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Crompton Greaves Consumer reported another muted quarter, logging only 1% YoY revenue growth owing to the 6% growth in ECD being offset by the decline of 13% in Lighting and of 14% in BGAL. ECD growth was led by premium Fans (22%) and Appliances (19%). Margins, however, dipped due to higher cost of BEE-compliant fans, increased A&P spends for brand-building and loss in builtin kitchen appliances. Cost initiatives led to expansion of margin in Lighting (by ~310bps), despite the decline in top-line (at -13%). Management focus on brand-building and green shoots in the lighting segment provide comfort for the company’s long-term growth prospects. We maintain BUY, with new TP of Rs336/share (+3.9%), based on DCF methodology, implying 30x P/E (unchanged), as we roll forward our TP to Jun-24E.

Weak start to the year

Crompton Greaves Consumer (CG) saw another muted quarter, with revenue growing only 1% YoY, while EBITDA declined 15% YoY. The ECD business grew 6% YoY, with premium Fans now contributing 28% to sales vs. 24% YoY, Appliances growing in doubledigits, and agricultural pumps up 7% YoY. Lighting products and BGAL disappointed, with sales decline of 13% and 14% YoY, respectively. PBIT margins improved for Lighting by ~310bps YoY, on back of cost optimization initiatives. Margins for ECD, however, dipped by 425bps to 12.7%, while that for BGAL were reported at 7.3% vs. 8.6% in Q1FY23 and 2% in Q4FY23. The lighting segment too saw revenue headwinds and margin stress, as both portfolios (B2B & B2C) faced pricing pressure. Company plans on arresting the decline in Lighting by segregating its salesforce from the general salesforce, thereby increasing its focus as well as product-range expansion and improving store visibility.

Outlook and valuation

Management strategy, of product premiumization and investments in brand-building, is likely to bode well for its market share in the core portfolio as well as provide future growth levers (BGAL). However, near-term headwinds — like weak consumer demand, revamping internal team structure and increased A&P spends — would cap the shortterm gains, in our view. We maintain BUY on the stock, as we roll forward our TP to Jun24E. Our new TP stands at Rs336/share (Mar-24E TP of Rs328/share earlier) based on DCF methodology, implying 30x PER. We reduce our FY24E/25E EPS by ~3-7% each, factoring-in the 10% sales CAGR over FY23-26E, ECD margins of 16-17.5%, Lighting margin of 10.5%, and BGAL margin of ~7% over FY24-25E, as we account for the increased investments in A&P spends and other headwinds currently faced by the company.

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