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CROMPTON has announced a major change in leadership with appointment of Mr Promeet Ghosh as new MD & CEO for a period of five years with effect from May 1, 2023. Current MD, Mr Shantanu Khosla has been elevated as Executive Vice Chairman for a period of one year (from May 1, 2023 to April 30, 2024), thereafter he will serve as Non?Executive Vice Chairman till December 31, 2025. The current CEO, Mr Mathew Job has resigned with effect from April 30, 2023 to pursue other career interest. The leadership changes have been done to execute the new strategy of CROMPTON to prioritize volume growth over gross margin. CROMPTON admits to underperforming in terms of revenue growth and aims to enhance its growth profile through various measures like higher A&P spend, frequent innovative product launches, GTM and pricing actions. We believe that leadership change coupled with strategy change is likely to lead to higher uncertainty for investors in the near term owing to (1) lack of experience of new MD in running a corporate, especially in a sector such as electrical appliances where on?the?ground execution through distribution channel is key to success, (2) the extent of pricing and margin cut CROMPTON will need to attain desired volume growth, and (3) the critical timing of ongoing integration with its 75% subsidiary Butterfly Gandhimathi Appliances. With rising uncertainty, we cut our P/E multiple on CROMPTON to 25x FY25E earnings as we believe it no longer deserves
premium to peers such as Bajaj Electricals and Orient Electric. Retain Buy with revised target of Rs305.

Key takeaways from the concall are as follows:

* The leadership change is part of a succession plan as Shantanu Khosla has less then couple of years left in his term. The committee has been working on it since past few months, looked at both internal and external candidates.
* Committee felt Promeet Ghosh is the right candidate to take over as an MD & CEO since he has the breadth of vision and depth of understanding. He has closely worked with strategic corporate decision making across many companies and has a wider exposure to emerging trends. He has been on Crompton’s board since inception in 2016 and has helped to draft many strategies of Crompton over the years. Consumer durable industry is getting into a new phase where it can’t be looked at as a linear business. New players, new technology and business disruptions will keep happening and hence it is critical to know emerging trends.
* Shantanu’s role will remain the same ? to provide support, guidance & inputs.
* Mathew Job chose to move on once board decided new MD & CEO, as his career aspirations could not be fulfilled in Crompton anymore. He will be serve 3 months’ notice period & will facilitate the transition.

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