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Revenue flat; Crompton 2.0 to lift performance

Crompton Greaves Consumer Electricals Ltd. (Crompton) is an Indian consumer electric product company.

* In Q1FY24, revenue was flat YoY at Rs. 1,877cr, as growth in the electric consumer durables segment was partially offset by declines in the lighting segment and its subsidiary, Butterfly Gandhimathi (BGAL).

* EBITDA fell 15.5% YoY to Rs. 186cr and EBITDA margin contracted 190 bps YoY to 9.9% during the quarter, owing to higher advertising and sales costs. Reported profit after tax (PAT) stood at Rs. 122cr vs. Rs. 126cr in Q1FY23.

* That said, the management has seen improvement in demand from July 2023 onwards. The management is also focusing on driving portfolio premiumization, go-to-market initiatives, brand awareness, cost optimization techniques, and innovative launches through its Crompton 2.0 strategy. Given the company’s strong market position, we believe the strategy will drive performance. Therefore, we upgrade our rating on the stock to BUY, with a revised target price of Rs. 362 based on 35x FY25E adjusted earnings per share (EPS).

Flat topline led by mixed segment performance

Revenue was flat YoY at Rs.1,877cr in Q1FY24 (vs. Rs.1,863cr in Q1FY23). However, segment-wise, electric consumer durables’ revenue grew 6.1% YoY, led by growth in premium fans and appliances. In fact, the share of premium fans in Crompton’s fan portfolio mix increased to 28% during the quarter from 24% in Q1FY23. Revenue from lighting products, though, declined 12.7% YoY due to subdued business-to-customer (B2C) demand and price reductions, resulting in lower channel stocking. Also, the revenue of BGAL declined 13.7% YoY. However, strategic channel restructuring between retail and e-commerce led to a double-digit growth in the B2C channel.

Higher advertising and promotion spend shrunk margins

Crompton’s EBITDA fell 15.5% YoY to Rs. 186cr in Q1FY24. EBITDA margin also deteriorated 190 bps YoY to 9.9%, led by higher advertising and promotion cost. Margins were also affected by higher prices for BEE rated fans and price correction in pumps. Reported PAT remained flat YoY at Rs. 122cr vs. Rs. 126cr in Q1FY23.

Key concall highlights

* The management is focused on targeting higher contributions from ceiling lights rather than bulbs and battens, which is expected to drive better growth.

* Crompton also increased its market share in the premium energy efficient brushless direct current fans segment, driven by ceiling fans and table/pedestal/wall fans. The management plans to further increase revenue through premium fans.

* In BGAL, the share of business from new products was ~14% of sales in Q1FY24. The management has identified pilot markets in India’s northern and western regions to further expand the subsidiary’s products.

Valuation

While the company's performance was muted in Q1FY24, the management has seen a pick-up in demand from July 2023 onwards. Further, Crompton 2.0 strategy, which is focused on portfolio premiumization, better go-to-market initiatives, brand awareness, cost optimization, and innovative launches, along with the company’s competitive market position, will be key growth drivers in the medium-to-long term. We, therefore, we upgrade our rating on the stock to BUY , with a revised target price of Rs. 362 based on 35x FY25E adj. EPS.

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