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Strong growth momentum in ECD continues

Lighting segment sustaining double-digit margin

* CROMPTON’s topline came in 12% higher than our estimates. The beat was driven by higher revenue growth in the ECD segment, with growth across Fans, Pumps, and Appliances. Margin in the Lighting segment continued to revive and stood at double-digits for the second consecutive quarter, thus indicating sustainability. It gained market share in Fans and Appliances, and continued its volume growth in the B2C Lighting category (+13% YoY).

* The management continues to deliver on our investment thesis (read here). In spite of commodity headwinds, CROMPTON has been able to maintain gross margin. It has raised prices by 5-8% across categories in Jan’21, which should help mitigate margin risks further.

* Its Balance Sheet has improved further, with a net cash position of INR8.1b (v/s INR7.5b in 1HFY21). Efficient working capital management has led to strong cash conversion, with FCF at INR2.3b in 3QFY21 (v/s INR1.1b in 3QFY20). Incorporating strong 3QFY21 performance, we have increased our FY21E/FY22E/FY23E EPS by 8%/10%/8%. Maintain Buy with a higher TP of INR485 per share (40x FY23E EPS).

Beat across all parameters

* Revenue grew 24% YoY to INR13.2b, 10% ahead of our expectation. EBITDA grew 43% YoY to INR2b, 11% ahead of our expectation. EBITDA margin expanded 200bp YoY to 14.8%. Employee cost jumped 20% YoY to INR929m and constituted 7% (3QFY20: 7.2%) of sales. Adjusted PAT grew 42% to INR1.5b, 12% ahead of our expectation.

* Segmental snapshot: a) ECD revenue grew strongly (32% YoY) to INR13.2b, 18% ahead of our expectation. PBIT margin came in at 19.8% (flat YoY). b) Lighting revenue was flat YoY at INR2.8b. PBIT margin expanded to 11.6%, the second consecutive quarter of double-digit margin. B2C LED lighting business continues to register improved volume growth, with corresponding value growth. Lighting B2B activity remained challenging due to slow order pick up from institutional clients.

Key highlights from the management commentary

* Fans: The segment grew 36% YoY, with premium Fans growing 51% YoY. Super premium Fans continued to gain traction. CROMPTON gained 1% market share on a YTD basis. It has increased its reach in Fans by 3% on a YTD basis. Pumps grew 19% YoY (largely volume-led growth), with Residential Pumps growing 22%/25% YoY in volume/value terms.

* Appliances grew by 45% YoY. Water heater grew 50% YoY in value terms and is rapidly moving towards a leadership position.

* A 5-8% price increase was undertaken across categories effective 1st Jan’21. Other brands too raised prices from mid Dec’20 till mid Jan’21.

* LED Lighting witnessed volume/value growth of ~13% each. The LED B2C business has helped maintain double-digit margin.

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