Add Crompton Greaves Consumer Electricals Ltd For Target Rs.295 - Centrum Broking
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In-line performance amid demand softness
CROMPTON’s consolidated sales grew 5% YoY to Rs17.8bn, in-line with our estimate. ECD sales grew 17% YoY to Rs12.4bn driven by fans (+18%), appliances and pumps. Lighting sales fell 12% YoY to Rs2.4bn due to industry-wide challenges in B2C demand and LED price erosion. Consolidated gross margin fell 80bps YoY to 31.3%. EBITDA fell 10% YoY to Rs1.7bn, leading to margin decline of 160bps YoY to 9.8%, in-line with our estimate. Margin was affected due to continued investments towards brand building, capability building, A&P spends (up 31% YoY) and GTM. Lower other income (down 19% YoY to Rs149mn) and higher tax rate at 25.7% (vs. 14.7% YoY) led to 23% YoY fall in PAT at Rs972mn, 10% below our estimate. Consumer demand continues to remain moderate while some seasonal uptick is seen for festive sales. CROMPTON is focusing on premiumization and better product mix, yet continuous investments towards brand building will limit margin recovery. We trim our FY24E/25E earnings estimates by 15%/12% and roll over valuations to Sept’25. Retain ADD rating with a revised target price of Rs295 (Rs300 earlier) based on unchanged P/E of 25x H1FY26E EPS.
Lighting: Revenue declines amid weak demand; margin improve with cost measures
Lighting sales fell 12% YoY to Rs2.4bn due to weak B2C demand and LED price reduction in battens and lamps. B2B sales were flattish. However, cost optimization initiatives and favorable product mix led to 250bps YoY expansion in EBIT margin to 10.5%. Crompton is focusing on creating a robust product portfolio and enhancing distribution reach.
Butterfly: Shift of festive season affects sales; cost measures aided margins expansion
Butterfly sales fell 17% YoY to Rs3.1bn while EBIT margin fell 440bps YoY to 6.6%, mainly due to shift in Diwali festive sales to Q3FY24. Gross margin grew 170bps YoY to 37% led by value engineering, and cost control initiatives. Retail and modern trade continues to grow. 8-10% cost synergies are planned in warehousing, logistics and after-sales service.
Maintain ADD, with a revised target price of Rs295
We expect CROMPTON to report revenue CAGR of 14.2% and EPS CAGR of 21% (on low base) over FY23-26E. Growth will be led by premium fans and scale up in B2C lighting, appliances and Butterfly. Sustainable level of ECD margin is a key variable/risk.
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