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Strategy 2.0 – To focus on absolute profit growth instead of margins

Crompton has done key fundamental changes to its business under strategy 2.0 which are likely to be DCF accretive in our view. (1) it plans to divide the business in multiple SBUs which will likely drive the accountability and improve efficiencies, (2) there will be separate on-ground sales teams for multiple product(s). It is likely to result in stronger connect with the trade and higher throughput-per-store, (3) Crompton has plans to premiumize the portfolio and believes Crompton and Butterfly brands have potential to drive premiumization, (4) There will be higher focus on E commerce and digital and (5) it plans to enter multiple new categories such as switches, switchgears, wires and cables and other adjacent products. We remain positive and maintain BUY rating with DCF based TP of INR 350.

Division of business in multiple SBUs Crompton has divided the business is multiple SBUS

as (1) Fans and large domestic appliances, (2) Pumps, (3) Kitchen appliances and small domestic appliances, (4) Lighting and (5) New business initiatives. Division of business across SBUs is likely to increase accountability and improve efficiencies

Multiple sales teams to drive throughput-per-store

Crompton plans to have separate sales teams for different products at ground level. While the National sales manager and regional sales managers will be same for all products, there will be separate sales teams for different products. Also, there will be additional investments in influencer programs.

Focus on premiumization

The company plans to invest in premiumizing the product portfolio across products. The portfolio of premium fans is growing at ~15% whereas mid and mass market fans are growing at less than 5%. It believes that there is potential to premiumize the portfolio under Crompton and Butterfly brands.

Higher focus on E Commerce channel

Crompton generates just INR ~2.5bn revenues from E commerce channel whereas Butterfly generates INR ~3bn revenues in-spite of lower overall revenues. It indicates a strong potential to drive off-take of Crompton through E commerce channel. Crompton plans to invest more in digital channels.

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