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Result Synopsis

Crompton has reported lower than estimated revenue growth on account of subdued performance of Butterfly Appliances. ECD revenue grew 21% (in line with estimates). Fans have witnessed growth of 16%, Pumps (+30%) and Appliances (+24%) registering strong growth. Appliance growth has been driven by air-coolers and mixer grinders. Air-cooler delivered volume growth of 68%, supply glitch had resulted in some volume loss for the air-coolers. Company continues to gain share in its key categories of fans, Pumps and Appliances. Margins in ECD stood at 15% expansion of 227bps yoy despite higher A&P spends. Lighting revenue growth was impacted as company has stopped selling conventional lighting and there has been price erosion in LED lights, B2B is segment saw robust growth. As far as Butterfly appliances is concerned Crompton is implementing corrective action and expects growth from 2HFY25. CROMPTON has delivered on the growth as well as margin front and management is expecting industry leading growth as it drives premiumization across the product category. Crompton’s 2.0 strategy has started to pay dividends with company gaining market share in its core categories and profitability has started to improve. Crompton would be focusing on growth with improvement in profitability. The company has started to deliver on expectations on consistent basis and should command higher multiple in line with peers. We now increase our target multiple to 45x and reiterate our ADD rating with PT of Rs517. Moreover, company is generating strong cashflows and has now become Net cash company. We believe initiatives taken by CROMPTON of sustained efforts and investments is bearing fruits resulting in market share gains with margins returning to normalcy despite higher A&P spends. We now bake in FY24-26E Revenue/EBITDA/PAT CAGR of 14%/21%/29% and arrive at our PT of Rs 517 valuing the company at 45x FY26EPS and reiterate ADD rating.

Result Highlights

* Quarter Summary – CROMPTON consolidated revenue grew 14% yoy. ECD business delivered strong growth of 21% driven by broad based performance across the product categories. Lighting (+2% yoy) and Butterfly (-18.8% yoy) dragged overall performance.

* Margins – Gross margins has seen improvement of 106bps to 31.9%, while EBITDA margin at 10.9% has improved 97bps despite higher A&P spends which has been commendable. Pricing action has led to gross margin improvement.

* ECD – Strong growth in ECD was driven by broad based growth across product categories. Fans growth has been driven by seasonality and continued momentum in TPW fans, while residential pumps has seen market share gains. The company has strong pipeline of order in solar pumps as well. On the Appliances side Air-coolers and mixer grinders continues to do well

* Lighting – Price erosion continues to impact B2C lighting, resulting in muted revenue growth despite double digit volume growth. Higher A&P spends impacts margin.

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