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Market share gains to continue in FY22

Crompton continued to report market share gains across segments in FY21. Chief reasons were (1) Higher focus on E-commerce and rural markets. Crompton reported 86% and 117% revenue growth through E-commerce & Modern Trade and Rural channels, respectively and (2) focus on differentiated launches. While there is steep input inflation, we note Crompton has (1) raised prices to partially pass on inflation and (2) plans to focus on cost saving measures with Project Unnati as well as value engineering. We also expect the inflation to hurt the unorganized sector more than organized players such as Crompton and expect the company to gain market shares even in FY22-23. While we remain structurally positive on the company, current valuations limit the upside. We maintain HOLD with a DCF-based target price of Rs413 (implied P/E 36x FY23E).

Q4FY21 performance:

Crompton reported revenue, EBITDA and PAT growth of 48.3%, 61.4% and 144%, respectively, YoY. Lighting and Electrical Consumer durables reported revenue growth of 15.4% and 61%, respectively. We believe (1) market share gains from smaller/ unorganized players, (2) higher revenues from Ecommerce and rural markets and (3) differentiated product launches were chief reasons for higher revenue growth. Gross margin declined 81bps but EBITDA margin expanded 122bps due to cost saving initiatives and improvement in revenue mix.

Segment-wise performance:

Fans, Pumps and Appliances reported revenue growth of 59%, 61% and 74%, respectively. Revenue growth rates of sub-segments of Appliances are as follows: Air-coolers-74%, Geysers-87%, Mixer grinders-81%, and Iron- 86%. The company also had strong market shares in key segments at end of FY21 as follows Fans-27%, Pumps-28%, B2C lighting-8-10%, Water heaters 15%. Market shares in Mixer grinders and air coolers are in single digits.

Inflation in input prices:

Prices of key raw materials such as copper, aluminum, steel and HDPE have increased 20-40% YoY. While the company has raised prices in H2FY21 and also initiated cost saving measures, we believe it may need to raise prices again to maintain margins in FY22.

Investments in E-commerce and Rural markets:

Crompton stepped up its investments in E-commerce and rural markets in FY21. The sales via E-commerce and Modern trade are up 86% YoY. Rural sales are up 117%, YoY.

Maintain HOLD:

We model Crompton to report PAT CAGR of 7.5% over FY21- FY23E and RoE to be upwards of 30% over FY22-23. We remain positive on the company’s business model due to its competitive advantages and growth opportunities. Maintain HOLD with DCF-based TP of Rs413 (implied P/E 36x FY23E).

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