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Result Synopsis

Crompton has reported marginally lower than expected revenue with ECD and Lighting segment declining 3% and 7% respectively. Decline in ECD was on back of high base subdued demand environmentfor Fans which were marred by high inflationary environment and destocking by channel as it is moving towards BEE ratings. Gross margins at 32% have come back to its normalized levels, while operating margins were lower as company continues to invest in its longterm strategic initiatives like R&D innovation center, increased A&P spends and investing in alternate channels. On Butterfly front company transition is happening smoothly and now company is confident of double digit EBITDA margins to be base which can be improved upon. CROMPTON continues to gain market share in key categories like Fans. CROMPTON entry into built in kitchen appliances has met with positive response which has been ahead of expectation.  We continue to remain positive on the stock and maintain BUY as consolidation of Butterfly, entry into built in appliances and investments in alternate channels along with strong impetus on R&D will lead CROMPTON to maintain its industry leading growth.  

We expect industry leading growth momentum to continue for CROMPTON with significant opportunity to improve on BGAL’s performance and entry into built in kitchen appliances We however have trimmed our margin estimates on higher investments on account of developing new business and brand building for BGAL. We now build in FY2224E Revenue/EBITDA/PAT CAGR of 23%/19%/11% and arrive at our PT of Rs 465 valuing the company at 42x FY24EPS and maintain our BUY rating

Result Highlights

Quarter Summary – CROMPTON saw revenue decline of 4% yoy on standalone basis with its core category ECD and lighting declining at 3.1% and 6.6% respectively. Butterfly revenue on other hand has declined 9% yoy on high base and absence of pent up demand.

Margins – Margins were lower than estimates on negative operating leverage and higher investments in products and brand building.   Company continues to invest in developing alternate channels, R&D center and brand building and development

Market share performance – Crompton has marginally managed to gain market share in Fans on rolling 12 months basis.  On the premium fans side company’s market share has increased 5% in similar period. 

New product category  Crompton foray into built in kitchen appliances has met with strong positive response from the channel and customer. The response on new products were better than company’s own expectation. CROMPTON will continue to focus on top 10 cities for this new product category.

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