly synergies; maintain BUY

Result Synopsis

Crompton’s Q4 performance has been marginally below expectations with ECD registering growth of 3.2%; Ex pumps growth has been in high single digits. Lighting revenue decline is on account of slowdown in B2G business. Crompton has been able to navigate high commodity prices much better than its peers. Aggressive cost savings initiatives are now bearing fruits. CROMPTON continues to gain market share in key categories like Fans and Geysers. Butterfly transition is happening smoothly as expected and management has reiterated that acquisition will be EPS neutral from first year itself and worst for Butterfly in terms of costs is behind. We continue to remain positive on the stock from a long‐term prospective and continue to maintain BUY.

We expect steady growth momentum to continue for CROMPTON with significant opportunity to improve on BGAL’s margins as they have identified low hanging fruits which are being worked upon. We however believe Butterfly deal will be EPS dilutive in FY23 and EPS neutral only in FY24 as we feel FY23 will be a transition phase and improvement in efficiencies will start playing out from FY24 onwards. We now build in FY22‐24E Revenue/EBITDA/PAT CAGR of 23%/23%/20% and arrive at our PT of Rs511 valuing the company at 42x FY24EPS and maintain our BUY rating..

Result Highlights

* Quarter Summary – CROMPTON delivered revenue growth of 1.7% yoy with ECD growing at 3.2% and lighting declining 3.7%. Company managed commodity inflation better than its peers.

* ECD ‐ ECD (ex‐Pumps) registered growth of 17% yoy. Fans grew 9% yoy with large contribution from premium ceiling fans. Water heater growth stands at 20%.

* Market share performance – Crompton continues to gain market share in Fans (+3%) on rolling 12 months basis.  Crompton’s exit market share in Fans is 29%. In LED downlighters its market share has increased by 1%. 

* Butterfly Acquisition update ‐ Butterfly acquisition transaction has been closed on 30th March and company has initiated an open offer for 26% stake which started on 23rd May and expected to conclude on 3rd June. Management expects year 1 to be EPS accretive as multiple cost items showing up in Q4 are largely non‐ recurring in nature.  

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