IGI Logo

Expect share gains and cost efficiencies to continue; maintain BUY

Result Highlights

* Quarter summary –Crompton delivered better than expected revenue growth of 48%, with ECD continue to register market leading growth. Gross margins contracted by 81bps yoy on higher commodity prices. Continued cost controls have resulted in EBITDA margin expansion despite contraction in gross margins.

* Growth across segments – ECD continues with its strong growth momentum delivering 61% yoy growth. All the products categories have contributed to strong growth with Fans/Appliances/Pumps growing at 59%/74%/61%. Lighting business saw growth of 15.4% as B2B business continues to face challenges.   

* Market share & channel trends – Fans have registered 1% increase in market share led by higher growth in premium category. E‐com and modern retail channels continues to do well growing 86% in Q4.

* Working capital – Focused initiatives and efficiency measures have led to improvement in working capital cycle and healthy FCF generation. Working capital cycle has improved to 11 days as on Mar’21 vs 23 days as on Mar’20.

Valuation and view –

4Q saw growth across product categories and geographies with West and East returning to normalcy. Rural economy continues to be resilient and has witnessed exponential growth. B2C portfolio continues to see market leading growth with Fans continuing to gain market share, geysers witnessing strong traction and B2C LED lighting registering volume growth of 23%. Commodity headwinds have impacted gross margins, but cost control initiatives have resulted in expanding EBITDA margin. The company will try and alleviate gross margin pressures with a combination of price hikes, continued premiumization and further cost savings.       

Crompton’s improving efficiencies, R&D capabilities, increased brand investments and strong distribution presence across channels with increasing investments in rural areas bodes well for further market share gains and continued industry leading growth. We expect strong growth momentum to continue in B2C followed by gradual recovery in B2B business; furthermore, we expect higher operating leverage and increased efficiencies to drive higher earnings growth. We build in FY21‐23E Revenue/EBITDA/Adj. PAT CAGR of 14%/14%/16% to arrive at our PT of Rs498 valuing the company at 45x FY23EPS and maintain our BUY rating.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

Above views are of the author and not of the website kindly read disclaimer